Key Governance Developments - February 2020

Investors take aim at Japan Inc. 

Shareholders are taking aim at corporate Japan, as the culture of deference once enjoyed by corporate leaders evaporates. At troubled Nissan, investors say an important part of the responsibility for declining sales, profit and share price can be attributed to retired executives who still collect generous pay packages. The auto manufacturer is still grappling with the fallout from the ousting and arrest of chairman Carlos Ghosn, once lauded as Nissan's saviour, who is now on the run from charges of concealing substantial amounts of income from shareholders and tax authorities. Activist investors also have Japan Inc. in their sights - at technology investment firm SoftBank, US hedge fund firm Elliott Management is pressing the board to boost shareholder returns by selling off a big stake in China's Alibaba and buying back shares.

EBA’s Enria blames deterioration in EU bank governance for failure to curb money laundering

Andrea Enria, chief bank supervisor at the European Central Bank, has criticised EU institutions for a deterioration in governance, including a failure to curb money laundering, pointing to weak internal controls, lack of supervision by boards and, in some cases, failure to produce accurate data because of obsolete IT systems. Enria also faults banks for an obsession with retaining talent through bonuses that encourage lack of sensitivity to risk.

Best source: Les Echos (subscription required, in French)


New Nissan CEO pledges lower executive salaries as part of restructuring

Nissan’s new CEO, Makoto Uchida, has told an extraordinary shareholders' meeting that he will cut executive pay and restructure the company to reverse the decline in sales, profitability and the company’s share price. Shareholders have complained about executive pay and retirement packages for retiring executives, including the previous CEO Hiroto Saikawa, even after the ousting of former chairman Carlos Ghosn, now a fugitive in Lebanon from charges of unlawfully enriching himself at Nissan's expense. A revamped compensation committee has proposed that remuneration should be performance-based and will consider current earnings in making recommendations.

Best source: Financial Times (subscription required)

See also: Japan Times

Credit Suisse CEO forced out over surveillance of executives 

Credit Suisse CEO Tidjane Thiam has resigned after losing a boardroom battle over surveillance of senior executives that was first revealed in September and will be replaced this week by the head of the bank’s Swiss business, Thomas Gottstein. Thiam had been under mounting pressure in the wake of reports about the bank's surveillance of executives, including departing wealth head Iqbal Khan, as well as spying on Greenpeace after activists from the environmental organisation disrupted the group's shareholders’ meeting. David Herro, chief investment officer of Harris Associates, a major investor in Credit Suisse which had publicly backed Thiam, has led calls for the resignation of chairman Urs Rohner to give the bank a fresh start.

Best source: Financial Times (subscription required)

See also: The Telegraph (subscription required)

See also: Le Temps (subscription required, in French)

See also: The Guardian


Siemens CEO clashes with investors and protestors over coal contract

Siemens CEO Joe Kaeser says he has sympathy with environmental activists protesting about the group's involvement in an Australian coal-mining project, but is not prepared to cancel the €18m contract to supply rail signalling equipment to Indian company Adani Group. Protestors attended the company’s annual general meeting, at which institutional investors also raised concerns. BlackRock’s Investment Stewardship team says Siemens faces risks with the project, and needs to do more to assess environmental, social responsibility and governance issues arising from its activities in the future. Under the contract signed last year, Siemens will provide signals technology for a railway line to transport coal from a remote mine in Queensland.

Best source: Citywire Selector

See also: Reuters


UK fund manager takes aim at combination of CEO and chairman roles

Director of investment stewardship Sacha Sadan says Legal & General Investment Management will vote against proposals by listed companies worldwide to combine the chief executive and chairman roles, an issue that the asset manager says is most pressing in the US, France and Spain. LGIM will also vote against board membership resolutions at Topix 100 listed companies in Japan that do not have at least one woman board member, and against US S&P 500 and Canadian listed companies with less than 25% women on their boards. Sadan says the firm is not taking a position on the individuals involved but believes separating the roles is in the best long-term interests of companies and investors.

Best source: City A.M.

See also: Reuters

ECB urges banks to improve internal governance


European banks need to improve the effectiveness of their management bodies and strengthen internal controls, the European Central Bank says in a report on its annual Supervisory Review and Evaluation Process. Banks' scores for internal governance, business models and conduct risk have declined significantly, according to the report, and the ECB says it is concerned about weak management boards and inadequate outsourcing controls.

Best source: Loyens & Loeff


CSSF circular covers eligibility and governance requirements for fund boards: Marco Zwick

The CSSF's head of investment fund supervision, Marco Zwick, says there is no need for fresh legislation to regulate the number of mandates held by fund directors since the regulator's CSSF 18/698 circular sets out in detail the requirements of fund management companies in assuring that board members are capable of fulfilling their responsibilities. The circular includes other provisions designed to ensure good governance, he says, including a stipulation that the boards of funds should not have a majority of members who are executives or employees of the fund manager. Zwick insists that the CSSF pays close attention to potential conflicts of interest that may arise for lawyers or auditors nominated as fund directors, and can, if necessary, reject their appointment.

Best source: Lëtzebuerger Journal (in French)


UK proposes rule on climate risk disclosure for pension schemes

The UK government is proposing that defined contribution pension schemes must disclose how they take account of the impact of climate change on their investments, and that they should report annually on their response. The rules would require greater detail on the impact on investments of various scenarios, such as a 2ºC average global increase in temperatures. Pension schemes would also have to disclose governance procedures for managing climate risks and their holdings in carbon-intensive companies.

Best source: Financial Times (subscription required)

See also: Wall Street Journal (subscription required)

See also: Investment & Pensions Europe


Former BBVA chairman knew about corporate espionage case: anti-corruption agency

Spain's Fiscalía Anticorrupción agency has accused BBVA’s former president, Francisco González, of being directly involved in the alleged corporate espionage case in which the bank hired former police agent José Manuel Villarejo to spy on executives at construction company Sacyr in 2004. Despite his denial, the agency says González would have known of the contract with Villarejo’s company.

Best source: El País (in Spanish)

UK regulators investigate Barclays CEO links to Jeffrey Epstein

The UK's Financial Conduct Authority and the Bank of England's Prudential Regulation Authority are investigating historic links between Barclays CEO Jes Staley and disgraced US financier Jeffrey Epstein, who committed suicide in prison last year while facing child sex-trafficking charges. The Barclays board has questioned Staley about the allegations but has recommended him for re-election at the bank's next annual general meeting in May. However, the regulators are examining the accuracy of statements by Staley on his relationship with Epstein. The FCA and PRA reprimanded and fined Staley £642,000 last year for trying to uncover the identity of a whistleblower who had raised allegations about Barclays' recruitment of a friend of the CEO.

Best source: Sky News