'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) * ISS publishes its proxy voting guidelines updates for 2025: As announced yesterday in this press release, ISS published yesterday its benchmark policy updates for 2025, which "will generally be applied for shareholder meetings taking place on or after Feb. 1, 2025", and which will be incorporated into the final ISS Proxy Voting Guidelines for both Canada and the U.S. when they are released, likely early in the new year. The policy updates for both Canada and the U.S. appear both in summary form in this "ISS Benchmark Policy Updates—Executive Summary" (at pp.7 and 10 for Canada and the U.S.), and in more detail in this update for the Americas region (including Canada and the U.S.), "Proxy Voting Guidelines Benchmark Policy Changes for 2025: U.S., Canada, and Americas Regional" (at pp. 10-20 for Canada, and pp. 5-9 for the U.S.) There are the following six updates for Canada: 

                    "1. Virtual Only Meetings

                     2. Definition of Independence

                     3.Former CEO on the Audit or Compensation Committees

                     4. Pay for Performance Evaluation

                     5. TSX Comp. Index Racial Ethnic Diversity

                     6. Gender Diversity"

                 And these three updates for the U.S.:

                      "1.Poison Pills

                       2. SPAC Extensions

                       3.Natural Capital"

                 Below is how the first two Canadian updates are described in the Executive Summary document (at p.10):

                "Virtual-only meetings: Clarifies the current policy application to recommend against proposed bylaw (or articles of association) amendments that would grant the board the discretion to hold shareholders' meetings in virtual-only

format without compelling rationale.

                "Definition of Independence (Former/Interim CEO): Policy clarification regarding the definition of independence in the case of former CEOs in respect of minimum five year cooling off periods."

                 (For a good summary of the three U.S. updates, see today's TheCorporateCounsel.net blog post, "ISS Announces 2025 Benchmark Policy Updates.")

              (ii) 'best-in-class' proxy disclosure: Chevron's innovative proxy disclosure on how the board determines needed director skills and qualifications, and director bios: Some innovative aspects of Chevron's 2024 proxy statement are highlighted in this Nov. 12 TransparentDisclosure.com blog post, "Chevron’s Director Skills & Qualifications: “What the Board Is Looking For”, namely the board’s skills and qualifications at p. 4, and Chevron director bios starting at p.10:

                   "With heightened importance on the disclosure regarding the director nomination process, the “skills & qualifications” section has evolved considerably in recent years. One of the latest innovations comes from Chevron. Page 4 of the 2024 proxy statement has a fantastic chart analyzing the board’s skills and qualifications process – with the first column addressing “How it relates to Chevron’s business, strategy, and operations" and the second column addressing “What the Board is looking for.” Here it is: .....

                   "Also check out Chevron's director bios (starting on page 10). I love the Q&A in each bio about “Director Insights”

              (iii) HBR post on DEI in the midst of the backlash: Below is the headnote summary to this HBR post last Friday, "Continuing the Work of DEI, No Matter What Your Company Calls It":

                    "Summary: While DEI has faced significant backlash in the last year, companies across industries are still looking for ways to build healthy, inclusive workplace cultures where everyone can do their best work. New data at shows that even during this year of backlash, companies continued to make progress on many of their DEI initiatives. There are three ways companies should consider shifting their approach to DEI, both to be responsive to the current moment and to achieve greater impact: resetting the narrative, using data more effectively, and moving from siloed efforts to an embedded organizational focus on creating cultures that work for everyone."

                     Below are some excerpts from the post:

                     "......Reading the headlines, some might believe we’re witnessing the end of corporate DEI in the U.S. But this assumption is shortsighted and overly simplistic. While the acronym “DEI” is increasingly unpopular and its future seems ever less certain, we’ve found that companies across industries are still looking for ways to build healthy, inclusive workplace cultures where everyone can do their best work.....

                     "We compared our findings to our 2023 dataset, which comprised 143 organizations. We found that in 2024, organizations’ overall DEI efforts increased compared to prior years:

                          — 60% of companies surveyed have a DEI strategy — a 9-point increase from 2023.

                          — 66% have a DEI budget — a 12-point increase from 2023.

                          — 73% have a commitment to DEI incorporated into their company values — almost unchanged from 2023 (72%).

                         — 40% have a senior leader fully dedicated to DEI compared to 27% in 2023.

                         — 63% have partnerships with organizations focused on DEI (e.g., those supporting women, underrepresented racial/ethnic groups, and the LGBTQ+ community), compared to 54% in 2023......

                    "(T)here are three ways companies should consider shifting their approach to DEI, both to be responsive to the current moment and to achieve greater impact: resetting the narrative, using data more effectively, and moving from siloed efforts to an embedded organizational focus on creating cultures that work for everyone.

                   "Resetting the narrative: In the coming year I anticipate we’ll continue to see companies rename DEI functions and roles. Instead of viewing this as cause for alarm, we should remember that when a company stops calling something DEI, it doesn’t necessarily mean they’re stopping the work. For example, when Walmart recently decided to pause some of its programs, the company made clear that it would no longer use the word DEI, but reiterated that “every decision comes from a place of wanting to foster a sense of belonging, to open doors to opportunities for all our associates, customers, and suppliers and to be a Walmart for everyone.” In other words, what many of us have for the past several years been calling “DEI.”......

                              (B)y starting with a broader framing — e.g., “Our goal is to create a great culture for everyone, and we will seek to identify and address any areas where we’re failing to do that, for any group” — organizations can more effectively communicate that their efforts are for everyone, while also establishing a clear foundation for initiatives that address barriers for the groups that experience them......"

              (iv) Teneo report on what companies can expect concerning ESG/DEI in 2025: On Nov. 21/24, global CEO consulting and advisory firm Teneo posted on its website this report, "Stuck in the Middle with ESG: What Companies Can Expect in 2025 & Beyond", presenting its views on what companies can expect re ESG/DEI during 2025.  The report discusses 10 of these, and below are excerpts from five of them:

                    "2. Greater scrutiny of company DEI programs. While the 2023 Supreme Court’s Students for Fair Admissions rulings focused on higher education, conservative campaigns to end corporate DEI programs have landed on company doorsteps this year. As a result, many companies have conducted legal reviews of their DEI programs and communications. New challenges to DEI initiatives are expected under the next administration.....Companies should prepare for the campaign against DEI to become more public and challenging as advocates, including employee groups, nonprofits and investors, press companies to stand firm with prior commitments.

                     4. Increased pressure on companies from pro-ESG coalitions. Pro-ESG coalitions such as As You Sow, CERES and the Interfaith Center on Corporate Responsibility have announced that they will continue to pressure companies to further advance their ESG initiatives. Companies may face increased pressure from both sides of an issue, even with defections from some large U.S. institutional investors as well as some European and Canadian investors. For example, companies may receive shareholder proposals to continue their ESG initiatives while also receiving anti-ESG proposals. Companies should expect continued challenges in balancing key stakeholder interests amid increased pressure from both pro-ESG and anti-ESG advocates via private engagement, public pressure and shareholder proposals.

                    5. A fragmented ESG disclosure landscape. Irrespective of the change in federal power, thousands of U.S. companies will continue to be required by the European Union’s Corporate Sustainability Reporting Directive (EU CSRD) to provide robust ESG disclosures. This will create an uneven playing field for consumers of ESG information and impact company ESG strategies. For example, institutional investors may have sufficient ESG information from a company that falls under EU CSRD requirements but lack ESG information from a company that does not fall under the EU CSRD. Companies without robust ESG information will likely face pressure from institutional investors to disclose more.

                    9. Increasing importance of shareholder engagement. Investors will be eager to understand how these fundamental shifts will impact ESG and DEI programs within their portfolio companies. U.S. investors may have a very different perspective than European investors. With off-season shareholder engagement underway, companies should not deviate from the values expressed in their sustainability reports, as these statements are on-record, signed by the CEO and leadership of the company. As the new administration’s policies play out, companies can respond to changes by communicating them in proxies, ESG reports, websites, earnings calls and social channels.

                    10. Fewer ESG mentions on earnings calls. Over the past year, companies have increasingly reevaluated their ESG communications strategies, especially during earnings calls.....The polarization of ESG may lead many companies to avoid further public discussion on contentious topics to steer clear of potential backlash. Going forward, earnings calls are expected to feature less ESG-related content, as they primarily focus on short-term performance and have limited time to address issues beyond financial metrics....."

              (v) Bloomberg feature article on DEI lessons from Walmart: Below is from this feature Bloomberg article on Monday, "Walmart’s DEI Compromise Holds Lessons for Corporate America", inter alia with commentary from Geoff Morrell, president of global strategy and communications at Teneo (see (iii) above):

                    “Robby Starbuck has viewed your profile.” The LinkedIn alerts for Walmart Inc. executives started appearing on Nov. 18, offering an early signal that the anti-DEI campaigner was setting his sights on the biggest US private employer. Just a week later, the innocuous notification had rippled into a shockwave. Walmart announced a raft of changes to its diversity, equity and inclusion policies, from shifting how it evaluates supplier programs to ending use of the term “LatinX.”

                      "The retreat by the world’s largest retailer is notable not only for its policy turnaround but also the speed at which it came together. Interviews with Starbuck and people familiar with Walmart’s decision show the company adopted a mix of his demands and changes already in the works just five days after the conservative agitator told executives he was prepared to release a video calling for a boycott just before Black Friday, the busiest shopping day of the year. Set against rising DEI backlash....the Walmart agreement shows the new reality that companies face: Toe the fine line between dialing back diversity policies while not abandoning support for underrepresented workers and customers.......

                    "The key for companies is to make concessions without “completely rolling over,” said Geoff Morrell, president of global strategy and communications at Teneo. Morell, who was head of corporate affairs at Walt Disney Co. when that company was sparring with Florida Governor Ron DeSantis over the so-called “Don’t Say Gay” legislation, said he advises companies against getting involved in divisive social issues. “All companies should recognize that this need not be a zero-sum game,” he said. “If you find the right balance, you can — as some have — move forward quickly with minimal internal blowback or impact on your brand.”......

                     "LaTricia Hill-Chandler, chief DEI officer at Arkadelphia, Arkansas-based Southern Bancorp Inc. (and) a Walmart diversity manager for about three years before she left in 2019 said that the (diversity) changes (at Walmart) reflect the new norm that companies across all industries are grappling with as the discussion around DEI changes, partly to avoid legal issues, she said. At Southern Bancorp, which focuses on lending and banking services for underrepresented people, she’s examining whether to change the “racial equity” strategy to “inclusive economic” or “inclusive engagement” strategy......"

              (vi) Conference Board report on ESG metrics in compensation plans of the S&P 500 companies: Last Thursday, the Conference Board released the 2024 edition of its annual report on ESG metrics in compensation plans of the S&P 500 companies (and the Russell 3000), "ESG Performance Metrics in Executive Compensation Strategies", analyzing "the focus areas and methods of integration of ESG metrics into performance measurement across both the S&P 500 and the Russell 3000." Below are the five "key insights" from the report:

                 "-- Companies continue to link executive compensation to ESG performance despite the recent pushback against ESG, with 77.2% of S&P companies incorporating ESG performance into executive compensation design in 2024, down marginally from 77.8% in 2023.

                  — ESG measures, particularly strategic scorecards, have seen significant growth, doubling in use across both the S&P 500 and Russell 3000 alongside increased adoption of stand-alone and individual metrics.

                 -- Human capital management remains the most widely used ESG metric category, while environmental metrics saw rapid growth from 2021 to 2023 before leveling off in 2024 amid growing ESG pushback.

                 --The use of diversity, equity & inclusion (DEI) metrics declined between 2023 and 2024, although a closer analysis suggests a shift in how DEI is being assessed: moving from individual performance assessments to stand-alone and strategic scorecard measures.

                  — While growth in the use of ESG metrics in long-term incentives has slowed, growth in their use in a combination of both short- and long-term incentives is increasing."

                  Note that the report describes "strategic scorecards" (at p.3) as follows: "A certain percentage of the incentive plan is tied to a bundle of multiple metrics, which may be ESG only or a combination of ESG and financial metrics and which may or may not be weighted..."

                   On the same subject, note also this recent paper, "ESG Overperformance? Assessing the Use of ESG Targets in Executive Compensation Plans", which is discussed in this Professor Bainbridge blog post last Tuesday, "Badawi & Bartlett on the Use of ESG Targets in Executive Compensation Plans": 

                  "....They examine the integration of environmental, social, and governance (ESG) targets into executive compensation plans among U.S. public companies, with a specific focus on S&P 500 firms during the 2023 proxy season. Their main findings are:

                        1. Prevalence of ESG-Linked Compensation: 63% of S&P 500 companies incorporated ESG performance targets into their executive compensation plans. These targets were primarily integrated into short-term annual incentive plans (AIAs) rather than long-term incentive plans (LTI). Only 2% of companies reported missing all ESG targets, in contrast to 22% missing all financial targets.

                        2. Structure and Weighting: ESG targets in AIAs were given a mean weight of 15% within target award sizes. In LTI plans, only 10% of companies incorporated ESG metrics, and their influence on total CEO compensation was relatively minor (6%-7%).

                        3. Governance and Oversight Issues: ESG targets were often less transparent than financial targets, making them easier to achieve. High rates of achievement for ESG targets were linked to governance deficiencies rather than actual exceptional ESG outcomes. Firms meeting all ESG targets faced more shareholder opposition in say-on-pay votes, suggesting skepticism regarding governance....."

              (vii) press release of the day: Deutsche Bank announced last Thursday in this press release the appointment of a new Chief Risk Officer, as follows:

                    "Deutsche Bank’s Supervisory Board has appointed Marcus Chromik as Chief Risk Officer and Member of the Management Board, effective May 20, 2025. He will succeed Olivier Vigneron who recently informed the bank that he would not seek an extension of his contract, which expires on May 19, 2025. Over the past 20 years, Marcus Chromik has held management positions in finance and risk management functions, including eight years as Commerzbank’s Chief Risk Officer. Marcus Chromik will join Deutsche Bank’s Management Board on May 1 before taking over full responsibility for the Risk function when Vigneron leaves the bank......"

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