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November 2019 Corporate Governance Roundtable

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November 2019 Corporate Governance Roundtable Harvard Corporate Governance Roundtable November 5–6, 2019 Background Materials TABLE OF CONTENTS I. Index Fund Stewardship: Keynote Session with BlackRock Vice Chairman and Co-Founder Barbara Novick A. BlackRock’s Perspective • Purpose & Profit, BlackRock, Jan. 2019 • BlackRock Investment Stewardship Engagement Priorities for 2019, BlackRock, Jan. 2019 • Proxy Voting Outcomes: By the Numbers, BlackRock, Jul. 2019 • Executive Compensation: The Role of Public Company Shareholders, BlackRock, Jul. 2019 • Shareholders are Dispersed and Diverse, BlackRock, Jul. 2019 • Diversified Portfolios Do Not Reduce Competition, BlackRock, Aug. 2019 B. Other Perspectives • 2019 Proxy Letter—Aligning Corporate Culture with Long-Term Strategy, State Street Global Advisors, Jan. 2019 • What We Do. How We Do It. Why It Matters: Vanguard’s Investment Stewardship Commentary, Vanguard, May 2019 • Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy, Lucian Bebchuk and Scott Hirst, Nov. 2018 • Passive Investors, Jill Fisch, Assaf Hamdani, and Steven Davidoff Solomon, Jul. 2018 • Why Isn’t Your Mutual Fund Sticking Up for You?, Leo E. Strine, Jr., Aug. 2019 II. Stakeholders and Corporate Purpose The Business Roundtable Statement: • Statement on the Purpose of a Corporation, Business Roundtable, Aug. 2019 Practical Implications and Legal Constraints: • Legal Implications of The Business Roundtable Statement on Corporate Purpose, Davis Polk & Wardwell LLP, Aug. 2019 • Stakeholder Governance—Some Legal Points, Wachtell, Lipton, Rosen & Katz, Sep. 2019 • Putting to Rest the Debate Between CSR and Current Corporate Law, Skadden, Arps, Slate, Meagher & Flom LLP, Sep. 2019 The Policy Debate on Stakeholders and Corporate Purpose: • So Long to Shareholder Primacy, Cooley LLP, Aug. 2019 • Stakeholder Governance and the Fiduciary Duties of Directors, Wachtell, Lipton, Rosen & Katz, Aug. 2019 • Six Reasons We Don’t Trust the New “Stakeholder” Promise from the Business Roundtable, Nell Minow, Sep. 2019 • Toward Fair and Sustainable Capitalism, Leo E. Strine, Jr., Oct 2019 III. Engagement Between Issuers and Investors A. Toward the 2020 Proxy Season • 2019 Proxy Season Review: Part 1—Rule 14a-8 Shareholder Proposals, Sullivan & Cromwell LLP, Jul. 2019 [selected pages] • 2019 Proxy Season Recap and 2020 Trends to Watch, ICR Inc., Sep. 2019 [selected pages] • 2020 Proxy and Annual Report Season: Time to Get Ready—Already, Mayer Brown LLP, Oct. 2019 • Proxy Access and Leverage, Cooley LLP, Oct. 2019 B. Share Buybacks • Examining Corporate Priorities: The Impact of Stock Buybacks on Workers, Communities and Investors, Lenore Palladino, Oct. 2019 • Examining Corporate Priorities: The Impact of Stock Buybacks on Workers, Communities and Investors, Jesse Fried, Oct. 2019 • Petition for Rulemaking to Revise Rule 10b-18, AFL-CIO, Jul. 2019 • Share Buybacks Under Fire, Jones Day, May 2019 • Limit Corporate Stock Buybacks, Senators Chuck Schumer and Bernie Sanders, Feb. 2019 • Letter on Stock Buybacks and Insiders’ Cashouts, SEC Commissioner Robert J. Jackson, Jr., Mar. 2019 • A Capitalist’s Solution to the Problem of Excessive Buybacks, Nell Minow, Feb. 2019 C. Emerging Consensus? • An Investor Consensus on U.S. Corporate Governance & Stewardship Practices, Florida State Board of Administration, May 2018 • Open Letter: Commonsense Corporate Governance Principles 2.0, Sard Verbinnen & Co, Oct. 2018 • Commonsense Principles 2.0: A Blueprint for U.S. Corporate Governance?, Weil, Gotshal & Manges LLP, Oct. 2018 D. Virtual Meetings • Virtual Shareholder Meetings in the U.S, Institutional Shareholder Services, Oct. 2019 • 2019 Proxy Season Review: Part 1—Rule 14a-8 Shareholder Proposals, Sullivan Cromwell, Jul. 2019 [selected pages] E. SEC’s New Guidance on Proxy Advisors • SEC’s New Guidance on Proxy Voting Responsibilities, Fenwick & West LLP, Sep. 2019 • Statement Regarding Proxy Voting and Proxy Voting Advice, SEC Commissioner Elad L. Roisman, Aug. 2019 • Institutional Investors’ Proxy Voting Responsibilities and Use of Proxy Advisory Firms, Wachtell, Lipton, Rosen & Katz, Aug. 2019 IV. Compensation Issues A. Current Compensation Practices • 2019 Proxy Season Recap and 2020 Trends to Watch, ICR Inc., Sep. 2019 [selected pages] • The Test of Time: Adapting to a New Era of Executive Compensation, E quilar, J ul. 2 0 1 9 • Ten Years of Say-on-Pay Data, Pearl Meyer, Jun. 2019 • 2019 U.S. Executive Compensation Trends, Institutional Shareholder Services, Apr. 2019 • Seven Venial Sins of Executive Compensation, Institutional Investor Services, May 2019 B. Compensation and Corporate Purpose • Stakeholder Capitalism and Executive Compensation, Willis Towers Watson, Oct. 2019 • A Stakeholder Approach and Executive Compensation, Semler Brossy Consulting Group, LLC, Oct. 2019 • Compensation Committees and ESG, Willis Towers Watson, Aug. 2019 Tab I: Index Fund Stewardship: Keynote Session with BlackRock Vice Chairman and Co-Founder Barbara Novick Posted by Larry Fink, BlackRock, Inc., on Wednesday, January 23, 2019 Editor’s note: Larry Fink is Founder, Chairman and CEO of BlackRock, Inc. This post is based on Mr. Fink’s annual letter to CEOs. Dear CEO, Each year, I write to the companies in which BlackRock invests on behalf of our clients, the majority of whom have decades-long horizons and are planning for retirement. As a fiduciary to these clients, who are the owners of your company, we advocate for practices that we believe will drive sustainable, long-term growth and profitability. As we enter 2019, commitment to a long- term approach is more important than ever—the global landscape is increasingly fragile and, as a result, susceptible to short-term behavior by corporations and governments alike. Market uncertainty is pervasive, and confidence is deteriorating. Many see increased risk of a cyclical downturn. Around the world, frustration with years of stagnant wages, the effect of technology on jobs, and uncertainty about the future have fueled popular anger, nationalism, and xenophobia. In response, some of the world’s leading democracies have descended into wrenching political dysfunction, which has exacerbated, rather than quelled, this public frustration. Trust in multilateralism and official institutions is crumbling. Unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues. These issues range from protecting the environment to retirement to gender and racial inequality, among others. Fueled in part by social media, public pressures on corporations build faster and reach further than ever before. In addition to these pressures, companies must navigate the complexities of a late-cycle financial environment— including increased volatility—which can create incentives to maximize short-term returns at the expense of long-term growth. I wrote last year that every company needs a framework to navigate this difficult landscape, and that it must begin with a clear embodiment of your company’s purpose in your business model and corporate strategy. Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being—what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits but the animating force for achieving them. 1 Profits are in no way inconsistent with purpose—in fact, profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time—not only shareholders, but also employees, customers, and communities. Similarly, when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability. Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns for the shareholders of your company. As a CEO myself, I feel firsthand the pressures companies face in today’s polarized environment and the challenges of navigating them. Stakeholders are pushing companies to wade into sensitive social and political issues—especially as they see governments failing to do so effectively. As CEOs, we don’t always get it right. And what is appropriate for one company may not be for another. One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity. Companies cannot solve every issue of public importance, but there are many—from retirement to infrastructure to preparing workers for the jobs of the future—that cannot be solved without corporate leadership. Retirement, in particular, is an area where companies must reestablish their traditional leadership role. For much of the 20th Century, it was an element of the social compact in many countries that employers had a responsibility to help workers navigate retirement. In some countries, particularly the United States, the shift to defined contribution plans changed the structure of that responsibility, leaving too many workers unprepared. And nearly all countries are confronting greater longevity
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