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Recent changes in political climates, legal reforms and social norms have had varying (and sometimes conflicting) impacts on how companies are run; however, they have all contributed to a growing demand that companies expand their focus beyond shareholder value creation.

Environmental, social and governance concerns dominate shareholder proposals and engagement efforts, and discussions of corporate…

The SEC is taking renewed aim at earnings management, and this time it’s not just improper revenue recognition.

Both in its recent enforcement order against Marvell Technology Group – imposing s $5.5 million fine and a cease-and-desist order – and in its on-going action against Under Armour,[1] the SEC has focused on what, anecdotally, is not a terribly uncommon practice – accelerating (or “pulling in”) sales from a future quarter to the present in order to “close the gap between actual and forecasted revenue.”[2]  In both cases, the schemes consisted of offering various incentives, such as “price rebates, discounted prices, free products, and extended payment terms”[3] to entice customers to accept products in the current quarter that they would not need until the next.  In an environment of declining sales, these inorganic efforts to meet earnings numbers allegedly misled the market about the direction of the business.
Continue Reading SEC Cracks Down on Earnings Management

A week after Glass Lewis issued its 2020 proxy voting guidelines,[1] Institutional Shareholder Services (ISS) released its final updates to its 2020 proxy voting policies.  The updated policies will be applied to shareholder meetings beginning on February 1, 2020, and the changes to U.S. polices are summarized below.
Continue Reading ISS Updates its 2020 Proxy Voting Policies

Glass Lewis recently released its 2020 proxy voting guidelines and shareholder initiatives.[1]  The following is a summary of Glass Lewis’ proposed changes and updates for 2020.  Most significantly, the updated guidelines reflect a response to the Securities and Exchange Commission’s recent announcement that it may decline to take a view or may respond orally to no-action requests for shareholder proposals under Rule 14a-8 of the Exchange Act.[2]  Starting in 2020, Glass Lewis generally will recommend a vote against members of a company’s governance committee if a company omits a shareholder proposal from its proxy statement without evidence of receiving no-action relief from the SEC, as described in more detail below.
Continue Reading Glass Lewis Updates Its 2020 Proxy Voting Guidelines

Vice Chancellor Slights, of the Delaware Court of Chancery, included a slightly self-effacing, and only slightly humorous, note in his recent opinion in a fiduciary claim against the directors of Tesla, Inc., to the effect that the defendants have reason to believe that they drew the wrong judge in the case.  The case relates to the 2018 incentive compensation award to Tesla’s CEO, Elon Musk, that caps out at about $55 billion (that “b” is not a typo).  The footnote concerns, in part, Vice Chancellor Slights’ determination, in a separate recent claim alleging fiduciary breaches by the Tesla board, that members of Tesla’s board were not independent.[1]
Continue Reading Update on Director Independence

The CEOs of 150 major US public companies recently pledged to act for all of their “stakeholders” – customers, employees, suppliers, communities and yes, even stockholders.[1] Much commentary ensued. But before we get too excited about whether these CEOs are grasping the mantle of government to act on behalf of the citizenry and other people who aren’t paying them, there is the prior question of whether, as a matter of Delaware law, they can.
Continue Reading Outlaws of the Roundtable? Adopting a Long-term Value Bylaw

Monday’s Business Roundtable Statement on the Purpose of a Corporation is significant, mostly because it opens the door for more discussion of the idea of “corporate purpose”.  While there are many ways that conversation could go, there are good reasons to believe the discussion will lead to a shift in corporate governance towards more authority and responsibility for corporate boards.  Specifically, boards will be expected to lead on corporate social responsibility issues.
Continue Reading The Purposes of a Corporation and the Role of the Board

Institutional investors are howling for US public companies to focus more on the long-term.[1]  This is unsurprising. Long-term focused companies produce significantly better results over time, reporting far greater revenue growth with less volatility, far higher levels of economic profit, and greater total return to shareholders.[2] So if you are holding stock for a long time, a long-term focus for your portfolio companies is critical.
Continue Reading Finding Friends is Hard: Long-Term Investors’ Relationship with Proxy Advisors, Activists and Long-Term Private Equity Funds

Last week, the Delaware Supreme Court reversed the Delaware Court of Chancery’s dismissal of a Caremark claim[1] that arose out of the Blue Bell ice cream listeria outbreak in the mid-2010s.  See Marchand v. Barnhill, No. 533, 2018 (Del. June 18, 2019).  The Delaware Supreme Court’s opinion in this closely watched case provides useful guidance to directors on the proper role of the board in overseeing risk management.
Continue Reading Not So Sweet: Delaware Supreme Court Revives Caremark Claim, Provides Guidance On Directors’ Oversight Duties

Recently, Vanguard updated its Vanguard Fund proxy voting guidelines, disclosing a proxy voting policy relating to what Vanguard considers to be overboarded directors, based on the evolving role of directors and its assessment of the time and energy required to effectively fulfill director responsibilities. 
Continue Reading How Many Directorships is Too Many? Vanguard’s Evolving View