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Governance Data, Analytics, and News from Institutional Shareholder Services

October 26, 2018


Meetings to Watch

Upcoming ISS Speaking Events

Interesting Meeting Calendar

News Roundup

ISS Updates & Links

Ed. Note:

Last week, ISS launched its benchmark voting policy consultation period.The open comment period, which will solicit views from governance stakeholders globally on certain proposed voting policies for 2019, will run through 5.00 p.m. ET on November 1. Download the comment period documents here.

This week, ISS announced the launch of a new, custom ratings solution via DataDesk, ISS's screening, data, and analytics platform. The tool allows users to develop ESG scoring models based on DataDesk content. To learn more about the Custom Ratings solution, click here.

Female CEOs on a Glass Cliff? A Look at Gender Diversity and Company Performance

In the past year, the departures of several female CEOs have made headlines, raising concerns about a potential reversal in the growing trend of women in executive leadership roles. Meg Whitman (Hewlett-Packard Enterprise Co.), Indra Nooyi (PepsiCo Inc.), and Irene Rosenfeld (Mondelez International Inc.) are a few prominent examples that come to mind. While the data does not suggest a reversal to fewer women in top executive roles, we observe slower growth in the number of female CEOs as compared to the number of women directors, raising questions about gender biases in executive leadership beyond the glass ceiling.

In this article, we explore the concept of the invisible precipice of a "glass cliff," the hypothesis that women are more likely to be appointed to the top job at companies facing a crisis. We review company performance during the year of CEO appointment, and we find that women are more likely to be appointed as CEOs at companies with lower valuations compared to their peers.

Furthermore, we examine the performance of companies where CEOs have held their roles for at least three years, and we observe that gender-diverse executive teams exhibit superior performance whether the CEO is female or male. Conversely, companies with no women in their top five executive roles or companies where the CEO is the only woman in the C-suite show the worst levels of performance, risk, and valuation. Companies that combined gender diversity in both the C-Suite and the board showed overall the best results in terms of risk-adjusted quality of performance, as we detect C-Suite diversity driving strong performance, while board diversity may help companies better manage risk.

Evaluating Company Performance

In our review of company performance, we use the ISS EVA proprietary scoring methodology PRVit (Performance, Risk, and Valuation information technology). The scores represent a percentile rank of companies on a scale of 0 to 100 compared to their respective industry for each of the categories of evaluation. The Performance score assesses companies' ability to earn and increase profitability based on the Economic Value Added framework, with a higher score indicating better performance. The Risk score measures a company's volatility in terms of stock price and profitability, as well as vulnerability in terms of the company's ability to meet debt obligations. In this case, a lower Risk score is considered a better indicator of risk management. A combination of the Performance and Risk scores results in the Risk-Adjusted Quality score, where a higher score represents better overall performance quality. Finally, the Valuation score ranks companies based on their current market valuations using a variety of measures including market-to-book ratios and profitability multiples.

Examining the Glass Cliff Hypothesis

While there has been a steady increase of female CEOs in the Russell 3000 over the past decade, currently only about 5% of Russell 3000 companies have a female CEO. The percentage of female CEOs does not vary by company size, as we observe the same general trends in the gender of executive leadership for both small and large firms.

For the small percentage of women that make it to the top, the "glass cliff" suggests additional challenges. Coined in a 2005 academic study by Michelle Ryan and Alexander Haslam of Exeter University, the term "glass cliff" refers to the phenomenon of women being appointed to leadership roles at companies experiencing bad performance. The theory that women may be appointed to CEO roles that are less desirable has significant implications for the evaluation of female executives and succession planning, as the results may reveal biases in both the recruitment process and post appointment.

To test for the existence of a glass cliff, we reviewed performance, risk, and valuation scores of Russell 3000 companies during the year of appointment of their current CEOs. Specifically, we reviewed CEO appointments that took place from 2012 to 2018. In our analysis, we do not observe a significant difference in company performance based on the gender of the newly appointed CEO. However, we do note a considerable difference in market expectations in the form of lower valuations for the 84 companies that have women CEOs compared to the 1380 companies that appointed a male CEO. The scores suggest the potential existence of the glass cliff in terms of perceptions about the company as reflected in lower stock prices.

Gender-Diverse Executive Teams Exhibit Superior Performance

Beyond the initial hurdles of the glass ceiling and the glass cliff, women CEOs generally show performance results similar to or superior to their male counterparts. As CEOs do not operate in a vacuum, the composition of the entire C-Suite and the Board also warrant a closer look in this context. We examined companies where CEOs had a tenure of at least three years in their position, and found a correlation between C-Suite gender diversity and performance. Companies with women CEOs and at least one more woman in the top five executive positions exhibit the best performance than any other group of companies in terms of C-Suite gender diversity. This trend is also true for companies with male CEOs and diverse executive teams. Companies that have no female executives or where the CEO was the only woman in the C-Suite had the worst median levels of performance and valuation. All diversity is not created equal, as we see performance improving as gender diversity increases. Hence, gender diversity in the executive team appears as the key differentiating factor when it comes to company performance. Using a median test analysis for the median scores of the five groups, we receive P values of 0.106 for the Performance score, 0.042 for the Risk score and 0.018 for the Risk-Adjusted Quality score, indicating a statistical significance in a difference in the medians for each score.

Combining C-Suite Diversity with Boardroom Diversity

We further reviewed how diversity in the C-Suite may interact with diversity in the boardroom by categorizing companies in terms of diverse executive teams and diverse boards. We considered diverse executive teams as those with at least two women in the C-Suite, while diverse boards were defined as boards with at least two women non-CEO directors.

We found that companies that lack diversity in the board and in the C-Suite had the worst results in terms of performance, risk, and valuation, while companies with diverse executive teams exhibited the best results even when their boards were non-diverse. However, board diversity appears to consistently correlate with a lower risk profile. Overall, companies that combine diversity in the C-suite with diversity the boardroom have the highest scores in terms of risk-adjusted quality. These results suggest that diverse executive teams may be better able to drive superior performance results, while diverse boards help companies improve their risk management. Given the executive responsibilities of management and supervisory responsibilities of the board, these results make intuitive sense. A median test analysis confirms the statistical significance of the results, as the P values are less than 0.005 for the Performance, Risk and Risk-Adjusted Quality scores. However, further studies may be required to establish a potential causal relationship.

Breaking Barriers to Gender Diversity

A previous ISS publication (Women in the C-Suite: The Next Frontier in Gender Diversity) identified five emerging best practices for promoting gender diversity in leadership roles, including:

(i) addressing subtle bias,

(ii) establishing clear diversity targets,

(iii) redefining the path to executive leadership,

(iv) establishing mentorship and sponsorship programs for women, and

(v) providing support towards work-life balance.

The results of our research on C-Suite gender diversity and performance suggest that investing in these best practices can pay significant dividends for organizations. Below we draw some key takeaways specifically in relation to considerations for companies in the C-suite hiring decision-making process.

  • Team Gender Diversity Has Stronger Impact than CEO Gender: CEOs, regardless of their gender, do not operate in a vacuum. Our analysis suggests that the overall gender diversity in the C-Suite has significant impact on performance, risk, and valuation. Our results show that companies where the CEO was the sole female in the C-Suite performed worse than their peers. Focusing on gender balance in the C-suite and senior management has more significant impact on performance than the appointment of a female CEO, even though the latter is more likely to make headlines. As part of the review of gender balance in the C-Suite, a focus on positions that lead to the top job will further contribute towards overcoming invisible hurdles and biases in the CEO hiring process.
  • Examine Biases and Be Willing to Put Women in Charge: Research into what causes the glass cliff (HBR: How Women End Up on the “Glass Cliff”) points to a status quo bias. Specifically, when companies perform well, the study found "people prefer leaders with stereotypically male skills, but when a company is in crisis, they think stereotypically female skills are needed to turn things around." With the overwhelming majority of companies currently having a male CEO, male CEOs are more likely to remain in or get promoted to similar positions when a company does well. However, the study also found that those effects become less pronounced "as people become more used to seeing women at the highest levels of management." The importance of seeing more women leading companies seems to have the potential for significant knock-on effects for addressing the glass cliff as well the glass ceiling overall (WEF: The key to closing the gender gap? Putting more women in charge).
  • Review the Short List Process: Research highlights that companies may use different selection criteria when appointing a female CEO compared to a male CEO. According to a McKinsey study (Unlocking the Full Potential of Women in the U.S. Economy), men tend to be evaluated based on their potential, while women based on past performance. While our analysis does not explore the potential differences in leadership styles or qualities of female CEOs and top executives, the overall numbers suggest that gender-diverse executive teams outperform their all-male counterparts. Therefore, companies stand to benefit by re-examining their short list practices, including the interview process itself.

-- Marie Clara Buellingen, ISS Custom Research; Kosmas Papadopoulos, CFA, ISS Analytics

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Meetings to Watch

Log into ISS Link and click on Special Situations Research to enable these links:

Dell Technologies (DVMT) Best Tracker Ever | Note | Published on October 5, 2018


Contentious Pipeline - August 2018 | Pipeline | Published on September 18, 2018


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Upcoming ISS Speaking Events

These are upcoming events where ISS staff will be speaking or in attendance. ISS does not necessarily endorse any of these groups.

November 1-4, Colorado Springs
SRI Conference
(Yovanka Bylander, ISS-ESG)

November 2, New Haven, CT
Yale Initiative on Sustainable Finance: State of ESG Disclosure Standards
(Ariane de Vienne, ISS-ESG)

November 6-8, Dublin
Mission Finance - Climate Innovation Summit
(Fredrik Lundin, Maximilian Horster, and Viola Lutz, ISS-ESG)

November 7, Montreal
Norton Rose Fullbright - Annual Governance Trends Seminar
(Debra Sisti, ISS Research)

November 8-9, Munich 
Spencer Stuart - Supervisory Board Forum
(Thomas von Oehsen, ISS Research)

November 9, New York
Executive Compensation National Institute
(John Roe, ISS Analytics)

November 14, Paris
SGCIB Sustainable Finance Conference
(Cedric Laverie, ISS Research)

November 14, New Brunswick, NJ
Rutgers University Corporate Governance Discussion
(Liz Williams, ISS Research)

November 15, London
Irish Funds 6th Annual UK Symposium
(Rachit Gupta, ISS Research)

November 15, Madrid
EY Spain - 2019 Proxy Season Preview Discussion
(Thibaut Barsacq, ISS Research)

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Notable Meeting Calendar

This supplemental list highlights upcoming meetings with notable ballot items; these may include companies with interesting or novel shareholder proposals, proxy contests, non-standard management proposals, and more. Appearance on this list does not denote any particular ISS vote recommendation.

Company Ticker Country Meeting Type Date
SINOPEC Engineering (Group) Co., Ltd. 2386 China Special 26-Oct-18
Challenger Ltd. CGF Australia Annual 26-Oct-18
Wing Tai Holdings Ltd. W05 Singapore Annual 26-Oct-18
amaysim Australia Ltd. AYS Australia Annual 26-Oct-18
Danieli & C. Officine Meccaniche SpA DAN Italy Annual 26-Oct-18
Silverlake Axis Ltd. 5CP Bermuda Annual 26-Oct-18
Austal Ltd. ASB Australia Annual 26-Oct-18
Partner Communications Co. Ltd. PTNR Israel Annual 28-Oct-18
Electra Ltd. ELTR Israel Annual/Special 28-Oct-18
Shoprite Holdings Ltd. SHP South Africa Annual 29-Oct-18
Imperial Holdings Ltd. IPL South Africa Annual 30-Oct-18
Kimball International, Inc. KBAL USA Annual 30-Oct-18
SmarTone Telecommunications Holdings Ltd. 315 Bermuda Annual 30-Oct-18
Companhia de Saneamento Basico do Estado de Sao Paulo SABESP SBSP3 Brazil Special 30-Oct-18
Bendigo & Adelaide Bank Ltd. BEN Australia Annual 30-Oct-18
Reliance Worldwide Corp. Ltd. RWC Australia Annual 30-Oct-18
Folli Follie SA FFGRP Greece Annual 30-Oct-18
GMS, Inc. GMS USA Annual 30-Oct-18
MC Group Public Co. Ltd. MC Thailand Annual 30-Oct-18
Alibaba Group Holding Ltd. BABA Cayman Islands Annual 31-Oct-18
BWX Ltd. BWX Australia Annual 31-Oct-18
Hopewell Holdings Ltd. 54 Hong Kong Annual 31-Oct-18
BR Properties SA BRPR3 Brazil Special 31-Oct-18
Corporate Travel Management Ltd. CTD Australia Annual 31-Oct-18
Japara Healthcare Ltd. JHC Australia Annual 31-Oct-18
Amot Investments Ltd. AMOT Israel Special 1-Nov-18
Empire Resorts, Inc. NYNY USA Annual 5-Nov-18
Northam Platinum Ltd. NHM South Africa Annual 6-Nov-18
News Corp. NWSA USA Annual 6-Nov-18
CVC Brasil Operadora e Agencia de Viagens SA CVCB3 Brazil Special 6-Nov-18
Presidio, Inc. PSDO USA Annual 7-Nov-18
Corby Spirit & Wine Ltd. CSW.A Canada Annual 7-Nov-18
Reading International, Inc. RDI USA Annual 7-Nov-18
Semiconductor Manufacturing International Corp. 981 Cayman Islands Special 7-Nov-18
Resilient REIT Ltd. RES South Africa Annual 7-Nov-18
Domino's Pizza Enterprises Ltd. DMP Australia Annual 7-Nov-18
G5 Entertainment AB G5EN Sweden Special 7-Nov-18
Kimball Electronics, Inc. KE USA Annual 8-Nov-18
Ascendis Health Ltd. ASC South Africa Annual 8-Nov-18
Sun Hung Kai Properties Ltd. 16 Hong Kong Annual 8-Nov-18
Independence Holding Co. IHC USA Annual 12-Nov-18
The Estee Lauder Companies, Inc. EL USA Annual 13-Nov-18
Oracle Corp. ORCL USA Annual 14-Nov-18
Twenty-First Century Fox, Inc. FOXA USA Annual 14-Nov-18
PGE Polska Grupa Energetyczna SA PGE Poland Special 14-Nov-18
Emeco Holdings Ltd. EHL Australia Annual 15-Nov-18
Sasol Ltd. SOL South Africa Special 16-Nov-18
RIGHT ON Co., Ltd. 7445 Japan Annual 16-Nov-18
Banco BTG Pactual SA BPAC5 Brazil Special 21-Nov-18
Industrial & Commercial Bank of China Ltd. 1398 China Bondholder 21-Nov-18
Yamato International, Inc. 8127 Japan Annual 22-Nov-18
Campbell Soup Co. CPB USA Proxy Contest 29-Nov-18

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News Roundup

New York sues ExxonMobil, saying it ‘misled’ investors about climate change risks

New York Attorney General Barbara D. Underwood sued ExxonMobil on Wednesday, accusing the oil giant of defrauding investors about the financial risks of climate change and lying about how it was calculating potential carbon costs.

The New York lawsuit accuses ExxonMobil of assuring its investors that it was using theoretical prices for carbon in evaluating projects -- from $20 to $80 a ton depending on the country -- when in fact it often used a lower price or none at all.

The lawsuit said that “this fraud reached the highest levels of the company,” including former Exxon chief executive and former secretary of state Rex Tillerson, who the lawsuit said knew for years that the company “was deviating” from public statements and was using two sets of calculations about future regulation of greenhouse gas emissions.

The Washington Post | October 24, 2018

Norway Wealth Fund Calls for Expertise on Company Boards

OSLO (Reuters) - Norway's sovereign wealth fund, the world's largest, will ask the 9,000 companies in which it invests to ensure their board members have sufficient expertise, time and independence, it said in a series of policy papers on Friday.

The $970 billion fund, which funnels Norway's revenues from oil and gas production, owns 1.4 percent of all globally listed shares. It has in recent years become a more active shareholder as it has grown in heft.

While some of the demands put forward on Friday are not new for the fund -- such as opposing CEOs who sit as chairs of their companies -- others are, such as requiring industry expertise from directors.

A majority of independent board members should have "fundamental industry insight" and at least two of the independent members should have worked in the company's industry, said the fund.

"It is really ... industry expertise which is an issue that has been under-communicated from investors," fund CEO Yngve Slyngstad told Reuters. "The strong desire to have a profitable company by having a board who knows the business."

U.S. News & World Report | October 26, 2018

The Promise and Peril of a Star CEO

Star CEOs can be good for companies, providing social proof that their firm is a high quality place and making it easier to attract capital and talent. But they can also be dangerous. The recent cases of Tesla, Papa John’s, and CBS exemplify this: all three companies benefitted from the brightness of their star CEOs. And then each company had to deal with expensive, distracting problems their star created.

Consider Tesla: before Elon Musk became CEO in 2008, the electric car company had delivered fewer than 200 cars and was running out of cash. Ten years later, it could produce, albeit with extraordinary measures, 5,000 cars a month and had a higher market value than Ford’s. Within the company, Musk has held unusual power; he is the largest stockholder in Tesla, and is positioned as a visionary genius who is essential to the company’s success. Still, Musk’s tweets about taking the company private cost the company a $20 million settlement with the SEC and exposed it to larger potential liability from aggrieved stockholders.

Harvard Business Review | October 22, 2018

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ISS Updates & Links

Links in these sections are available to entitled subscribers through our on-line platform.

To access these documents, first log into Proxy Exchange and then click on Governance Exchange (or Special Situations Research for those noted items) to enable these links:

2018 ISS Publications

2018 European Voting Results Report

Board Refreshment: Finding the Right Balance (available on ISS website)

Women in the C-Suite: The Next Frontier in Gender Diversity (available on ISS website)

A Preliminary Review of the 2018 US Proxy Season (available on ISS website)

European Shareholder Rights Directive II: An Overview (available on ISS website)

Peer Selection and the Wisdom of the Crowd (available on ISS website)

Global Governance: Board Independence Standards and Practices

An Early Look at the U.S. 2018 Proxy Season Trends (available on ISS website)

U.S. Board Study: Board Accountability Practices Review (available on ISS website)

U.S. Board Study: Board Diversity Review (available on ISS website)

An Early Look at the State of U.S. CEO Pay (available on ISS website)

An Overview of U.S. Shareholder Proposal Filings (available on ISS website)

2030: An Odyssey to Thirty-Percent Board Diversity (available on ISS website)

Sexual Misconduct Risk: Five Steps for Effective Management (available on ISS website)

Building Company Watchlists for Proxy Season (available on ISS website)

U.S. Tax Reform: Changes to 162(m) and Implications for Investors (available on ISS website)

2018 Season Reviews

2018 Singapore Proxy Season Review

2018 Hong Kong Proxy Season Review

2018 Europe Proxy Season Review

2018 Japan Proxy Season Review

2018 Canada Proxy Season Review

2018 Taiwan Proxy Season Review/span>

2018 US Uncontested Elections and Governance Proposals Proxy Season Review

2018 China Proxy Season Review

2018 France Proxy Season Review

2018 US Environmental and Social Issues Proxy Season Review

2018 US Executive Compensation Proxy Season Review

2018 South Korea Proxy Season Review

2018 Latin America Proxy Season Review

2018 Season Previews

2018 Greater China (China, Hong Kong, and Taiwan) and Singapore Proxy Season Preview

2018 Japan Proxy Season Preview

2018 United States Proxy Season Preview

2018 UK and European Proxy Season Preview

2018 Canada Proxy Season Preview

2018 South Korea Proxy Season Preview

2018 Latin America Proxy Season Preview

2018 Market IQs

2018 Taiwan Market IQ

2018 Singapore Market IQ

2018 Hong Kong Market IQ

2018 China Market IQ

2018 France Market IQ

2018 Japan Market IQ

2018 Netherlands Market IQ

2017 ISS Publications

The Corporate Governance World in 2018 (available on ISS website)

The Seven Habits of Effective Engagement for Companies (available on ISS Corporate Solutions website)

The Seven Habits of Effective Engagement for Investors (available on ISS website)

2017 United States Proxy Voting Manual

2017 United States Board Practices Study

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For questions, comments or suggestions, email publications@issgovernance.com.


Drawing on ISS' Data Desk, Governance Insights delivers news and analysis of corporate governance developments, including insights and reporting found in no other media, on a periodic basis. While we exercise due care in compiling this newsletter, we assume no liability with respect to the consequences of relying on this information for investment or other purposes.


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