'THE DAILY CORPORATE GOVERNANCE REPORT’ (for public company boards, the C-suite and GCs)
Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)
(i) some prominent board members and executives on 'navigating complex social issues': As reported in this "Summary of Themes" posted by Tapestry Networks on its website earlier this month, "Leadership and culture oversight take center stage for boards", on "October 17, Tapestry Networks’ Culture and Talent Governance Summit brought together board members and senior executives to discuss corporate culture, talent management, and executive compensation." Among the participants were the VP, Corporate Ethics and Business Conduct at Lockheed Martin, directors serving on the boards of Hasbro, Tyson Foods and Kroger, and, as special guests, partners at executive compensation consulting firm Meridian Compensation Partners and a managing director from global communications firm Edelman. Below are excerpts from the section, "Navigating complex social issues":
"Corporations are grappling with rising social and geopolitical tensions, including extreme polarization and the politicization of a wide range of issues. These challenges are reshaping corporate culture, influencing employee retention, and affecting public trust in leadership. Edelman’s Sean Neary discussed how companies can navigate and effectively respond to the current social and political environment: ......
— Carefully consider whether and when to take a position. Consumers, as well as employees, pressure businesses to speak out on political and societal issues, believing that a company that doesn't communicate its values or its actions is indifferent or hiding something. Nonetheless, Mr. Neary said that organizational leaders should not rush to respond to every emerging issue. Take time to evaluate a response and consider that saying and doing nothing can often be best. When corporations do speak out, they must be sure they can take actions to back up their words. “The key is not to react hastily but to first assess whether meaningful action can be taken before making any statements," he said.
-- Align with the specifics of the business. Each company’s response to a societal issue must be tailored to its unique circumstances. “It’s not always about staying silent; it’s about being thoughtful,” said Mr. Neary. In deciding whether to engage on a specific issue, organizations should consider their core values, the characteristics of their employees and customers, and the markets and geographies in which they operate. Companies must carefully evaluate their capacity to drive change while maintaining a consistent message that balances the interests of shareholders, consumers, and especially employees. Mr. Neary explained, “Your employees are your number one stakeholder. You won’t please everyone, but staying true to your company’s values is essential, as your workforce shares the same vision.” Engaging in regular pulse surveys, polling, and focus groups can help gauge employee sentiment before taking broader action...."
(ii) Deloitte report on risk factor disclosure (in particular on AI risk factor disclosure) by the S&P 500 companies: In October, Deloitte and the University of Southern California Marshall School of Business released their fourth annual report reviewing the risk factors disclosures in the annual reports of the S&P 500 companies, including in particular "an analysis of the risk factors mentioning AI":
"This year, we conducted a deeper review of risk factors mentioning AI, complementing our deeper reviews in previous years of cybersecurity risks and climate-related risks. Over 60% of the S&P 500 companies reviewed believe they have material risks around AI, and this wasn’t restricted to the Information Technology sector – companies in all sectors disclosed AI risks relating to cybersecurity, competition, innovation, regulatory, intellectual property, ethical, and/or reputational risks. Numerous companies disclosed multiple AI-related risks this year, with 20% of companies disclosing three or more AI-related risks. Clearly, the AI revolution is well and truly underway and posing challenges for many companies in their ability to manage the associated risks."
Below are some of the key findings from the report:
"The number of pages has increased minimally over the past year: The average number of pages is about 13.7 per company, compared to 13.6 the third year and the second year after the amendments, but up from 12.2 before the amendments and about 13.3 one year after the amendments. Over 45% of companies increased the number of pages this past year.
"The number of risk factors has stabilized over the past three years: The average number of risk factors per company was 31.5 the third year and fourth year of implementation as compared to just under 31.4 the second year, just over 31 the first year... However, 28% of companies still increased the number of risk factors this past year
"Headings are being used, but they are often very generic: ....The average number of headings per company was five...The average number of risk factors per heading was six all four years of implementation. Eighty companies had significantly more—20 to as many as 54 risk factors under one heading during the fourth year of implementation. The most common heading categories.....were variants of legal, regulatory, and compliance; business; financial; operational; cybersecurity, information technology, data security, privacy; common stock; economic and macroeconomic conditions; industry; strategic transactions; strategic; indebtedness; tax and accounting; market; intellectual property; human capital; and international operations.
"Nearly one-third of companies used a “general risk factors” heading during each of the past four years....: Companies used an average of just under five risk factors under the general risk factors heading all four years of implementation and a range of one to 18 during the fourth year. The most common risk factors included under the general risk factors heading during this fourth year of implementation were recruitment and retention of talent/key personnel; natural and man-made disasters/catastrophes; economic conditions; stock price volatility; litigation; climate change; financial reporting internal control weakness; COVID-19; environmental, social, governance; tax law and regulation changes; cybersecurity; strategic transactions.
"Insights on artificial intelligence risk factors:
-- Nearly 40% discussed AI-related risks in multiple risk factors, a notable decrease compared to those companies disclosing this risk in a single risk factor.
— Over 15% of companies included stand-alone risk factors dedicated to AI. These risk factors often mentioned a multiplicity of AI-related risks, including financial, cybersecurity, reputational, innovation, and/or legal and regulatory risks.
— Companies mentioned in their risk factor disclosures a variety of AI-related risks."
Note that the report also discusses the following five matters that it suggests companies consider when making risk factor disclosures:
"-- integrate external risk factor disclosure processes with internal enterprise risk management (ERM) reporting processes: ......
-- aim for specificity, avoid boilerplate: .....
-- use risk taxonomies from ERM program for headings: .......
-- avoid generic risks: .....
-- shorten sentence length....."
(iii) press releases/precedents of the day of the day (employment offer letter with senior executive and Executive Severance and Change in Control Policy):
(a) Nasdaq listed, cloud-based business applications company Workday, Inc. announced yesterday in this press release the appointment of a Chief Commercial Officer, a newly created role, as follows:
"Workday, Inc., a leading provider of solutions to help organizations manage their people and money, today announced the appointment of Rob Enslin to the newly created role of president, chief commercial officer (CCO). Enslin will be responsible for driving Workday's revenue growth and leading the company's global sales, partnership and customer experience efforts. Enslin brings more than 30 years of experience in the technology industry, most recently serving as CEO of UiPath......Enslin's appointment will be effective as of December 2, 2024."
In connection with the appointment, the company and the new CCO entered into this Employment Offer Letter, and the company's Board approved this amended and restated Workday Executive Severance and Change in Control Policy, all as disclosed in the related Current Report filed with the SEC.
(b) Privately held, giant fast food restaurant franchise Subway IP LLC announced yesterday in this press release a "CEO transition", as follows:
"Subway, one of the world's largest restaurant brands, today announced that John Chidsey, Global Chief Executive Officer (CEO), will retire from the company at the end of 2024, after five years of exceptional leadership in the role. Carrie Walsh, Subway's current President of Europe, Middle East and Africa (EMEA) and former Global Chief Marketing Officer (CMO), will assume the role of Interim CEO, while a search is conducted to identify John's permanent successor.......Chidsey will transition to a consulting role to ensure a seamless transition, with a particular focus on helping to guide the company's international growth strategy and master franchisee relationships."
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