2/20/25 – Issue 10.07 – Your weekly news on all things board. 

Expect the unexpected. The external pressures that boards were feeling not so long ago have quickly ceded way in this unpredictable environment. The decision by ISS to remove board diversity from its voting recommendations signals a step back from what many recently considered governance best practices. While some may see this as a policy shift toward a neutral position, it raises challenges for boards that have prioritized diversity based on their organizational values, well-honed culture, and performance-based data. This poses a dilemma on many fronts – or does it?

Further, a new survey shows that US corporate boards are increasingly advising executives to stay silent on social issues, fearing political backlash and consumer alienation. Contrast this with Canada’s latest move, requiring banks to disclose board diversity metrics. Will boards and the organizations they serve be forced to pick sides and if so, where and how do they draw a line that garners respect? What can we expect to see happen next – something else unexpected? 

In the Spotlight

U.S. Boards See Significant Risk to their Companies in Speaking Out on Social Issues

According to a new survey, more than 80% of U.S. board directors prefer executives stay quiet on social issues

“Corporate boards in the U.S. see significant risk to their companies in speaking out on social issues, in an environment of heightened political scrutiny, with less than a fifth of directors believing that they should encourage C-Suite leaders to speak publicly to reinforce company values … the survey found ‘a continuous shift for the role of the CEO from being more vocal to less outspoken,’ as companies perceive significant risk in expressing opinions on social issues. Specifically, the survey found that 85% of directors believe that there is greater risk of losing customers by taking a stance by speaking out on an issue ‘amid today’s polarized political and social climates,’ with only 15% seeing greater risk by refraining from taking a stance.” ESG TODAY

ISS Changes Their Tact: Will Boards Re-Evaluate Where They Stand on Diversity? 

After February 25th, ISS will no longer consider the gender and racial and/or ethnic diversity of a company’s board when making vote recommendations with respect to the election or re-election of directors at U.S. companies under its Benchmark and Specialty policies

“The ISS decision to remove consideration of the gender, racial or ethnic diversity of a company’s board from voting recommendations reverses a measure that some governance professionals considered ‘best practice’ in recent years. Previously, ISS and others have suggested that there is evidence that diverse boards generally produce better corporate governance outcomes…With these constantly evolving developments related to DEI, corporate directors may want to wait and see if other proxy advisory firms (Glass Lewis, Egan Jones) follow ISS in backing away from considering board diversity in director elections.” CORPORATE BOARD MEMBER

Under New Proposed Rules Canadian Banks Must Reveal Board Diversity  

Canada's efforts contrast with U.S. President Donald Trump's series of executive orders aimed at dismantling diversity, equity and inclusion (DEI) programs

“Canadian banks and other national institutions have to disclose information about the diversity of their boards of directors and top management under proposed rules published on Saturday, in sharp contrast with the U.S. Trump administration which is ending such practices. Federally regulated financial institutions must also disclose policies to increase diversity while sending out notices of annual meetings to shareholders… While the orders have been celebrated by some supporters, advocacy groups say they might deepen inequities, especially as large U.S. businesses shift away from ensuring fairer representation for historically marginalized groups.” REUTERS

Navigating Board Diversity: Whose Decision Is It, Anyway? 

Diversity-based board composition policies exist within an increasingly volatile environment. Within such a state of volatility, boards are encouraged to be alert to change, adroit within confusion, and ultimately focused on processes aimed at selecting the best possible candidates for board membership

“The last several weeks have seen powerful pushback on diversity/DEI programming and policies for organizations across the spectrum. This pushback, combined with other developments, has also jeopardized the ongoing feasibility of diversity-based standards for board of directors composition. Yet subject to certain ‘red flag’ limitations, the scope and vitality of board member diversity standards remains somewhat within the discretion of the governing board.” FORBES

From Boardspan this Week:

Corporate Culture and 5 Ways Boards Can Lead

“An increased focus on DEI, 'Quiet Quitting,' bad behavior by employees and leaders…these are just some of the valid reasons, for better or worse, that corporate culture is at the forefront of organizational initiatives today…  Everyone knows about Tone at the Top, but the value of this adage comes when you really own it. When the board shows it is serious about diversity, integrity, innovation, ethical behavior, sustainability and other approaches to excellence by incorporating these ideals meaningfully into its actions, people pay attention." BOARDSPAN

Across the Board

Capping Board Tenure Could be Kryptonite Against Activists 
Two-thirds of activist investor campaigns between 2021 and late 2024 preyed on companies with at least three directors in their roles for a decade or more

“Despite years of warnings about the dangers of allowing board members to overstay their welcome, the habit persists and keeps inviting trouble. Placing a time limit on how long directors can serve would have many benefits. One of the biggest would be to ward off dissident shareholders, or at least force them to refresh their own tired thinking. Although experience, continuity and historical knowledge are valuable attributes in the boardroom, U.S. companies tend to overdo it in a way that breeds stagnation.” REUTERS

When Activist Investors Ask for Board Seats

Activist investors are making frequent demands for board seats—and having more success in gaining them

“In June 2024, Elliott Investment Management announced a $1.9 billion investment in Southwest Airlines. Elliott advocated for strategic changes and leadership replacement, nominating 10 candidates to Southwest’s 15-member board. Just months later, the two parties reached an agreement that included shrinking the board by two seats and appointing six new directors, five of whom were initially proposed by Elliott.” HARVARD BUSINESS REVIEW

Delaware Bill Seeks to Curb Investor Lawsuits Against Boards

Delaware bill would limit investor lawsuits as companies threaten to leave the state

“Delaware lawmakers on Monday proposed changes to the U.S. state's widely used corporate law that would limit shareholder lawsuits after several high-profile companies said they might move their legal home to another state. The bill sets out steps that corporate boards could take to insulate directors and controlling shareholders from litigation over alleged conflicts. The bill would also limit the kinds of internal records that shareholders can access, which they need to build their cases. The bill is sponsored by leaders of both parties in both houses of Delaware's state assembly.” REUTERS

Repeated Corporate Governance Failures Are Damaging Consumer Trust
Tax avoidance, corruption, excessive executive remuneration and relentless lobbying have had a detrimental effect on public perception

“Poor governance practices are at the root of many corporate scandals, which have a direct impact on the reputations of the businesses involved and the business as a whole. Among the notable recent examples of such scandals given in the report are the failure of Boeing’s board to hold management accountable for a deterioration of controls around safety standards, leading to a 32% drop in share price in 2024; the defrauding of FTX investors by the company’s founder Sam Bankman-Fried as a result of lax governance procedures; and the collapse in value of Byju’s contributed to by an opaque management structure.” INVESTMENT MONITOR

The Director’s Guide to Board Excellence

Governance is overseeing and directing but not doing

“Some define this as ‘noses in, fingers out.’ Yet how does one ‘nose about?’ It’s best done by asking questions. Directors benefit from being skilled in the art of asking questions. They don’t hesitate to challenge management’s thinking with questions, and they know how to graciously handle answers that are unsatisfactory at the time they’re given. Just as important, they don’t hesitate to question the thinking of fellow directors. They also support other directors who ask tough questions.” DIRECTORS & BOARDS

Trump Administration Keeps Biden’s Tough Rules for Merger Reviews

The announcement is a blow to Wall Street, which had been eagerly anticipating an uptick in corporate consolidation under a loosened framework for evaluating proposed mergers

“The Trump administration on Tuesday said it will keep using strict guidelines adopted by the administration of former President Joe Biden to review proposed corporate mergers. The decision to retain the guidelines — which have been widely disliked by corporations since their adoption in 2023… The decision is a victory for the populist, anticorporate wing of the Trump administration, embodied by Vice President JD Vance. Vance frequently found common ground with Biden’s FTC chair Lina Khan, who made antitrust enforcement a centerpiece of the agency’s mission.” CNBC

Southwest Airlines to Slash Corporate Workforce in First Mass Layoff

Carrier is trying to cut costs after battle with activist investor last year

“Southwest Airlines is slated to shed 15% of its corporate workforce, eliminating about 1,750 jobs in an effort to cut costs and streamline the carrier’s operations. The cuts are a first for Southwest, which hadn’t previously conducted a mass layoff in its 53-year history. They mark one of the most tangible signs of a shift in the airline’s practices after a battle with activist investor Elliott Investment Management last year.” WALL STREET JOURNAL

The Industry Veteran CEO: Friend or Foe?

A board with multiple directors possessing relevant industry expertise is more credible and resilient to activist attacks than one dominated by a single CEO's knowledge

“Director nominees with CEO experience have long featured in Board slates put forward by activist investors. Those candidates were typically from outside the target company’s industry, and the applicability of their experience was often questioned. However, there is an emerging trend of activist investors utilizing CEOs with direct industry experience at competitor companies, and even attempting to bring back retired CEO predecessors as Directors.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Could Paramount Execs Be Sued for Settling Trump’s $20 Billion CBS Lawsuit?

Media company executives fear liability from potential settlement paid before Skydance merger

“Paramount Global is wrestling with whether to settle President Trump’s lawsuit against its CBS News unit, and how it might do so without exposing executives to future legal threats, such as accusations of bribery. Company executives in recent weeks have talked about the risk that paying such a settlement could expose directors and officers to liability in potential future shareholder litigation or criminal charges for bribing a public official, according to people familiar with the conversations. Some executives have expressed an additional concern that such litigation may not be protected by director and officer insurance.” WALL STREET JOURNAL

Seat at the Table

• Whirlpool Corporation elects to its board John Morikis, former Chairman and CEO of The Sherwin-Williams Company

• Chemical firm Dow announces to its board Rebecca Liebert, President and CEO of chemical transportation firm The Lubrizol Corporation

• Comtech Telecommunications adds to its board David Kagan, former CEO of Globalstar

• GoodRx elects to its board Scott Wagner, former CEO of GoDaddy

• Royal Phillips welcomes to its board Bob White, former EVP at Medtronic

• Palladyne AI appoints to its board Michael Young, former Investment Director at Caterpillar Ventures

• Automotive tech firm Lear Corporation adds to its board Julian Blissett, former EVP and President of General Motors China

• Chemical firm Celanese Corporation elects to its board Scott Sutton, former President, CEO and Chairman of Olin Corporation

• Restaurant firm Brinker International welcomes to its board Timothy Johnson, Chief Financial and Chief Administrative Officer for Victoria's Secret & Co

• Upstart appoints to its board Peter Bernard, former Managing Director and CRO of hedge fund D. E. Shaw & Co.

• Biotechnology firm Zymeworks adds to its board Oleg Nodelman, Founder and Managing Director of biotech investment firm EcoR1 Capital

• Phio Pharmaceuticals announces to its board David Deming, Managing Partner at TAG Healthcare Advisors

• Lincoln Electric elects to its board Joy Falotico, former President of The Lincoln Motor Company

• American Financial Group adds to its board Crag Linder Jr., Divisional President of AFG Real Estate Investments; and David Thompson, Chairman, President and COO of Great American Insurance Company

• Builders FirstSource announces to its board Cheryl Ainoa, former EVP and CTO for Walmart Global Technology; and Maria Renz, VP and General Manager for Google

• Titanium dioxide manufacturer Tronox welcomes to its board Julie Beck, former SVP and CFO of Terex Corporation

About Boardspan
Boardspan helps boards raise the bar on their critical governance mandates by combining cutting edge digital capabilities with high-touch consulting services. They are leaders in board assessments, individual director & CEO evaluations, board succession strategy & search, skills & composition analyses, and bespoke advisory work. Boardspan only works with boards, bringing deep experience, objectivity, an analytical orientation, and insight-driven recommendations. Clients include Blue Shield (CA), Colgate-Palmolive, Deckers, Dynatrace, elf Beauty, HubSpot, Ingersoll Rand, KKR, Lam Research, the PGA, Roblox, Salesforce, Synopsys, the USOPC, and scores more.