5/30/24 – Issue 8.69 – Your weekly news on all things board. 

In this dynamic environment where shareholder opinions matter more than ever, investors are letting their views be known. Passive observers seem like a footnote in the governance history books – can anyone remember the days when they’d show up at an annual meeting simply to approve the board’s recommendations? Instead, shareholders are increasingly demanding a voice in shaping the direction and performance of the companies they own. This shift is evident in the recent developments at Tesla, where proxy advisors suggest voting against Elon Musk's historic pay package, and Gildan, which has undergone wholesale leadership changes in response to activist pressure. In the energy field, Exxon-Mobil’s shareholders took a run at board leadership (although fell short) while Hess shareholders have approved the $53 billion merger with Chevron. And after a long string of disappointing results, Marathon Oil’s shareholders are asked to approve a $17 billion acquisition by oil giant ConocoPhillips. Stakeholder voice matters more than ever, and for good reason, boards of directors are recognizing the value of engaging early and often, fostering a culture of accountability. 

In other news: Tips on surviving uncertainty, WeWork will not have an Adam Neumann re-dux, top board priorities in 2024 (spoiler alert: cyber and AI strike again), is having a CISO on the board the be-all, end-all?, and could AI replace your CEO?

In the Spotlight

Tesla Shareholders Advised to Vote Against Elon Musk’s Pay Package

Proxy-advisor Glass Lewis says the proposed compensation would dilute shareholders’ holdings

“Proxy-advisory firm Glass Lewis has advised Tesla shareholders to vote against Elon Musk’s multibillion-dollar pay package at the company’s meeting next month. In a 71-page report, Glass Lewis told shareholders that Musk’s proposed compensation—recently valued at $46 billion—could dilute their existing holdings in Tesla. The package would concentrate his ownership, making him the largest shareholder ‘by a healthy margin.’ Shareholders will vote at the June 13 meeting on Musk’s pay package and other proposals, including moving the company’s incorporation to Texas, which Glass Lewis also advised against.” THE WALL STREET JOURNAL

Activist Investor Win at Gildan

The appointments follow the resignation of Vince Tyra, president and CEO, and the entire board 

“Gildan Activewear on Friday said Glenn Chamandy, the company’s former chief executive officer, will return as CEO following the resignation Thursday evening of Vince Tyra, president and CEO, and the entire board of directors. The resignations were a victory for activist investor Browning West, which also saw its eight nominees named to the clothing maker’s board ….Board members decided it was in the best interests of Gildan stakeholders for them to resign, to allow a new board to be seated, Gildan said. Gildan also said discussions regarding a previously announced sale process have ceased. Michael Kneeland, one of the Browning West nominees, was named as chair of the board.” THE WALL STREET JOURNAL

All Exxon Directors Re-Elected Despite Activist Opposition

Four activist shareholder proposals were also overwhelmingly rejected

“ExxonMobil Chairman and CEO Darren Woods and lead independent board member Joseph Hooley sailed to easy re-elections to the Board of Directors Wednesday at the company’s annual shareholder meeting …both had been targeted by ESG-focused investors in recent weeks, with state fund managers in California (CalPERS) and New York pledging to oppose most or all the rest of the Board as well. Hooley was also targeted by proxy advisory firm Glass Lewis, which advised clients to oppose him in response to what it calls Exxon’s ‘overly aggressive’ response to what it believed were nuisance shareholder initiatives filed by two activist shareholders, Arjuna and Follow This. All those efforts failed by overwhelming margins. ExxonMobil said in a release that all 12 Board members were re-elected, receiving support from an average of 95% of voting shareholders.” FORBES

Hess Shareholders Approve Merger with Chevron

Hess Corp approved the company's $53 billion merger with the No. 2 U.S. oil company Chevron

“The merger required a majority vote to approve the deal by a majority of Hess' 308 million shares outstanding to pass ....Chevron offered to acquire Hess last October in a move to gain a foothold in oil-rich Guyana's lucrative offshore fields. The deal has been stalled by an ongoing review by the U.S. Federal Trade Commission and clouded by an arbitration claim filed by Hess' partner in Guyana, Exxon Mobil. The result is a win for Hess CEO John Hess and puts to rest claims by some shareholders who wanted additional compensation for the delay in closing the sale. Exxon's arbitration could push the deal's closing into 2025.” REUTERS

ConocoPhillips to Acquire Marathon Oil in $17.1 Billion All-Stock Deal

Transaction marks the latest major consolidation in the energy sector

“ConocoPhillips has agreed to acquire Marathon Oil in an all-stock deal valued at $17.1 billion that would combine two of America’s most recognizable energy companies. The transaction comes after five consecutive quarters of falling profits at Marathon Oil and marks the latest major consolidation in an energy sector that has seen a flurry of merger and acquisition activity this year ….The transaction is expected to close in the fourth quarter, subject to approval from regulators and Marathon Oil stockholders. The deal has an enterprise value of $22.5 billion that includes $5.4 billion of debt. ConocoPhillips is looking for the tie-up to be immediately accretive to its earnings, cash flows and return of capital ….ConocoPhillips said the deal adds complementary acreage to its existing U.S. onshore portfolio.” THE WALL STREET JOURNAL

From Boardspan this Week:

Preparing the Board for Activist Investors: A Proactive Defense Affords the Best Chance of Success

The board’s best chances for success reside in careful planning, preparation, and execution

"Regardless of a company’s success or confidence in its strategy, management, and board, there are few situations public companies face that are more daunting than an unsolicited approach by an activist investor. And with activist activity continuing to rise—we have seen a record number of companies targeted by activists, a record number of activist campaigns launched, a record number of board seats won, and a rising bench of first-time activists—all companies need to be prepared. The increasingly sophisticated and complex manner in which activists target companies requires dedicated focus and a cohesive strategy by a company’s management and its board long before an activist comes knocking.” K2 INTELLIGENCE via BOARDSPAN LIBRARY

Across the Board

How To Thrive When Uncertainty Becomes The New Norm For Governance

Independent members offer important external perspectives which helps boards uncover the “unknown, unknowns”

“Board capability is critical when it comes to the geopolitical challenges organizations are facing. Many board members may not have experienced this before. Even in stable environments, effective boards should be aware of their strengths and weaknesses and seek opportunities to expand their knowledge, evolving in response to the environment in which their organizations operate. Undertaking a comprehensive and honest assessment of the board’s collective skills, expertise and independence is crucial in this dynamic environment. Its wider diversity, to include age, gender, geography, culture, life experience, disability and neurodiversity, also aides the quality of debates. Boards should be equipped with ‘contextual understanding’, which includes investing time to get to know the organization, the people in it, the sector(s) it operates in, and the regulatory and legislative environment within which it operates.” FORBES

Adam Neumann Gives Up Bid to Buy Back WeWork
Co-founder of the shared-workspace firm says WeWork’s bankruptcy plan appears unrealistic

“Adam Neumann has given up on buying WeWork, the bankrupt shared-workspace company he co-founded and was ousted from five years ago….WeWork filed for bankruptcy in November as it faced a downturn in the office real-estate market. The once high-flying startup has been struggling after it expanded aggressively and the Covid-19 pandemic damaged demand for co-working spaces…. Neumann resigned as chief executive of WeWork in 2019 after facing pressure from the board following big losses at the company. Since then, he had been trying to regain control. In March, he stepped back in. Backed by his new real-estate company Flow Global, he made an offer of $650 million to buy the company. WeWork rejected the offer. In April, a bankruptcy court in Newark approved WeWork’s plan that gives control of the co-working business to its service partner Yardi Systems.” THE WALL STREET JOURNAL

Cybersecurity & Artificial Intelligence Cited As Top Board Priorities In 2024
From tech risks to new SEC regulations, AI and cybersecurity remain top of mind for directors

“In the 2024 What Directors Think Survey …AI and cybersecurity emerged as two of the most challenging areas for directors to oversee, at 36 percent and 35 percent, respectively. As board members maintain a neutral outlook on the U.S. business environment, these two areas have grown in importance for short- and long-term success. Technologies like generative AI have the potential to transform the way we work, and many boards are wary of the organizational readiness gap. Without proper governance over the implementation and use of AI, organizations may inadvertently expose themselves to new risks. Shareholders hold a similar concern, according to the What Directors Think Survey. When asked about issues that are top of mind, a majority of directors (88 percent) noted increasing shareholder inquiries related to AI and generative AI developments.” CORPORATE BOARD MEMBER

AI Firms Mustn’t Govern Themselves, Say Ex-Members of OpenAI’s Board
For humanity’s sake, regulation is needed to tame market forces, argue Helen Toner and Tasha McCauley

“Can private companies pushing forward the frontier of a revolutionary new technology be expected to operate in the interests of both their shareholders and the wider world? When we were recruited to the board of OpenAI—Tasha in 2018 and Helen in 2021—we were cautiously optimistic that the company’s innovative approach to self-governance could offer a blueprint for responsible AI development. But based on our experience, we believe that self-governance cannot reliably withstand the pressure of profit incentives. With AI’s enormous potential for both positive and negative impact, it’s not sufficient to assume that such incentives will always be aligned with the public good.” THE ECONOMIST

If A.I. Can Do Your Job, Maybe It Can Also Replace Your C.E.O.

Chief executives are vulnerable to the same forces buffeting their employees

“The chief executive is increasingly imperiled by A.I., just like the writer of news releases and the customer service representative. Dark factories, which are entirely automated, may soon have a counterpart at the top of the corporation: dark suites. This is not just a prediction. A few successful companies have begun to publicly experiment with the notion of an A.I. leader, even if at the moment it might largely be a branding exercise. A.I. has been hyped as the solution to all corporate problems for about 18 months now, ever since OpenAI rolled out ChatGPT in November 2022. Silicon Valley put $29 billion last year into generative A.I. and is selling it hard. Even in its current rudimentary form, A.I. that mimics human reasoning is finding a foothold among distressed companies with little to lose and lacking strong leadership.” THE NEW YORK TIMES

One CISO Can’t Fill Your Board’s Cybersecurity Gaps
Adding a chief information security officer to a board is popular, but not enough to improve cyber resilience

“Today’s boards face an ever-evolving threat landscape and rising cybersecurity governance expectations. In July 2023, the U.S. Securities and Exchange Commission adopted new rules that require U.S.-listed companies to describe the board’s oversight of risks from cybersecurity threats and outline the processes by which the board or a relevant subcommittee gets informed about such risks….The intuitive (and quickest) solution to this problem is to recruit a current or former chief information security officer (CISO) to the board of directors….On its face, this seems to be a win-win: Boards increase their skills in a vital area, and many CISOs see joining corporate boards as a logical, fruitful career step. A CISO on the board can better integrate cybersecurity into business discussions at the highest level. More CISOs having board seats is good news, right?” MIT SLOAN

Seat at the Table

• International Paper welcomes to its board Jamie Beggs, Senior Vice President and Chief Financial Officer of materials firm Avient Corporation; and Scott Tozier, former Executive Vice President and Chief Financial Officer of chemical firm Albemarle Corporation

• Cracker Barrel elects to its board Cheryl Henry, former President,CEO and Chairwoman of fine dining firm Ruth’s Hospitality Group

• Climate control firm Lennox adds to its board Jon Vander Ark, President and CEO of environmental provider Republic Services

• First Financial elects to its board Anne Arvia, former EVP of AAA federation member The Auto Club Group

• USAA welcomes to its board Ross Buchmueller, Founder of high-value asset firm PURE Insurance

• Specialty insurer Sirius Point adds to its board Susan Cross, former EVP and Global Chief Actuary at commercial insurer XL Group

• Hinge Health announced to its board Kristina Leslie, former CFO at Dreamworks Animation SKG

• Luxury car manufacturer McLaren appoints to its board Pierre-Yves Roussel, CEO of luxury brand Tory Burch; Dennis Nobelius, former Chief Operating Officer at Polestar; and Torsten Müller-Ötvös, former CEO of Rolls-Royce Motor Cars Limited

• Biotechnology firm Apogee Therapeutics welcomes to its board Dr. Lisa Bollinger, former VP of Regulatory Affairs, Global Regulatory Affairs and Clinical Safety at Merck

• Pure Cycle Corporation elects to its board Susan Heitmann, former Partner at KPMG

• Contracting firm Quanta Services announces to its board Warner Baxter, former Chairman, President and CEO of gas utility firm Ameren Corporation; and Jo-ann dePass Olsovsky, former EVP and Chief Information Officer at Salesforce

• Wealth manager Northern Trust appoints to its board Chandra Dhandapani, Senior Advisor at commercial real estate firm CBRE Group

• Wireless connectivity firm Ceragon Networks welcomes to its board Robert Wadsworth, Founding Partner and Senior Advisor at HarbourVest Partners

• Chemical Vapor firm CVD Equipment adds to its board Andrew Africk, Founder of private investment firm Searay Capital

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.