Key Governance Developments - 2020 Wrap up

Covid-19 response, sustainability pressure – and Wirecard – dominate governance issues in 2020

The Covid-19 pandemic and how governments, companies and markets responded to the economic, financial and social turbulence were among the most critical governance challenges this year, but they intersected with the growing focus on environmental, social responsibility and governance considerations on the part of policy-makers, regulators and investors. How companies have responded to the business disruption, in the way they treat their staff, customers and suppliers, has dovetailed with the increased focus among both institutional and individual investors on climate change, human rights and employment practices, and corporate transparency. But while pension funds and sovereign wealth institutions are increasingly demanding that portfolio companies engage with them on ESG issues, there are signs that many leading asset management groups, which could potentially wield even greater external influence, do not always use their financial clout to push companies toward embracing social equity and sustainability. And 2020 was also the year that saw one of the most momentous corporate failures since the bankruptcy of Enron in 2002 - the collapse of Germany's technology stock market darling Wirecard, under the weight of a €1.9bn fraud that seemed more evident to newspaper readers than to the company's board, auditors and regulators.


Covid-19 response likely to influence governance approach for ESG investors

 

Morgan Stanley, Barclays and Bank of America analysts argue that ESG investors will change their approach to social responsibility and governance issues as a result of the Covid-19 pandemic. They believe that the way in which companies have responded, in areas such as staff and community goodwill, remuneration structures, dividend payouts and taxation, will play a bigger role in ESG-related investment decisions in the future.

Best source: Financial Times (subscription required)

 

Regulators and governments relax corporate reporting standards

The European Securities and Markets Authority, the UK's Financial Conduct Authority and other national supervisors are relaxing reporting requirements for listed companies and market participants in response to the Covid-19 pandemic. The FCA has asked companies to suspend their preliminary results in order to be able to incorporate fresh data on the impact of the pandemic. Along with other financial regulators such as the Banca d’Italia, ESMA recommends extending regulatory reporting deadlines for liquidity, risk and operations for supervised institutions, especially banks that are offering debt moratoriums and extending additional credit to retail and corporate customers.

Best source: European Securities and Markets Authority

See also: Reuters

See also: Banca d'Italia

See also: Financial Times (subscription required)

 

European Commission to require bailed-out companies to report on environmental goals

The European Commission has indicated it will not impose environmental or sustainability requirements for state aid bail-outs during the Covid-19 pandemic. The Commission has approved national schemes with a value exceeding €1.9trn from countries including Greece, Poland, Portugal, Sweden, Germany, France, Italy, the UK and the Netherlands. However, competition commissioner Margrethe Vestager says companies will have to report on the uses to which they put aid funds, and report on their adherence to environmental and digital transition goals.

Best source: Euractiv

See also: Bloomberg (subscription required)

 

Norwegian wealth fund manager to focus on corporate governance after Covid-19

Carine Smith Ihenacho, chief corporate governance officer at Norges Bank Investment Management, says Norway’s sovereign wealth fund will increase its focus on corporate governance and board diversity as the 9,000 companies in which it invests embark on recovery processes after the Covid-19 pandemic. Although most of the investment manager’s staff are working from home, it has voted on more than 45,000 shareholder resolutions so far this year and opened a dialogue with companies on ESG issues and boards' long-term strategies.

Best source: Financial Times (subscription required)

 

Former Wirecard board member resigned in 2017 with warning over executives’ resentment of oversight

A former member of Wirecard's supervisory board, management consultant Tina Kleingarn, wrote a resignation letter in 2017 warning chairman Wulf Matthias that the executive committee was acting without restraint and viewed efforts to oversee their operations as a burden. Testifying to the parliamentary committee investigating the group's collapse, Kleingarn says she warned that the shortcomings would catch up with Wirecard. In a year and a half as a director, Kleingarn repeatedly urged executives to expand the managerial capacity of the business and implement further professional controls.

Best source: Reuters (in German)

See also: Handelsblatt (subscription required, in German)

 

Shareholders increasingly ready to vote against European company AGM resolutions

Investors in European companies are increasingly willing to vote against resolutions at annual general meetings. Consultancy Georgeson has calculated that the proportion of resolutions at large German companies that resulted in significant dissent increased by 108.6% in 2019. Significant dissent was up by 21.1% in Spain over the same period, although the overall increase in Europe’s largest markets was just 6.7%.

Best source: Financial Times (subscription required)

 

UK investment body issues shareholder guidance on excessive executive pensions

The UK's Investment Association has issued guidelines for institutional shareholders on voting for or against executive pension packages at companies they invest in. The Investment Association, which represents 250 asset managers and other institutional investors, says public companies with existing directors' pension contributions worth more than 25% of their salary will prompt the highest level of warning. The changes will apply from the 2020 annual general meeting season.

Best source: Financial Times (subscription required)

 

Shell to link executive pay to carbon emission reduction

Oil and gas group Royal Dutch Shell is to introduce three-year or five-year carbon emission reduction targets annually from 2020, to which it will link executive remuneration. Shell had previously intended to set only non-binding long-term emission targets, but it has now agreed to stricter commitments under pressure from its shareholders. The group's targets will include so-called Scope 3 emissions from the burning of fossil fuels sold to millions of customers around the world, rather than just emission reductions in its own operations.

Best source: Reuters


Danone adopts health through food goal as social benefit company

Some 99% of shareholders in Danone have voted to change the company’s status to that of an entreprise à mission, or social benefit corporation, and adopted the objective of delivering health through food. The status was introduced into French law last year to enable companies to signal increased emphasis on social and environmental issues, and Danone is the first French listed company to adopt it. An external panel will report once a year on Danone’s progress towards delivering on the goals.

Best source: Financial Times (subscription required)

See also: Le Figaro (subscription required)