Taking only $1 in compensation has become something of a point of pride in Silicon Valley.”The dollar salary really for them is meant to signify that they have large stakes in their company. The value they’re going to receive — the compensation they’ll earn — is coming solely from their stock,” Aaron Boyd, director of governance for Equilar, a company that researches executive compensation, explains to Forbes.”
You’re not going to question whether or not Larry Page is interested in growing a company’s stock as a shareholder. As one of the largest shareholders, he’s all in.”
A group of institutional investors is calling on the House of Representatives to oppose the Financial Choice Act saying it will undercut shareholder rights.The Council of Institutional Investors, an advocacy group, sent a letter to every House member Wednesday urging them to oppose the bill. It was signed by 53 pensions, unions and other institutions that collectively hold more than $4 trillion in assets.
“The Choice act threatens fundamental investor protections that keep U.S. markets safe, fair and vibrant,” said Amy Borrus, deputy director at CII. “It’s like taking seatbelts out of cars, it’s just too risky.”
A new study by Robert Anderson IV finds that choice of law firm plays a significant role in the decision to incorporate in Delaware.
Dr. Anderson examined regulatory filings related to raising private capital, and concluded that it is all about the company’s choice of law firm near the time of founding.He found that some larger, elite law firms may steer businesses toward a Delaware incorporation with their own needs in mind, rather than because of any superior quality of the state’s legal system or the companies’ needs. Perhaps, he speculates, it is easier and less expensive for them to focus on Delaware, rather than having to master the laws of many states.In contrast, other firms—such as smaller, regional firms—are likely inherently focused on their state’s law, and therefore might be expected to disproportionately recommend in-state incorporation, he says.
Because it is difficult for companies to reincorporate, there is little incentive for states to compete for incorporation business and the franchise fees it generates by offering robust alternatives to Delaware law, Dr. Anderson says.
“The consequence is a stagnant menu of relatively homogeneous state corporate law with little innovation, even though innovation might benefit shareholders,” he says.
Dr. Anderson’s research doesn’t take into account various factors that prior research has shown to influence incorporation decisions, such as the antitakeover statutes of a business’s state of headquarters, says Lucian Bebchuk, the James Barr professor of law, economics and finance at Harvard Law School and the director of its program on corporate governance.Delaware manages to snare more than half of the incorporations of U.S. public companies.
A study by Dr. Bebchuk and Alma Cohen, a professor of empirical practice at Harvard Law School, found that companies are more likely to incorporate in Delaware rather than their state of headquarters when they have more employees or sales, when they’re based in the Northeast or South or when their state of headquarters has fewer antitakeover statutes.But Dr. Anderson says he’s confident that weighing states’ antitakeover statutes wouldn’t undermine his results.
Investors today sent a strong signal regarding their growing concerns about climate risk with a majority vote at PPL Corp. in support of a shareholder proposal calling on the company to conduct two degree scenario analysis on its full portfolio of power generation assets and planned capital expenditures through 2040. The proposal calls on the company’s board and management to analyze the company’s business plans and practices against a range of scenarios including one where global temperature rise is limited to no more than 2 degrees Celsius, consistent with the global transition to a new clean energy economy.
“Investors understand that the transition to clean energy and a lower carbon economy is inevitable and well underway. We need to know what companies are doing to adapt and succeed in this new environment,” said New York State Comptroller Thomas DiNapoli who filed the resolution, which also was supported by CalPERS among others. “We need to know that the company has a comprehensive strategy, not just a piecemeal approach. We look forward to working with PPL to make progress.” The New York State Comptroller is also one of the lead filers of a similar resolution that will go to a vote at ExxonMobil on May 31.
VEA Vice Chair Nell Minow writes in Huff Post:
1. ExxonMobil’s documented policy of preventing investors from engaging directly with members of its board to discuss company strategy, financial performance, risks and opportunities, and other topics germane to the board. This antiquated policy is out of step with widely recognized best practices for corporate governance and undercuts the board’s ability to gain valuable outside advice and perspectives. [Note: for several days last week the company’s website interface for contacting board members was not functioning and a call to inquire about it was met with a recording explaining due to technical difficulties they were unable to answer the phone, or, apparently, take messages. They did not respond to an email inquiry about these issues, though the website function has been fixed.]
2. Lack of clear and transparent succession planning for retiring board members, particularly given the mismatches we see between the skills and orientation of outgoing directors and the strategic challenges facing the company. For example, ExxonMobil’s outgoing Audit Committee chair lacked relevant financial expertise during a time of regulatory scrutiny and business model transformation, and though his and other board members’ retirement dates were known in advance, no replacements have been nominated for the 2017 annual shareholder meeting nor has the company discussed plans for the directors’ replacements.
3. Board compensation practices that may create perverse incentives as directors approach retirement. ExxonMobil provides that most director equity-based pay does not vest until the mandatory retirement age of 72, an unusual proviso, under which directors can potentially forfeit what can amount to millions of dollars in pay if they leave the board before retirement. As they approach retirement, directors’ time until payout shortens while the value of their equity compensation increases – a dynamic that can compromise director independence and objectivity, as directors nearing retirement may not voice dissenting opinions for fear of putting their impending payout at risk of forfeiture.
Five of the largest US utilities are unprepared for the economic risks of climate change, according to a new report by the 50/50 Climate Project and The Sustainable Investments Institute (Si2).
Duke Energy, Southern, FirstEnergy, DTE Energy and American Electric Power are not pursuing business strategies consistent with the scientific realities of climate change and the accompanying financial, strategic, operational and competitive risks.
PwC’s Strategy& released its annual CEO Success Study on Sunday, May 14, 2017. This year’s study explores the rise in the number of CEOs at the world’s 2,500 largest companies who were dismissed from their posts due to ethical lapses.
As companies like FOX, United, Wells Fargo, Yahoo and VW are scrutinized for corporate wrongdoing, the study found that the share of CEOs forced out of their jobs due to a scandal increased globally– with a notably dramatic increase at companies in the U.S. and Canada. Specifically, the report found:
- Forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007–11 to 5.3 percent in 2012–16 — a 36 percent increase. On a regional basis, the share of all successions attributable to ethical lapses rose sharply in the U.S. and Canada (from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16), in Western Europe (from 4.2 percent to 5.9 percent), and in the BRIC countries (from 3.6 percent to 8.8 percent).
- In the U.S. and Canada, forced turnovers for ethical lapses at these companies increased from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16 — a 102 percent increase
- The share of incoming women CEOs increased globally to 3.6 percent, rebounding from the previous year’s low point of 2.8 percent
Per-Ola Karlsson, DeAnne Aguirre, Kristin Rivera, and Gary L. Neilson, who prepared the report, identified increased public scrutiny and pressure, the rapidity and influence of digital-era feedback, and post-financial crisis regulatory requirements as primary factors in the increase of CEO departures for ethical concerns. The report does not examine the impact of an ethics-based departure on compensation or the correlation between board or shareholder composition and likelihood of such a termination.
In an interview, the authors explained their definition of “ethical lapse” and discussed the impact of social media and the difference between US/Canada CEOs and those in other countries.
What constitutes an ethical lapse for purposes of this study?
An ethical lapse might include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions. In the context of dismissals, we define an ethical lapse as a scandal or improper conduct by the CEO or other employees that results in the removal of the CEO.
It should be noted that in many cases, even though the CEO was ultimately held responsible, it was other employees who committed ethical lapses.
Are CEOs replaced for ethical lapses most likely to be insiders or those brought in from outside?
We found that there was no statistical difference in the dismissal rate for ethical lapses between insiders and outsiders. We did find that CEOs forced out of office for ethical lapses had longer median tenures than CEOs forced out for other reasons (6.5 years compared to 4.8). One possible explanation is that companies with long-serving CEOs tend to be those that have been achieving above-average financial results, and thus may attract less shareholder and media scrutiny than companies that have been performing poorly. Another is that when an organization’s leadership is static, employees may begin to see ethical lapses as normal, and allegations of misconduct are less likely to be raised, investigated, or acted on.
How has social media put pressure on boards to replace CEOs?
Today, social media plays a large role in not only disseminating negative or embarrassing information about a company, but also allows customers and other parties to directly voice their displeasure to the company and its executives. Often times, the social media backlash becomes a story in itself beyond the negative or embarrassing information which puts extra pressure on boards who may feel they need to implement change in order to take the company out of the negative spotlight.
How does the US compare to other countries in the rates and reasons for CEO dismissal?
In 2016, The U.S./Canada has a CEO turnover rate of 14.2% compared to 15.3% in Western Europe, 15.5% in Japan, and 14.9% globally. Removing, M&A 29% of turnovers in the U.S./Canada were forced compared to 38% in Western Europe, 13% in Japan, and 29% globally. Historically the U.S./Canada has had a lower CEO turnover rate than other regions which is likely due to the fact that companies in the U.S./Canada have more developed governance and succession practices.
In addition, we note in the study this year that companies in the U.S./Canada have the lowest incidence of ethical lapses. Similar to the point about governance and succession practices, companies in the U.S./Canada tend to have more stringent regulation and internal controls than other regions.
What did your study show about women CEOs?
Globally, companies appointed 12 women CEOs in 2016—3.6 percent of the incoming class. This marks a return of the slow-moving trend towards greater diversity—and a recovery from 2015’s recent low point of 2.8 percent.
The share of incoming women CEOs was highest in the U.S. and Canada—rebounding to 5.7% after falling for the previous three years.
We stand by our belief that as much as a third of incoming CEOs around the world will be female. Some of the trends we cited in the 2014 study that supported this findings were: increasing amounts of women on boards, increasing women undergraduates and MBAs, and changing social norms.
What role does shareholder pressure play in replacement of CEOs?
Boards have become much more independent and very infrequently in a position of deferring to the imperial CEO of yesterday. They listen. They listen to shareholders, regulators, other managers. Shareholders don’t want distractions. Our analysis has shown forced CEO turnovers (for ethical lapses or other reasons) are hugely expensive. We found that, on average, forced turnovers cause a hit of $1.8 billion in shareholder value compared to planned transitions. So, by getting ahead of problems, even when they happen, Boards have the incentive to deal with…. ideally in a “planned” way, even if the change wasn’t part of the individual CEO’s plans!
Occidental Petroleum Corp.’s shareholders approved a proposal Friday to require the oil and gas exploration company to report on the business impacts of climate change, marking the first time such a proposal has passed over the board’s objections.
The resolution, initiated by a group of investors including the California Public Employees’ Retirement System, received more than 50 percent of the votes at Occidental’s shareholder meeting in Houston on Friday, according to spokesmen for the company and Calpers. Occidental didn’t provide the tally, but said the exact figures will be submitted to the Securities and Exchange Commission in coming days.
“The board acknowledges the shareholders support for this proposal,” Eugene L. Batchelder, chairman of the board for Occidental, said in an e-mailed statement Friday after the vote. “We look forward to continuing our shareholder engagement on the topic and providing additional disclosure about the company’s assessment and management of climate-related risks and opportunities.”
The resolution came close to majority support last year. A crucial factor in exceeding the 50 percent mark was Blackrock, a major shareholder, who switched from voting against the proposal last year to voting for it. One reason might be the concerns that the new administration’s opposition to environmental regulation may mean that investors can no longer rely on the government to take care of the problem.
“The passing of this resolution is a sign of progress. It is a first in the United States. The vote at Occidental demonstrates an understanding among shareowners that climate change reporting is an essential element to corporate governance. I believe that we will see many more companies move in this direction. This vote shows that investors are serious about understanding climate risk.” – Anne Simpson, CalPERS Investment Director, Sustainability
Asset manager BlackRock Inc on Friday said it voted in favor of a shareholder proposal calling on Occidental Petroleum to report on the impact climate change could have on the energy company’s business, helping it to pass.The comments by BlackRock, the world’s largest asset manager, also marked a more detailed level of explanation than it has traditionally offered for its proxy votes, which could make it even more influential.
BlackRock, a major Occidental investor, last year had opposed a similar shareholder resolution, which failed to get a majority of support from investors.In a statement sent by a BlackRock spokesman explaining the switch, the fund firm said that despite talks with Occidental, “we remain concerned about the lack of discernable improvements to the company’s reporting practices” on climate issues.
An Occidental spokesman said via e-mail the shareholder resolution passed at the company’s annual meeting, held in Houston, Texas on Friday.”The board acknowledges the shareholders’ support for this proposal,” Occidental Chairman Eugene Batchelder said in a statement e-mailed by a company spokesman. “We look forward to continuing our shareholder engagement on the topic and providing additional disclosure about the Company’s assessment and management of climate-related risks and opportunities.”
“Abacus: Small Enough to Jail” is a new documentary from “Hoop Dreams” director Steve James about a tiny, family-run Chinatown bank that was the only financial institution indicted following the financial meltdown. The original 184 indictments issued by the office of New York City District Attorney Cyrus R. Vance, Jr. were reduced to 80 before the trial. Vera and Jill Sung, daughters of the bank’s immigrant founder and vibrant presences in the trial and in the film, said in an interview that their only regret about the documentary is that restrictions on filming in the courtroom meant that they could not include footage of the 80 “not guilty” verdicts being read out at the conclusion of the trial.
The massive financial institutions involved in the meltdown were making so much money with mortgage-based derivatives that they ran out of mortgages to stuff into them. So they started lending money to people who would not otherwise qualify and misrepresented the reliability of the loans and the derivatives they supported. None of these enormous “too big to fail” financial institutions were indicted. But Abacus never made “liar’s loans.” Its repayment rate is close to 100 percent. The government never lost any money and they never required a bailout. And yet, the tiny five-branch bank and its executives were tried on criminal charges.
As the film shows, Abacus founder Tom Sung was already a very successful lawyer and businessman when he was inspired by “It’s a Wonderful Life” to become the George Bailey of the mostly-immigrant Chinese community. Traditional banks were happy to take their deposits but reluctant to loan money to them. He named the bank after the ancient calculator that has symbolic importance in Chinese culture and he made sure that the staff spoke the customers’ language.
Tom Sung’s daughter Jill, president of the bank, became suspicious of an employee who turned out to be extorting side payments from bank customers and immediately informed the authorities. The ensuing investigation uncovered irregularities in the paperwork, mostly because the Chinatown community was reluctant to provide full documentation in their loan requests. But there were no irregularities in the risk assessments or payouts. Jill said in our interview, “The loans that were actually brought in the indictment all are either still performing or the borrowers paid them off.”
Then why bring a case that was evidently inadequate that 80 charges produced not even a single guilty verdict? Jill said it was a combination of three factors. “You have a DA who was politically ambitious and he’s in the financial capital of the world,” there was pressure to respond to the sub-prime financial meltdown, and racism: “if it was not the primary motivator it certainly colored the whole prosecution and how his team approached the weaknesses in the community.” Jill’s sister Vera, a director of the bank, added, “It’s a subtle form of intimidation but not so subtle, coming to your house at six in the morning, knocking on your door, gun at their sides, and saying ‘Hi, we would like to interview you. Could you please come down?’ For a lot of people who do not speak English and who were not born here and who comes from a country that is a police state, that is very intimidating and they will do or say anything to appear cooperative.” “They said, ‘Don’t forget, we can send you back.’ The tactics they used were clearly intended to intimidate,” Jill said. “The tactics they used was clearly targeted to fears that they knew existed in the community and they use that.”
This was even more evident in the highly unusual televised perp walk, with the bank’s employees handcuffed together. “There was no concern of security,” Vera said. “Why are their chains exposed? Usually people put their coats over them, but that didn’t happen here. Whoever has seen that, it will stay with them and they will think, ‘Oh, they’re all guilty.’”
The government, in a highly unusual move, rescinded the plea agreement with their star witness, the employee Jill had identified as stealing from the bank and its customers, because his testimony was so thoroughly discredited.
But the movie is more than the story of a business or an unjust prosecution. It is ultimately the story of a family and their devotion to each other and to their community. Jill and Vera spoke about what they did to find moments of peace in the midst of the pressure of the trial. For Jill, it was her family. “I was able to shut it down when I was home.” In the courtroom, she took notes to help her keep her composure. Vera did yoga. “It’s very hard when you’re involved in an event like this. It just subsumes everything, your sleep, your dreams. You’re constantly thinking about it, you’re constantly thinking about what you’re going to do to prove them wrong or how you can show them they’re thinking wrong. It’s so hard not to let it invade you in that sense. You just have to have off times.”
They were glad to have their story told, first in a New Yorker story by Jiayang Fan, and then in this documentary. And they are glad to be back in business. “It has taken a while because the case went on for five years when we were not able to do the business we wanted to, so it’s taken about a year to rebuild, to establish contacts with contracts, with our counterparties because no one wants to do business with a bank that’s indicted,” Jill said. “We’ve been working to re-establish with our community that we’re here, that nothing is going to happen to us because we survived. You can do a lot more with us now.” They are still trying to be the George Bailey of their community. “We want to make loans to the small businesses and the first-time home buyers,” Jill said. “That’s our mission,” added Vera. “That’s what we want to do. So that’s what we’re doing.”