Key Governance Developments - April 2020

Governance still in focus amid coronavirus pandemic  

Regulators around the world are easing some reporting and other requirements on financial institutions and other companies in recognition of the extraordinary pressure on businesses resulting from the Covid-19 pandemic and the resulting economic and financial slump. However, adherence to governance standards remains in focus, with pressure groups and ESG investors insisting that the outbreak represents a test of companies’ genuine commitment to social responsibility in the way they treat employees, suppliers and customers. And BlackRock says it will continue to pressure companies over their governance and sustainability performance, and is ready if necessary to take steps such as opposing the re-election of directors, even at groups struggling to cope with social and economic disruption.


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 coronavirus 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, it is 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)

 

Hong Kong exchange orders stricter ESG reporting

The Hong Kong Stock Exchange will introduce stricter environmental, social responsibility and governance reporting requirements for quoted companies from July 1. The measures, which make boards of directors responsible for ESG issues, require all companies to set out the impact of climate change on their business and publish policies for mitigation.

Best source: International Investment


ESG investors say coronavirus response is test of corporate responsibility

CEO Martin Whittaker of Just Capital, which ranks US corporate groups on their fairness to all their stakeholders, says the response by companies to the coronavirus pandemic will prove an acid test of their social responsibility and commitment to stakeholder capitalism. Microsoft, Alphabet and other tech companies that feature in ESG portfolios are committed to paying staff in full, even if they are unable to work or are on reduced hours, but Amazon’s Whole Foods supermarket chain has been criticised after CEO John Mackey asked staff to offer unused sick leave to colleagues in isolation or who are infected. Airlines including Virgin Atlantic, British Airways, Norwegian and SAS have been criticised for making staff redundant while asking for government bailouts, and for the relatively small pay cuts senior management have accepted. Michael Lewis, head of ESG thematic research at Deutsche Bank's investment subsidiary DWS, says the pandemic has highlighted that the social responsibility element of ESG represents a reputational risk that up to now has been overshadowed by environmental and climate issues.

Best source: Financial Times (subscription required)

UK regulator consults on climate change disclosure requirements for listed issuers 

The Financial Conduct Authority is consulting on proposals to require UK premium listed issuers to declare whether they comply with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures or explain why they are not following the guidance. The change would affect listed issuers as well as other entities with securities admitted to trading on regulated markets, and those covered by the EU's Market Abuse Regulation and Prospectus Regulation. The task force, headed by Bank of England governor Mark Carney and Michael Bloomberg, says companies should disclose oversight of risks, scenarios for coping with various temperatures, risk management processes and progress in meeting targets.

Best source: Financial Times (subscription required)

See also: Financial Conduct Authority

 

US investors sue Deutsche board members for failure to prevent misconduct 

Two small US shareholders are suing current and former board members of Deutsche Bank for failing to prevent corporate misconduct. Among those targeted by the lawsuit are CEO Christian Sewing and chairman Paul Achleitner, as well as former CEOs Josef Ackermann, Anshu Jain, Jürgen Fitschen and John Cryan. The shareholders are also suing Bayer on similar grounds, naming more than 70 board members of the two companies. The plaintiffs are not seeking personal damages, but rather compensation from the board members to the companies. The Deutsche suit refers to a litany of wrongdoing including price-fixing, sanctions violations, money laundering, deficiencies in capital planning, reporting failures, inadequate controls, bribery and other regulatory breaches. The suit against Bayer focuses on its 2016 acquisition of Monsanto and the liability for weedkiller Roundup.

Best source: Financial Times (subscription required)


BlackRock to maintain governance pressure on companies despite coronavirus pandemic

BlackRock’s global head of investment stewardship, Michelle Edkins. says the asset management group will continue to pressure companies over their governance and sustainability targets. The asset manager will oppose the re-election of directors if necessary, even at groups that are grappling with the impact of the coronavirus pandemic. Edkins says the pandemic will help to identify companies with a long-term focus, along with strong business continuity and human capital plans.

Best source: Reuters

 

Twitter CEO keeps job in $1bn investment deal with hedge fund firm

Activist hedge fund manager Elliott Management has agreed a deal under which Twitter co-founder Jack Dorsey will remain as CEO and the company will undertake a $2bn share repurchase programme. Elliott had called for senior management changes over concern that Dorsey was dedicating too much time to his CEO position at payment processor Square, as well as his plans to spend six months in Africa. Under the agreement, Twitter will appoint two new directors, Elliott’s head of US activism, Jesse Cohn, and Egon Durban, co-CEO of Silver Lake Partners, a private equity firm that will also take a $1bn stake in Twitter. The social media giant is still looking for a third independent director with expertise in technology and artificial intelligence.

Best source: Wall Street Journal (subscription required)

See also: New York Times (subscription required)

See also: CNBC

 

UBS cuts bonuses after year of poor performance

UBS has reduced its 2019 bonus pool for employees by 14% after a year in which the bank’s performance was affected by ongoing low interest rates, slowing global growth and geopolitical volatility. Pay for UBS’s executive board members, including CEO Sergio Ermotti, fell by 14% to CHF70.3m. Ermotti, who is scheduled to step down in November and will be succeeded by ING CEO Ralph Hamers, was paid CHF12.5m in 2019, 11.4% less than in 2018. Chairman Axel Weber saw his pay cut by 13% to CHF5.2m. However, private banking head Iqbal Khan received an $8.1m payment when he joined UBS from rival Credit Suisse last year.

Best source: Financial Times (subscription required)

See also: Financial News (subscription required)

See also: SWI Swissinfo

 

Activist shareholder seeks board changes at French furniture retailer

Teleios Capital Partners has built a 13.3% stake in French furniture and home decoration firm Maisons Du Monde, and is asking other shareholders to support its call for consultations before new board members or a new chairman are appointed. The Swiss activist shareholder is concerned about Maison Du Monde’s performance, investor communication and corporate governance.

Best source: Reuters


Founder arrested for money laundering after Indian bank collapse

India's anti-financial crime agency Enforcement Directorate has arrested Rana Kapoor, the founder of Yes Bank, accusing him of laundering around $581m. The privately-owned bank has struggled with non-performing loans, leading to a partial rescue and $332m capital injection by the State Bank of India and the nullifying of the bank’s additional tier 1 bonds, leaving investors with losses. Customers have also been told that withdrawals will be capped at INR50,000 (€591) for a month.

Best source: BBC News

See also: Economic Times 

Covid-19 is a new systemic risk. What are the implications for governance?

Covid-19 emerged in December 2019 and has quickly become a global crisis that threatens the health of individuals and the welfare of societies on a vast scale, including its impact on global economic activity and growth.
The ongoing—and profound—uncertainties create great challenges for corporates, their boards and their investors as they contemplate how best to navigate these difficult and dynamic times.
Addressing this systemic risk responsibly is a moral and economic imperative for governments as well as for companies and their investors. The near-term priority is to seek to contain Covid-19 as a matter of public health. This will come at a cost, at least in the short-term to economic activity, company performance and profitability.
Best source: Board agenda