Archive November 2018

CtW Engages Companies on Anti-Competitive Employment Practices

CtW Engages Companies on Anti-Competitive Employment Practices

On August 29, 2018, the activist investor, CtW Investment Group, kicked off a new initiative to engage 30 major companies (click HERE to see the list of companies) concerning their use of anti-competitive employment practices, including non-competes, no-poach agreements, non-disclosure agreements, and mandatory arbitration. CtW asked each company it contacted to:

  • Review its employment contracting practices, including the use of any of these provisions.
  • Report the board’s findings to shareholders before the next annual meeting.
  • Commit to increased human capital management disclosure going forward.

CtW was concerned about the potential liability and costs associated with such anti-competitive practices.  CtW also sees these anti-competitive practices as constraining the ability of individual workers to seek out new opportunities, causing an artificial limit the pool of potential matches available to employers. CtW sees the recruiting difficulties reported by many employers and attributed to “skills shortages” as more plausibly explained by the limits of workers mobility that employers themselves impose.

CtW made available several documents about its efforts (click for the source documents):

We will have to wait and see what impact CtW’s initiative has on these anti-competitive practices.  But, if my removing these impediments to worker mobility ultimately helps companies secure they need to grow their businesses, it should be a win for everyone.  However, it may take some time to get companies, management teams and Boards comfortable with the notion of forgoing these “protections” for their workforce. But, if CtW and other institutional shareholders take up this initiative, and large companies begin to comply, as with most things, it could eventually filter out to a broad swath of U.S. public companies.

ISS Announces 2019 Policy Updates

ISS Announces 2019 Policy Updates

On November 19, 2018, ISS announced its policy updates for the 2019 proxy season. These updates will apply to shareholder meeting on and after February 1, 2019.

While ISS did not announce any changes to its pay policies for 2019, it did indicate that it will feature EVA metrics in its proxy reports for U.S. and Canadian companies on a phased-in basis over 2019. ISS will continue to use GAAP measures in its quantitative pay-for-performance (P4P) test’s Financial Performance Assessment (FPA) during 2019. However, the clear indication is that ISS will continue to study how to bring EVA metrics into its quantitative P4P assessment, as it received feedback from its clients that they agreed with the direction ISS was taking in this regard.

For director elections, ISS will make a change with respect to board gender diversity. For U.S. companies, ISS is announcing a new policy that will take effect February 1, 2020 with respect to companies in the Russell 3000 or S&P 1500 indexes that do not have any women on their boards may cause ISS to issue adverse voting recommendations with respect to nominating committee chairs, and, on a case-by-case basis, and with respect to other directors who are responsible for the board nomination process. The policy would allow the absence of board gender diversity to be temporarily explained and excused.

The 2019 policy updates can be found on ISS’ Latest Voting Policies Page:

Latest Voting Policies

FASB Considering Changes to ASU 2018-07

FASB Considering Changes to ASU 2018-07

On November 14, 2016, FASB decided to make certain improvements to Accounting Standards Update No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

According to the November 16, 2018 FASB Action Alert, FASB ”

decided to add a project to its technical agenda to clarify the accounting for share-based payments that are made as consideration payable to a customer. The Board decided that such payments would be measured and classified using the guidance in Topic 718.
The Board decided the following about transition:

  1. For entities that have not adopted the amendments in Update 2018-07, the proposed Update would have the same transition and effective date requirements as Update 2018-07.
  2. For entities that have adopted the amendments in Update 2018-07, the same transition provisions as Update 2018-07 would be applied retrospectively to all relevant prior periods beginning with the initial adoption date of Update 2018-07.
  3. Any awards issued where the grant date is prior to the initial adoption date of Update 2018-07 should be measured prospectively using fair value at the initial adoption date of Update 2018-07.

The Board determined that the expected benefits of the changes related to its proposed amendments of the accounting for share-based payments made to a customer under Topic 606, Revenue from Contracts with Customers, justify the expected costs of the changes.

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. The Board decided to expose the proposed Update for public comment for a period ending on March 29, 2019, or for 30 days (whichever is longer).”

Therefore, if companies have or are considering applying ASU 2018-07, they should review these proposed changes once ready by the FASB Staff. If desired, companies can provide comments on the proposed changes through the later of March 29, 2019 or 30 days after the proposed Update is released.

Stanford’s 2018 CEO Activism Survey

Stanford’s 2018 CEO Activism Survey

An October 2018 survey by the Stanford Rock Center for Corporate Governance sought to understand individuals’ view CEOs who take public positions on environmental, social, and political issues. The authors of the survey are David F. Larcker, the James Irvin Miller Professor of Accounting at Stanford Graduate School of Business, and Brian Tayan, a member of the Corporate Governance Research Initiative at Stanford Graduate School of Business.

The authors found that:

  • The public is highly divided about CEOs who take vocal positions on social, environmental, or political issues.
  • The cost of CEO activism might be higher than many CEOs, companies, or boards realize.
  • People are much more likely to think of products they have stopped using than products they have started using because of a position the CEO took on a public issue.
  • When consumers don’t like what they hear, they react the best way they know how to: by closing their wallets.

Key Survey findings include:

  • The public viewpoint of CEO activism is highly mixed, with opinions varying by age and political affiliation.
  • The public is positive on environmental issues, negative on politics and contentious on social issues.
  • Americans are most likely to recall prominent CEOs speaking up about issues they agree – and disagree – with.
  • 65% of all survey respondents thought CEOs of large companies should use their position and potential influence to advocate on behalf of social, environmental, or political issues that they care about personally.
  • By age group, 71% Millennials agreed with such action, while only 63% of Gen X and 46% of Baby Boomers agreed.
  • Perhaps not too surprisingly, the survey found that Democrats viewed CEO activism more favorably than Independents or Republicans.

The survey report includes more detailed demographic information and breakouts of various questions by age, political affiliation, gender, region, race, and household income.

Link to 2018 CEO Activism Survey