May 13, 2019

The Financial Times’ Agenda weekly published today ESGAUGE’s data on restrictions to director removal provisions and other board entrenchment.

Here is an excerpt from the article:

“Boards are re-examining decades-old charter and bylaw provisions commonly implemented to thwart hostile takeovers, but which now may open up directors to shareholder litigation, lawyers say. As a result, several large-cap companies have asked shareholders to ratify new provisions this proxy season, an effort that may minimize potential legal risks.

The bylaw and charter provisions from the past require a supermajority vote to remove a director, and many further limit removal to instances that would fall within a company’s definition of ‘for cause.’ Such provisions may portend shareholder litigation or pushback from the plaintiff’s bar, sources say, as court decisions in Delaware and various state laws address one or both, in some circumstances deeming them invalid.

At more than half of Russell 3000 companies and more than one third of S&P 500 companies, charter provisions limit director removal to when shareholders can show cause, according to a report from The Conference Board in conjunction with ESGAUGE, a data help desk that specializes in data on U.S. public company disclosures on ESG practices. What’s more, a supermajority vote requirement remains in the organizational documents of nearly 25% and 40% of S&P 500 and Russell 3000 companies, respectively, according to the report, which is based on an analysis of SEC filings made in 2018 and considered governance trends at 2,854 companies included in the Russell 3000 and 494 companies listed in the S&P 500.”

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