As a result of the SEC’s most recent Staff Legal Bulletin (“SLB”), shareholder proposals that focus on a “significant social policy” will not be excludable simply because the policy issue is not, in fact, “significant” to the company receiving the proposal. The SEC has decided it will no longer “focus on the nexus between a policy issue and the company.” Previously, shareholder proposals that did not raise a “policy issue of significance for the company” were excludable under the “ordinary course of business” exception to Rule 14a-8. The new Staff Legal Bulletin is a departure from past … Read more
Just before year end, the Department of Labor finalized its new rules on ESG investing and voting for retirement and pension funds. The rules sharply restrict the ability of the fiduciaries of retirement and pension funds to make investments based on ESG factors or to vote shares held by such funds in favor of ESG issues. The rules are unlikely to prove popular with the Biden administration, but regardless of how long they survive, the rules currently apply to trillions of dollars of investments and raise interesting questions about who will ultimately control the placement of a huge amount of … Read more
ISS and Glass Lewis have arrogated to themselves the power to make law, promulgating a civil code of astounding breadth and detail, ruling over decisions on board composition, director qualifications, term limits, majority voting standards, executive compensation, capital structure, poison pills, staggered boards, the advisability of mergers, spin-offs and recapitalizations, and, increasingly, ESG policies ranging from animal welfare to climate change, diversity, data security and political activities. They enforce this civil code by advising their clients, institutional investors with huge, varied and increasingly concentrated holdings across the economy, to vote against proposals or against directors if any aspect of the … Read more
Institutional investors are howling for US public companies to focus more on the long-term. 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. So if you are holding stock for a long time, a long-term focus for your portfolio companies is critical.
And as every new dollar flows from actively managed funds to passive strategies, reducing the ability of funds to trade nimbly in and out of stocks, long-term stewardship naturally emerges as … Read more
Beyond the cacophonous din of voices calling for companies to serve a “social purpose,” adopt a variety of governance proposals, achieve quarterly performance targets, and listen to (and indeed even “think like”) activists, there is now, most promisingly, a call from genuine long term shareholders for public companies to articulate and pursue a long term strategy. This latest shareholder demand directly supports the achievement of traditional corporate purposes, and seems, more than any other shareholder demand of the last decade, the most likely to increase shareholder value. Yet in current circumstances, where all corporate defenses have been stripped in … Read more