Business Law Today – Corporate Board Diversity: Gaining Traction Through Investor Stewardship By Pamela M. Harper
Corporate Board Diversity: Gaining Traction Through Investor Stewardship
By Pamela Harper
Board diversity, long a step-child of corporate governance, has assumed growing prominence. According to the EY Center for Board Matters’ 2018 Proxy Season Review of 60 institutional investors managing $32 trillion in assets, 82 percent of respondents indicated that board composition should be a top priority for 2018, with 67 percent noting that they seek diverse director characteristics and backgrounds.
The business case for corporate diversity in general is well documented. Cited most frequently is McKinsey’s study, Diversity Matters, which found a statistically significant correlation between diversity and financial performance. Specifically, companies in the top quartile for gender and racial/ethnic diversity were 15 percent and 35 percent, respectively, more likely to have financial returns above their national industry median. Although McKinsey’s study applied to corporate as opposed to board leadership, the findings are nevertheless incontrovertible. Diversity enhances the decision-making process and the financial bottom line.
With respect to board diversity, MSCI Inc’s 2016 Women on Board’s Report found that U.S. companies that began the five-year period from 2011–2016 with at least three women on its board (deemed the “tipping point” needed for female directors to exert influence on a board) experienced a 10-percent increase in ROE and a 37-percent gain in EPS. In contrast, those without female directors experienced a -1 and -8 percent decline respectively.
Over the past year, momentum in this space has gained traction as a result of three driving forces: (1) asset managers pushing for change, (2) institutional investors calling for accountability and transparency, particularly by pension funds, and (3) regulation mandates.
Asset Managers Take a Stand
Given diversity’s potential impact on financial performance, the issue of board diversity is now viewed through the lens of investment stewardship by asset managers. The asset management industry has recently become a catalyst for change when it comes to board composition, with Blackrock, Vanguard, and State Street leading the way for greater board gender diversity.
BlackRock, the world’s largest asset manager with $6.3 trillion of assets under management, has received the most prominent coverage, generated in large part by its Annual Letter to CEOs. With respect to boards, BlackRock’s CEO Larry Fink announced that Blackrock will continue to emphasize diverse boards, stating that they are “less likely to succumb to groupthink or miss threats to a company’s business model.” Consistent with the letter, BlackRock’s Proxy Guidelines for 2018 stipulate that it “expects to see at least two women directors on every board.”
Unlike BlackRock, Vanguard, with more than $5 billion in assets under management, did not assign a metric, but nevertheless advocated for gender board diversity, noting in its Open Letter to Directors of Public Companies Worldwide that its position on board diversity is “an economic imperative, not an ideological choice.”
Finally, as a result of State Street’s stewardship on board gender diversity, 152 companies added a woman director to their board, and 34 companies agreed to do so in the future. As encouraging as that may be, it regrettably leaves over 600 more companies remaining on State Street’s original list of publicly traded companies with all-male boards. Equally compelling, State Street voted against 511 companies that failed to address the gender diversity issue.
Pension Funds Call for Accountability and Transparency
The second emerging trend is the increasing role of pension funds in driving board diversity. For example, California’s Public Employees Retirement System (CALPERS) now requests that companies disclose their diversity policy. Similarly, the Massachusetts Pension Reserves Investment Management Board’s 2018 proxy guidelines recommend voting against or withholding votes for all board nominees if less than 30 percent of the board is diverse.
New York’s pension funds on the state as well as municipal level have been particularly aggressive in placing public companies on notice that they are not only holding them to a high level of scrutiny, but also holding them accountable for board diversification. In March, the New York State Common Retirement Fund, with $192 billion in assets held in trust and the third largest pension in the country, announced that it would vote against electing all of the directors standing for re-election at the more than 400 companies without women board members in which it holds shares. Moreover, for the more than 700 companies in which the fund holds shares where there is only one female director, the Fund announced that it would vote against the members of the governance committee standing for re-election. In making the announcement, New York State Comptroller Thomas DiNapoli said, “We’re putting all-male boardrooms on notice—diversify your boards to improve your performance.”
Similarly, last year the New York City Comptroller and New York City’s pension funds launched the Boardroom Accountability Project, Version 2.0. In launching the program, New York City Comptroller Scott M. Stringer said, “. . . we’re doubling down and demanding companies embrace accountability and transparency.” Designed to enhance public disclosure reporting, the Comptroller asked 151 companies to disclose the race, gender, and skills of their board members as well as their board refreshment process.
Mandate by Regulation
Further escalating the dialogue on board diversity is state legislation. Although there are a number of states that encourage or urge companies to enhance board diversity, including the Commonwealth of Pennsylvania through Senate Resolution 255 which seeks a gender minimum of 30 percent by 2020, California is the first state to contemplate mandating board diversity. In January 2018, Senate Bill 826 was introduced in California. If the bill is passed as currently drafted, by the end of 2019, all companies with principal executive offices in California must have a minimum of one female director on its board of directors. As a tiered system, by the end of 2021 the minimum would increase to two female directors if the company has a total of five authorized directors, or to three female directors if the company has six or more authorized directors. Under the bill, each director seat not held by a female during a portion of the year counts as a violation. The penalties, as currently structured, are pegged to the board’s compensation schedule with the fine for the first violation equivalent to the average cash compensation for the directors of the company and the second and subsequent violations equivalent to three times the average annual cash compensation for directors.
Notwithstanding these trends, however, the regulatory environment has the capacity to dictate the velocity of momentum in this area, as we have seen with the recent passage of legislation by the House Financial Services Committee. Under H.R. 5756, the voting thresholds for the resubmission of shareholder proposals were raised significantly. In order for a shareholder proposal to be resubmitted, at least six percent of shareholders must have voted in favor of the proposal the previous year, compared to three percent as currently required by the SEC. Similarly, the threshold is raised to 15 percent for the next resubmission and finally 30 percent for a subsequent resubmission, compared to six and 10 percent, respectively, under the current regulatory regime. By raising the thresholds for shareholder support, the potential impact of this legislation on investor activism and board diversity cannot be underestimated.
Supplementing these trends is the emergence of collective advocacy through organizations such as 2020 Women on Boards, 30% Club, Paradigm for Parity, Women in the Boardroom, and others, all of which aim to combat the gender imbalance in corporate and board leadership. They offer resources and guidelines for increasing the number of women on corporate boards over the next few years, which dovetail well with the above-described initiatives.
The dialogue on board diversity continues to be raised nationally and internationally and shows no signs of abatement. According to the Wall Street Journal, ISS Analytics recently released analysis indicate that in the first five months of 2018, women accounted for 248, or 31 percent, of new board directors at the 3,000 largest publicly traded companies—the highest percentage in 10 years. On the horizon, Glass Lewis, a leading proxy service provider, indicated in its 2018 Proxy Policy Guidelines that beginning in 2019 it will generally recommend voting against the nominating chair of boards without female directors as well as potentially other nominating committee members. Although previously shunned, board diversity can no longer be ignored. The failure to diversify boards is more than an issue of optics. Rather, it is a reflection of an organization’s corporate culture and to the extent that it has the potential to negatively impact shareholder value, it is a governance issue and, as Vanguard so aptly observed, an economic imperative.
Reprinted with permission from the July 16, 2018 edition of the American Bar Association’s Business Law Section.
Pamela Harper Advocates for Ethical Corporate Cultures in Ethikos Magazine
Pamela Harper, Member and Chair of the Firm’s Corporate Transactions & Compliance and Government & Regulatory Affairs practice groups, published an article in Ethikos: The Journal of Practical Business Ethics entitled, “Corporate Culture: The tipping point has arrived”. In the article, Pam shares examples of recent corporate misconduct and provides steps that companies can take to show their commitment to creating and maintaining ethical cultures.
The Legal Intelligencer – Medical Marijuana and the Effect of Legalization on College Campuses By Melissa Hazell Davis & Fara A. Cohen
Medical Marijuana and the Effect of Legalization on College Campuses
By Melissa Hazell Davis & Fara A. Cohen
With society’s ever-evolving approach to marijuana, colleges and universities across the country, including those here in Pennsylvania, are now faced with a complexing dilemma: enforce federal regulations in order to maintain federal funding or risk that funding by recognizing their state’s mandate to permit marijuana use. Colleges, universities and the students who matriculate them are caught in the middle of the legal tug-of-war between the federal government’s prohibition of marijuana use and the various states who allow its citizens to use the drug – either recreationally or for medical reasons.
Public support for the legalization of marijuana is growing, with a recent Gallup poll showing that 64% of Americans favor legalization. The Drug Enforcement Administration has reported that one in every twenty-two college students uses marijuana daily, or almost daily, and the Washington Post reported in 2016 that since 2002, regular marijuana use among middle aged Americans (ages 45-54) has gone up by nearly 50%. With the public tide shifting, marijuana is more profitable than ever; sales of legal marijuana exploded to $9.7 billion in 2017 in North America alone. Studies predict that that number will only increase to $24.5 billion in sales by 2021 as the number of legal state markets grow. As of 2017, medical marijuana is legal in Washington D.C. and 30 states (including Pennsylvania, New Jersey, and Delaware), with 9 of those states also permitting recreational marijuana. For example, in 2016, Pennsylvania legalized medical marijuana use, making it available at dispensaries and in many different forms, including pills, oils, and topical treatments. The Pennsylvania law lists seventeen conditions for which a patient may be recommended medical marijuana including PTSD, cancer, autism, HIV/AIDS, seizures, severe chronic pain and others. However, the federal policy on marijuana – recreational or otherwise – has not changed. In fact, the Trump administration, led by Attorney General Jeff Sessions, has ramped up its enforcement of federal statutes prohibiting the growing, distribution, and use of the drug.
So where do these conflicting laws leave colleges and universities located in one of the states where its citizens have decided that marijuana use should be legal? Because of the Supremacy Clause of the U.S. Constitution, the federal Controlled Substances Act (which criminalizes the growing and use of marijuana) is the law of the land, despite what any state’s laws might say. Furthermore, the Safe and Drug Free Schools Act (the “DFSCA”) requires institutions that receive funds or other financial assistance from the Federal government to adopt and implement a drug prevention program, which means that colleges and universities that allow marijuana use on campus could be at risk of losing federal funding. Under the DFSCA, an institution of higher education’s drug prevention program must include: 1) a policy establishing standards of conduct that clearly prohibit unlawful possession, use or distribution of illicit drugs and alcohol by students and employees on its property or as part of any of its activities, which is to be distributed annually to all employees and students; 2) a description of the applicable legal sanctions under local, state or federal law for the unlawful possession or distribution of illicit drugs and alcohol; 3) a description of health risks association with the use of illicit drugs and the abuse of alcohol; 4) a description of any drug or alcohol counseling, treatment or rehabilitation or re-entry programs available to employees or students; 5) a clear statement that the institution will impose disciplinary action for violation of the policy against use of illicit drugs and alcohol, as well as a description of those sanctions.
Therefore, many colleges and universities have chosen to comply with DFSCA in order to preserve their access to federal funds by prohibiting marijuana use (even for medical marijuana users), and punishing and arresting those who break university policy. The DFSCA compliance defense was tested for the first time in the recent case State of Arizona v. Maestas. In that case, the State of Arizona argued that Arizona State University was at risk of losing federal funding if they did not enforce their marijuana policy. The Court rejected that argument, finding that the State did not sufficiently show that they would lose or have lost federal funding by not prosecuting violations of the university’s program. Ultimately, Arizona’s highest court held that while universities can ban the use or possession of marijuana on campus, they cannot criminalize any such violations. As a result, the argument that medical marijuana use should be prohibited on college campuses because federally funding is dependent on compliance with the DFSCA is potentially a less persuasive argument for colleges and universities going forward.
Other colleges have also addressed this issue. For example, despite the legalization of marijuana in California for recreational and medical purposes, the University of California forbids marijuana possession and/or use on its campuses. The University of Massachusetts, Amherst Marijuana Policy with respect to On Campus Expectations states that “[a]lthough Massachusetts voters have approved a ballot measure permitting the possession and recreational use of marijuana, federal laws prohibit the use, possession and/or cultivation of marijuana at educational facilities. The use, possession, or cultivation of marijuana in any form is therefore not allowed in any university housing, on any other university property, or at university sponsored off-campus events.” Some universities that are unwilling to waiver on their strict policies against marijuana on campuses allow or advise medical marijuana users to live off campus and leave their marijuana at home. For example, The Michigan State University Medical Marijuana policy says that “MSU will make accommodations for students who are registered to use medical marijuana under state law by waiving the requirement for them to live on campus or by allowing them to end their housing contract and move off campus.”
While Pennsylvania’s law is still fairly new, it is reasonable to assume that colleges and universities in the state will follow the same path as out-of-state institutions that have faced these issues. Colleges and universities within the state should be proactive in reviewing their policies, updating them where necessary, in order to both ensure compliance with federal law and ensure that students who need to use marijuana for medical reasons can still access it while attending school. Additionally, it is important that students do not assume that they can smoke and/or possess marijuana on campus simply because they have a state issued card permitting them to use the drug. A student in Pennsylvania with a medical marijuana card should immediately contact his school to ascertain that school’s marijuana policy and to determine if he can qualify for an exemption to any policies that might require him to reside on campus.
Reprinted with permission from the June 28, 2018 edition of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
The Legal Intelligencer Failure to Launch – Why Is Your Firm Failing to Be a 21st Century Employer? By Jessica Mazzeo
Failure to Launch: Why Is Your Firm Failing To Be A 21st Century Employer?
By Jessica L. Mazzeo
Back in November 2017, I wrote the article, “Why Law Firms Should Already Be Embracing the Mobile Workforce”. That piece mainly focused on firms having work from home policies for attorneys and only slightly touched on similar policies for staff. Six months later, it doesn’t seem like much has changed. Generally, law firms are still slower and less amenable to allowing non-exempt support staff, such as paralegals and secretaries, to work from home. While the most common reason is that managing attorneys are not open to this flexibility for staff, others argue that even if there was no resistance from top management, compliance with the Fair Labor Standards Act for a non-exempt worker appears unrealistic. However, I strongly disagree. It is 2018 – not 1978 or even 2008 – and employers who are failing (and yes, it’s a failure, not an opposition) to meet employee demands and allow for some type of work from home policy are going to be in for a rude awakening. Maybe not tomorrow, or in five years, but with an estimated 10,000 baby boomers retiring each day, and for which the majority will be fully retired by 2029, the time to act is now as all employees are demanding change.
Proceeding as we have done for decades is not only a failure to launch but a potential crash course in your firm’s future demise. Employees of all ages – and yes, all ages as millennials are not the only generation that seeks work-life balance – need to be able to better manage both their personal and professional lives. Lisa Sterritt, a legal management professional in the Seattle area with over 30 years of experience, agrees that firms are long overdue for a shift: “It’s time for a new perspective. I have worked both in-house and at law firms, and I have always advocated for anyone to work from home as needed, or on a set schedule, to accommodate challenges such as long commutes, elderly parents, newborns or illness. While it can create some compliance challenges in terms of tracking for hours worked or FMLA leave, great employees are worth that effort. The argument that only attorneys should have job flexibility is tired and reeks of privilege. If you can’t trust your people, nonexempt or not, to record their time accurately, why are they there at all?”
As employers, we have the ability to do this regardless of any actual and/or perceived challenges. In today’s world, technology not only allows for greater proficiency in the workplace but also grants us the ability to work from wherever we may be. For those employers concerned with tracking employee time and exact hours worked have a variety of options. There are several standalone programs, as well as add-on features to existing platforms, that can allow staff to remotely clock in and out as work is performed. Working remotely should not be an additional cause for concern when it comes to employees taking advantage or not actually working while on the clock. Imagine how many times you’ve walked down your office hallway and noticed attorneys and staff alike chatting away about weekend plans or the scores from last night’s football game. In addition, think about how often your workflow is interrupted while in the office, due to back to back meetings or coworkers frequently stopping by your desk. In some work environments, the distractions in the office can actually be greater than those at home. As Sterritt stated above, the employees who earn the privilege of having the ability to work a day or two at home are already trusted and valued to do the work they were hired to do, regardless if it’s at their desk in your office or from their kitchen table at home. Suzette Welling, Firm Administrator at Taylor & Associates in Central Florida, has found one way to tackle the issue of accounting for time worked outside the office: “We allow staff to work from home for such circumstances as a sick child, needing to be present for home repairs, and the like. It allows them to meet the needs of their family and the needs of the firm at the same time. We address FLSA issues by having them post detailed time descriptions to a firm account in our billing system for tracking what they are doing when they are not in the office,” stated Welling. Nikki Korson, Firm Administrator at Edell, Shapiro & Finnan LLC in Gaithersburg, Maryland added that her firm “historically has not given non-exempt staff the opportunity to work from home, because we did not have the necessary infrastructure in place to control hours worked and avoid FLSA concerns. However, we have found that creating the necessary portal to allow our non-exempt staff to work from home on limited occasions has provided a greater flexibility for the firm in times of inclement weather, illness, and even extended vacations. It is also particularly helpful to certain staff who desire the ability to keep on top of things in the circumstance of extended absence, as returning to work after a few days off without contact can often be debilitating. We are happy to have found a happy medium that works for all parties.”
However, instituting a work from home policy for all staff is not as simple as setting up the guidelines for who is eligible and when. A few firms that I spoke with allow any employee to work from home one day a month as long as they had a good performance review the last two consecutive terms. Having a clearly defined policy – and metrics for achieving the benefit – is key. Not all employees are good employees and not all employees deserve this benefit (because like many things, working from home is a privilege not a right).
You also have to perform your due diligence to ensure that you have enough remote terminal licenses so that your networks can be accessed remotely, ensure any hardware that leaves the office is properly protected with encryption and other anti-virus software and for firms with workers that live in other states, you will also need to make sure that you have the appropriate workers compensation insurance in place. You also need to take a close look at your employee handbook and policies and review if any changes need to be made, or new policies added, regarding maintaining confidentiality of information and precautions and policies you have in place for work from home staff to remain compliant with HIPAA and other data privacy laws.
While I agree that not all positions should have the flexibility to work from home all the time, I also believe that more positions should have at least some sort of flexibility. For example, having a virtual receptionist routing calls one day a week – or even having calls forwarded to your receptionist who needs to work from home is an absolute feasible task to accomplish. There will always be circumstances where you might need to ask other staff to pitch in, but employees understand that it’s a small price to pay when your employer affords you opportunities to work from home. Amy Bigaj, Office Manager at Personius Melber LLP in upstate New York, reinforces this: “We are fortunate that our partners appreciate the importance of a work-life balance for everyone in the firm and the need for flexibility in achieving that balance. They understand that this balance will help retain valued employees.”
Even though it’s been a year since the Forbes, “9 Millennials Share What Work-Life Balance Means To Them”, was published, and it’s how I closed my article six months ago, it’s important enough that I mention it again. The article shared the perspectives of nine millennials and emphasized what they considered “work-life integration.” If you didn’t read the article the last time I encouraged you to, you should read it now. Achieving a work life balance and the opportunity of working from home is not about a lack of loyalty or an attempt to watch TV at home all day, it’s about life balance. Think about your first job — or even your current job — and the stresses that are associated with trying to dedicate yourself to your career while also attempting to have a fulfilling home life. Having the option to work from home isn’t going to solve all of life’s problems but it is a start to showing your employees that you value their wellbeing and needs as much as you value your own.
Reprinted with permission from the May 24, 2018 edition of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
The Legal Intelligencer – What Would You Do if Your Business Dried Up Tomorrow? Rainmakers Respond: Francine Griesing
Francine Griesing Shares Advice as a Rainmaker in The Legal Intelligencer
Francine Griesing, Founder and Managing Member of the Firm, was featured in the article by Stacy West Clark in The Legal Intelligencer which shared marketing advice from leading rainmakers. Fran offered the following response to the question, “What would you do if your business dried up tomorrow?”:
“Every lawyer, regardless of size of firm, area of practice, or success as a rainmaker, is well served to have a professional development plan and to review and update the plan regularly. The marketplace is moving faster, so having a plan helps you be nimble when changes occur that alter your practice and opportunities. If you have been doing that, you are less likely to be caught off guard if your market changes and likely have a contingency plan in place. So, the first thing for me and my team is to maintain a plan that is a living document. In the absence of that, I would make a plan and execute on it. To do so, I would focus on what work would I like to do that is needed by paying clients, who are the decision makers to select lawyers to do that work, and where do you find them? Where do they congregate, what do they read and who do they listen to? And then, try to attend the events they attend, write for the publications they read and speak at the conferences they attend. Building a reputation as an expert in the field in which you want to practice is key to distinguishing yourself from the pack.”
Click here to read the full article in The Legal Intelligencer (subscription required).
The Legal Intelligencer – Griesing Law’s New Office Space is Designed for Collaboration: Griesing Law
Our New Office Profiled in The Legal Intelligencer
The Legal Intelligencer including our recent move to 1880 John F. Kennedy Boulevard in the article, “Griesing Law’s New Office Space is Designed for Collaboration.” The piece features a slideshow with photos of our new office as well as a discussion of our decision to move to a space that creates a more congenial and collaborative environment and better accommodates our flexible work schedules.
Jessica Mazzeo, Chief Operating Office of the Firm, shares the office benefits: “It’s still in the same part of the city [as the firm’s previous office] and it has ease of access for everyone who works here… We have this nice circle space. We collaborate a lot and this gives us a closer sense of feeling for when people are actually in the office.”
Francine Griesing, Founder and Managing Member of the Firm, comments on the adjustment to the new space: “I wasn’t sure how people would feel about having offices that are half the size. They seem to really like the closeness. Everyone here seems to be really happy with that and feeling that they’re more intimate because when we had such a vast space and so many people worked remotely you could be there and not see a person for hours because we were so spread out.”
Click here to read the full article in The Legal Intelligencer (subscription required).
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Contact Us P 215.618.3720 F 215.814.9049
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