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Corporate Governance

ISS Releases 2018-2019 Policy Survey Results

Institutional Shareholder Services received 669 responses (from 638 different organizations, predominantly North American) to their annual Governance Principles Survey – which seeks input to guide future policy on both high-level topical corporate governance areas and more granular international policy applications from investors, issuers, boards and other relevant parties.

Among the key-findings this year from the high-level governance aspect:

Auditors and Audit Committees:  When evaluating the auditor, investor and non-investor respondents agreed that past regulatory fines stemming from weak practices or accounting errors, and the independence of the audit partner with company management are top of list.

Director Accountability and Track Records: Investors and non-investors agreed the premier director oversight issue was risk oversight – more specifically fraud and other types of corporate malfeasance.

Gender Diversity on Boards: Investors and non-investors concurred that the absence of women on the board could be symptomatic of poor recruiting practices and could potentially lead to increased management or board engagement, support for shareholder resolutions to increasing diversity and opposition to chair of the Nom. & Gov. committee.

In a recent Rivel study, North American and, especially, European investors drove home the point that exhibiting sufficient board diversity aids board effectiveness and helps shape strategic flexibility – especially at companies with a diverse range of global stakeholders and markets.

One-Share, One-Vote Principle: Investors overwhelmingly reacted positively (92% – Yes) when ISS proposed a hypothetical adjusted vote result at uneven voting dual class companies – leveling the votes as if they were all one vote per share. A major consideration for the use of this analysis is the sunset provision. When asked about the appropriate sunset horizon on the voting right provision, 41% of investors answered “It depends”, 25% responded one to three years and 21% responded four to six years.

CalPERS is Say(ing No) on Pay in 2018

The California Public Employees’ Retirement System (CalPERS) is putting its foot down when assessing executive compensation packages in 2018. The US’ largest state pension fund voted against nearly half of executive compensation programs (43%) this past year—amounting to over 900 US companies. One of major catalysts in their increased opposition from last year’s—CalPERS opposed only 18% of executive compensation packages in 2017—is scrutiny on returning value to shareholders over a longer-term horizon. In an interview with Bloomberg, CalPERS’ Simiso Nzima pointed out, “Over one, two or three years, performance might look good, but over 10 years, the relationship sometimes just isn’t there.”

Besides the considerable opposition posed to Say on Pay, CalPERS is zeroing in on harassment/misconduct and board diversity. Just as we’ve seen the #MeToo movement affecting management teams in the mainstream news, CalPERS’ recently updated governance guidelines call for increased disclosure measures and oversight to prevent harassment and other misconduct. In addition, they voted against 438 directors at 141 companies where there were concerns about a lack of diversity in the boardroom.

Institutional Holders at Tesla like Musk in the Driver’s Seat

Tesla’s CEO and Chair, Elon Musk, has been in the hot seat after a thread of eyebrow raising actions, tweets and abrupt company resignations in recent months. With investor N-PX filings aggregating, TSLA’s three largest institutional holders, wielding 21.3% of the votes (on top of Musk’s 19.8%, reported on June 30th) voted against the proposal calling for the board’s Chair to be SEC “independent.” The shareholder resolution garnered 16% support from investors—well below the 31% average of like proposals submitted at Russell 3000 companies this past proxy season. Notably, this was the only one of its kind this year to be voted on at a company where an insider (also the CEO/Chair) held between 20% and 50% of voting share control.

General research regarding the Independent Chair shareholder proposal can currently be accessed by all clients on the Governance gateway. For more information or to receive a copy of this report, contact Managing Director, Dave M. Bobker at

Norway’s Sovereign Wealth Arm Takes Aim at Ocean Sustainability

Norges Bank Inv. Mgmt., Norway’s sovereign wealth fund, has announced its interest in curbing the pollution of oceans through its investment decisions. Addressing an issue near and dear to Norway’s Prime Minister and historical economy, the $676 B fund is alerting portfolio companies, primarily in ocean-based industries (shipping, offshore oil and gas, offshore wind, wild-catch fisheries, aquaculture and marine tourism among others) to follow stricter guidelines on polluting the ocean (acknowledging the UN Convention on the Law of the Sea) and incorporating sustainability efforts into their businesses (cue the UN Sustainable Development Goal #14: Life Below Water). Therein, the asset manager seeks to engage with the boards of relevant companies to usher in integration of strategic policies, goals and enhanced disclosure surrounding ocean sustainability.

Bill Requiring Female Representation Passes through California Assembly

California’s board gender quota bill, SB 826, requiring publicly traded companies to have a minimum of one woman on the board by the end of 2019, was amended in assembly last week. Changes were made on the penalties issued on non-compliant companies: $100,000 fine for those that miss the deadline for California Secretary of State’s board member gender information with the pursuant to future-adopted regulations, and a $300,000 fine for a second or subsequent violation. That board diversity threshold would increase from 2022, to two women for boards with five or fewer directors, or three women for boards of six or more. California’s proposition would become the first regulatory mandate in the US. Abroad, countries in the EU have implemented these board quotas.

Major catalysts of this movement include large US pension funds and institutional investors, like CalPERS/CalSTRS and SSGA (who’ve traditionally advocated for increasing female representation on boards), academic research from MSCI and Credit Suisse showing correlation between greater board gender diversity and financial performance, and the realizations of financial impacts stemming from reputational risks and social forces, such as the #MeToo campaign and recent high-profile gender pay discrimination litigation at Alphabet and Oracle.

In a recent Rivel Corporate Governance Council study, North American and, even more so, European investors opined that exhibiting sufficient board diversity aids board effectiveness and helps shape strategic flexibility.