Across the Board
Nasdaq Board-Diversity Rules Stay in Place—for Now
Nasdaq's push for board diversity targets has survived an initial legal challenge
“Nasdaq’s push to set diversity targets for corporate boards has survived the first round of a legal challenge by conservative groups. The Securities and Exchange Commission acted properly when it allowed Nasdaq to implement its diversity rules, three federal judges said in a ruling Wednesday. The SEC approved the rules in 2021 as the exchange’s regulator. Two right-leaning groups sued the agency, arguing Nasdaq shouldn’t be allowed to implement what they called an illegal racial and gender quota.” WALL STREET JOURNAL
2023 Proxy Season Review
Shareholder support overall is at its lowest level in five years
“Support is lower for management proposals and for shareholder proposals alike. We believe this is due—at least in part—both to a decline in market valuations (support for directors and Say-on-Pay proposals generally tracks stock price movements) and a general decrease in support for ESG proposals because many companies have taken steps to be more proactive and transparent.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Boards Confront Evolving Risks and Pressures During Another Disruptive Year
The evolving risk landscape will continue to elevate certain ESG risks as priority areas for boards
“Amid ongoing volatility, boards are continuing to address an evolving risk landscape and contend with pushback on how environmental, social, and governance (ESG) risk factors should be addressed. While oversight of enterprise risk management is part of the board’s mandate, executing that remit has become a delicate balancing act. As Blackrock CEO Larry Fink wrote in his 2023 letter to investors, many clients ‘want access to data to ensure that material sustainability risk factors that could impact long-term asset returns are incorporated into their investment decisions.’ However, companies have also faced an increase in anti-ESG shareholder proposals.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Rite Aid Files for Bankruptcy Faced with High Debt and Opioid Lawsuits
It also had $750 million in losses for fiscal year 2023 while facing mounting litigation costs
“Debt-laden U.S. drugstore chain Rite Aid (RAD.N) filed for bankruptcy protection late on Sunday and said it would close underperforming stores, sell its pharmacy benefit company Elixir and resolve lawsuits over its sale of addictive opioid medications. Rite Aid, one of the largest U.S. pharmacy retailers, stumbled under its high debt, revenue declines, increased competition, and opioid litigation, according to its court filings…The U.S. government has accused Rite Aid of ignoring "red flags" while filling illegal opioids prescriptions, and the company faces 1,600 other opioid lawsuits from state and local governments, hospitals, and individuals.” REUTERS
What if We Could All Control A.I.?
An experiment at Anthropic offers an interesting prospect for future AI governance
“One of the fiercest debates in Silicon Valley right now is about who should control A.I., and who should make the rules that powerful artificial intelligence systems must follow…Should A.I. be governed by a handful of companies that try their best to make their systems as safe and harmless as possible? Should regulators and politicians step in and build their own guardrails? Or should A.I. models be made open-source and given away freely, so users and developers can choose their own rules? A new experiment by Anthropic, the maker of the chatbot Claude, offers a quirky middle path: What if an A.I. company let a group of ordinary citizens write some rules, and trained a chatbot to follow them?” THE NEW YORK TIMES
AI Oversight: Bridging Technology and Governance
Approaching AI from the perspective of your company’s mission and values can align strategic decisions
“The exponential growth and availability of artificial intelligence (AI) across every sector is compelling boards to recalibrate their roles in providing oversight on strategy and risk management. While disruptive, this new dynamic presents a mosaic of opportunities for growth and promises significant impact across all stakeholders — customers, communities, employees, and even shareholders. The key to unlocking strategic opportunities to drive value using AI, and to effectively manage the risks it presents, is recognizing that although AI is technology, how we address and use it is profoundly human…AI presents strategic opportunities, risks of adoption, ethical dilemmas, intellectual property concerns, and privacy challenges.” GRANT THORNTON
Singapore and US Sync up on AI Governance
Singapore has been a global leader and early adopter in its approach to AI governance
“Singapore and the US have synced up their respective artificial intelligence (AI) frameworks to ease compliance and will continue to work together to drive ‘safe, trustworthy, and responsible’ AI innovation. Singapore's Infocomm Media Development Authority (IMDA) and the US National Institute of Standards and Technology (NIST) completed the joint mapping exercise between IMDA's AI Verify and NIST's AI RMF. The alignment aims to harmonize international AI governance frameworks and reduce the cost of meeting multiple requirements.” ZDNET
Investors Press U.S. Boards To Separate Chair, CEO Roles
One in four S&P 500 companies chaired by a non-independent director received a shareholder proposal calling for change
“The first half of 2023 saw a significant increase in the number of shareholder proposals calling for an independent board chair that went to a vote. Support levels for such proposals increased slightly, contrasting with a decline in support for shareholder proposals that went to a vote overall. Looking at independent chair proposals over the last 10 years, we found that they receive significant investor support but almost never gain a majority. Further, we found a correlation between the trends for combined chair-CEO roles and the correlation with shareholder proposals calling for independent chairs.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Study: One-Third of Boards Lack an Onboarding Process for First-Time Directors
Lack of onboarding could contribute to a perception that first-time directors are unengaged
“As organizations strive for sustainability and innovation, the selection and integration of first-time directors play a pivotal role in shaping a company’s future. First-time directors are expected to contribute and play a role in a board’s success. However, 23% of survey respondents expressed concerns that their first-time directors are not engaged and do not contribute meaningfully in strategic discussions...In addition to the absence of an onboarding process, the lack of engagement from first-time directors may be tied to missing mentorship. The survey shows that 71% of companies do not assign their first-time directors a ‘buddy’ or mentor during the onboarding process.” YAHOO FINANCE
Opinion: Why Director Independence Matters, and How Boards Can Ensure It
Director independence is critical as it allows directors to take positions that are in opposition to management
“Public companies must meet legal requirements for appointing directors who don’t have a material relationship with the business and stay out of its day-to-day operations. However, some experts question how useful the current definition of independence is and argue that board members can easily fall under management’s sway, leaving the organization vulnerable to activist investors. Meanwhile, long tenures by directors who might be independent in name only are hindering efforts to boost board diversity.” FORTUNE