The SEC’s Office of Inspector General issued a statement September 25 indicating it did not find any wrong doing when it investigated claims that comment letters on the commission’s proposed proxy advisor rules were filed without the knowledge of the authors.

Bloomberg reported November 19 on a fake-letter campaign supporting SEC action to rein in proxy advisory firms. The article revealed that letters sent to the SEC by supposedly ordinary individual investors were ginned up by the 60 Plus Association, an advocacy group funded by corporate supporters of tighter curbs on proxy advisors. Seven of these letters were cited by SEC Chair Jay Clayton in his remarks after a public roundtable about proposed rule changes to the proxy voting process. He said they were submitted by “long-term Main Street investors…all of whom expressed concerns about the current proxy process.” The article claimed, however, that, when contacted, many of the investors cited by Clayton told the reporters that 1) they did not author any such letters and 2) they had ties to 60 Plus.

During the investigation, the OIG said it reviewed the seven letters as well as 21 more with a similar profile. Additionally, the OIG interviewed 19 of the 28 authors of the letters. (The remaining nine individuals did not respond or did not consent to be interviewed.) Each person interviewed said they willingly submitted a letter to the SEC and did not receive any compensation or benefit from anyone for doing so, the OIG reported. Further, the investigation determined that an advocacy association for seniors solicited its members, current and former employees, and friends of the association’s employees to submit comment letters in response to the proxy rulemaking proposals. The investigation also determined that a public affairs company working on behalf of another advocacy group solicited individuals to submit letters to the SEC about the proposed rule change. “The investigation did not identify any author who did not in fact submit a letter to the SEC or who disagreed with the content in the letter they submitted to the SEC,” concluded the OIG’s statement, which also noted it was closing the investigation.

In related news, California Gov. Gavin Newsom signed legislation September 30 that will require the boards of publicly traded companies based in the state to have at least one racially, ethnically or otherwise diverse director by 2021. Under the new law, individuals who identify as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who identify as gay, lesbian, bisexual or transgender, would be considered eligible for meeting the requirement. In 2022, corporate boards with four or more members would have to include two people from underrepresented groups; boards with at least nine directors would have to include a minimum of three diverse directors.

Two years ago, California enacted similar legislation that mandated female directors on all boards of the state’s public companies.

The CFA Institute just updated “Breaking the Short-Term Cycle", a report it published in 2006 with the help of a panel of experts that it had convened. That publication contained recommendations to help investors and companies act, invest and manage for the long term. Somewhat diverging from prevalent commentary espousing a blanket principle of managing for the long-term, the update argues that short-term focus is not always detrimental; in fact in some circumstances such as 2020, short-termism should take precedence.

In its recent publication, Short-Termism Revisited: Improvements Made and Challenges in Investing for the Long-Term, a similar group of experts makes four new recommendations for market participants:

While the experts agreed that executive compensation has improved, investors that CFA Institute consulted complained that too often executive compensation is overly complicated.. “In the worst instances, compensation seems reverse engineered to arrive at a predetermined outcome,” the report says. 

CFA Institute reports that the biggest difference between its analysis of short-termism in 2006 and the state of short-termism in the markets today is the emergence of ESG or sustainable investing. “The emergence of ESG analysis and the inclusion of sustainability key performance indicators in the investment process has forced investors and companies to focus more on the material ESG metrics that drive long-term value,” CFA Institute says in the report. The panelists agreed ESG integration is still in the early stages. The experts regarded this development as promising since most ESG issues require a long-term focus. 

Deloitte, EY, KPMG and PwC, the ‘Big Four’ accounting firms, last week announced that they have developed a set of metrics for companies to use for ESG reporting internationally.

The World Economic Forum and the International Business Council (IBC) partnered with the Big Four on the initiative. The move aims to encourage the roughly 130 large global companies in the IBC to adopt the ESG standards for their 2021 reporting. 

The new metrics can be used by companies “to align their mainstream reporting on performance against ESG indicators and track their contributions towards the United Nation’s Sustainable Development Goals on a consistent basis,” the World Economic Forum explains in a press release. It adds that the metrics are based on existing standards, “with the near-term objectives of accelerating convergence among the leading private standard-setters and bringing greater comparability and consistency to the reporting of ESG disclosures.”

"Reporting on ESG factors like carbon emissions and human rights and other key metrics will not only help inform investors while helping companies control their full corporate value, it has the power to realign capitalism for the benefit of broader society," Bill Thomas, global chairman and CEO of KPMG International, said in the press release

Some observers question whether organizations fundamentally representing a management point of view are the ideal body to drive ESG reporting standards. As previously reported in Alert, as an alternative to management-driven standard setting on ESG performance, the parent organization of the International Accounting Standards Board recently announced a desire to create an independent standard setter governing ESG standards, while independent frameworks including SASB and GRI recently announced intention to work more closely together to potentially streamline their work.

On October 14 at 12 noon ET, CII will host a webinar to explore the investor case for more granular disclosure on what companies pay in taxes and to whom. Click here for speaker details and registration information.