Key Governance Developments - June 2020

Norway sovereign fund manager promises transparency on corporate voting

Norges Bank Investment Management, which manages Norway's sovereign wealth fund, is increasingly flexing its muscles as an institutional investor. The asset manager, part of Norway's central bank, will henceforth publish the rationale for any votes it makes against a company's board, including director appointment resolutions, the following day, although it emphasises that in most cases it follows board recommendations. It has also published its stance on board independence, multiple share classes, shareholder rights in equity issuance and related-party transactions as the basis for its engagement with company boards. Already this year the manager of the nearly $1trn fund has called on the 9,200 companies in which it invests to provide more details of their sustainability efforts, and announced divestment from groups with mining or energy operations in the coal sector, as well as oil companies with high levels of greenhouse gas emissions. But another major institutional investor, the world's largest asset manager BlackRock, has fallen foul of critics who say the group's refusal to back AGM motions calling on Australian oil companies to embrace the Paris Agreement is hypocritical after CEO Larry Fink promised to place sustainability at the centre of its investment process.

Norway’s sovereign fund to publish reasons for voting against directors and board motions

Norges Bank Investment Management, which runs the country’s NOK10.2trn sovereign wealth vehicle Government Pension Fund Global, has announced it will publish the reasons for any votes against company directors or board motions a day after shareholder meetings. Chief corporate governance officer Carine Smith Ihenacho says the move will increase the transparency and market understanding of the fund's positions. The asset manager has also published position papers clarifying its views on board independence, multiple share classes, shareholder rights in equity issuance and related-party transactions, to serve as a basis for discussion with boards.

Best source: Pensions & Investments (subscription required)

Activist investors win fight to replace JP Morgan lead independent director

JP Morgan Chase will replace its lead independent director Lee Raymond, the former CEO and chairman of ExxonMobil, after a campaign by campaign groups and activist shareholders who opposed his re-election on the grounds of conflicts of interest. The New York City comptroller, who oversees five pension funds, asked others to vote against Raymond, saying he has held the board position for too long. Now 81, Raymond, who has been a director of Exxon and then ExxonMobil for a total of 33 years and lead independent director for the past 19, will remain a board member.

Best source: Pensions & Investments

See also: Financial Times (subscription required)


BlackRock criticised in Australia for failing to back environmental AGM motions

The Australasian Centre for Corporate Responsibility’s executive director, Brynn O’Brien, has accused BlackRock of hypocrisy for not backing shareholder resolutions on environmental standards at Australian oil companies Woodside Energy and Santos. The advocacy group filed resolutions calling on the companies to set targets aligned to the Paris Agreement, believing BlackRock CEO Larry Fink’s promise that the investment manager would place sustainability at the centre of its investment process. BlackRock did not support the motion, although 43% of Santos shareholders and more than half of Woodside investors did.

Best source: Financial Times (subscription required)

Premiums rise sharply for US directors and officers liability cover

The cost to companies of providing directors and officers liability insurance has nearly doubled in the past two years, and surged further in the first quarter of 2020, according to insurer Aon. Insurers have increased premium levels after an increase in settlements with shareholders over conflicts of interest in M&A deals, cyber-security breaches and sexual harassment or assault cases. Insurers are concerned that the Covid-19 pandemic could lead to even more claims, prompting underwriters to become more selective about the companies and executives they cover, or the imposition of more stringent terms and conditions.

Best source: Financial Times (subscription required)

See also: Business insurance


UK government offers temporary relief from corporate solvency requirements

The UK government has introduced corporate insolvency and governance legislation to give companies greater flexibility if they face insolvency as a result of the Covid-19 pandemic. The law would suspend current rules on trading unlawfully until June, and temporarily remove the threat of personal liability from directors. Compulsory winding-up orders are also suspended, primarily to help property landlords and small businesses survive the impact of the economic lockdown.

Best source: Big Hospitality


Public trust in companies falls over Covid-19 response

An update to the annual Trust Barometer survey by PR firm Edelman has found that half of the 13,000 people surveyed worldwide believe companies are failing to put people before profit, while 43% think companies are not protecting their employees adequately. Overall trust in companies is up, however, but only 29% of respondents believe CEOs are doing enough to respond to the Covid-19 pandemic.

Best source: Financial Times (subscription required)

See also: Axios


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)


Bailed-out UK companies banned from paying bonuses and dividends

Companies that take advantage of the UK government’s revised Covid-19 bailout programme will face new restrictions as part of the scheme's conditions. The maximum size of a loan has been increased from £50m to as much as £200m for medium-sized companies, but any business borrowing more than £50m will not be permitted to pay dividends to investors. Cash bonuses and pay rises to senior management are also disallowed, apart from any payments that have already been agreed.

Best source: Reuters

See also: Financial Times (subscription required)

UK online grocery firm ignores shareholder protests over executive pay

UK online grocery business Ocado will maintain its remuneration plan for a significant increase in fixed pay and bonuses for executives, despite nearly 30% of shareholders voting against it in a non-binding vote. Advisory groups Pirc, Glass Lewis and Institutional Shareholder Services opposed the remuneration committee’s recommendations, and BlackRock was among larger fund managers that voted against the re-election of Andrew Harrison, chairman of Ocado's remuneration committee. Royal London Asset Management has also criticised the way bonuses are calculated.

Best source: Financial Times (subscription required)

See also: The Guardian