Key Governance Developments - March 2021

Discover our latest Key Governance Developments!

Introduction


Activist investors strike further wins 

Activist investors are becoming increasingly successful at obliging companies to act more transparently and ensure that minority shareholder concerns are treated seriously. Danone's CEO has lost his job following criticism of the company's poor performance during the pandemic, and electronics giant Toshiba will have to investigate allegations of voting irregularities at last year's AGM - a rare shareholder victory in Japan. For those companies that fail to manage ESG and diversity correctly, the UK and Germany are among countries ramping up regulatory pressure.


Key Governance Developments


Danone board replaces CEO after investor pressure 

The board of Danone has removed Emmanuel Faber from his role as CEO and chairman after activist investors complained about the company’s performance during the Covid-19 pandemic compared with rivals Nestlé, Unilever and Procter & Gamble. The board had previously said Faber would remain as chairman, but he has now been replaced in that role by former Legrand CEO Gilles Schnepp, who will also lead the search for a new CEO. Activist funds Bluebell Capital Partners and Artisan Partners had criticised Faber, who had championed the environmental, social and governance movement, for the company's poor performance and also called for the roles of chairman and CEO to be separated. His departure marks the downfall of a highly visible advocate for a more responsible form of capitalism in which companies protect the environment, their employees and suppliers in addition to shareholders' interests.

Best source: Le Figaro (in French) 

See also: Financial Times (subscription required) 

See also: New York Times (subscription required) 


Toshiba investors win vote backing investigation into alleged shareholder suppression 

Investors in Toshiba have voted in favour of a resolution backing an independent investigation into allegations of voting irregularities and pressure placed on shareholders at last year’s annual general meeting, marking the fourth time that a shareholder motion has won approval in Japan. The proposal by Effissimo Capital Management, which was supported by proxy advisers and passed with a simple majority vote, refers to claims that a vote last year on Effissimo's co-founder, Yoichiro Imai, being named to Toshiba’s board was not counted properly.

Best source: Japan Times 


Half of FTSE 100 companies link ESG to executive pay 

Almost half of the UK FTSE 100 index companies have specifically linked executive pay to ESG targets, according to a report by PwC and the London Business School. Just over one-third have ESG targets in their bonus plans, with an average 15% of bonus payments linked to ESG issues.

Best source: Financial Times (subscription required) 


German companies appoint women to boards ahead of new law 

Large listed companies in Germany are appointing women to their boards ahead of the introduction of a gender diversity law requiring 67 companies to have at least one female board member. Energy company E.ON, chipmaker Infineon and sportswear business Adidas have all made recent appointments, while pharmaceutical group Bayer aims to achieve board and management gender parity by 2030. Despite recent appointments, the share of women in management roles at DAX companies is only around 17%, compared with roughly 30% or more at companies listed on the FTSE 100 or the S&P 500.

Best source: Financial Times (subscription required) 


UK plans stricter executive bonus clawback rules 

UK business secretary Kwasi Kwarteng has proposed tougher personal responsibility rules for company directors, following recent accounting scandals at Carillion, Thorntons and retailer BHS that led to the companies failing. The rules align with financial sector regulations that require companies to name an individual responsible for the accuracy of corporate accounts. They will include tougher bonus clawback provisions and potential bans on future payouts, as well as restrictions on dividend payments to shareholders for companies that are in trouble.

Best source: Citywire Selector (registration required) 


ExxonMobil adds board directors following activist pressure 

ExxonMobil has appointed activist investor Jeff Ubben, head of Inclusive Capital Partners and former manager of ValueAct Capital Partners, to its board of directors following investor complaints about the company's environmental and climate-change stance and recent poor performance. Michael Angelakis, CEO of investment firm Atairos and a former chairman of the Philadelphia Federal Reserve, will also join the board. ExxonMobil has reported losses for four consecutive quarters and wrote down almost $20bn of assets it now deems non-strategic. It is facing an activist campaign by funds Engine No. 1 and DE Shaw, which described the board appointments as significant positive developments for all shareholders.

Best source: Financial Times (subscription required) 

See also: Los Angeles Times (subscription required)

 

UK proposals to ease listing rules meet mixed reaction amid caution on investor protection 

Chris Cummings, head of the UK's Investment Association, has cautioned that any relaxation of listing requirements on the London Stock Exchange should provide protections for minority investors, following a report by former EU financial services commissioner Jonathan Hill recommending reforms. Proposed changes would include authorising dual-class share structures and reducing the minimum free float for listed companies from 25% to 15%, as well as initiatives to encourage the listing of special-purpose acquisition companies in London. Some asset managers oppose changes that would violate the principle of one share, one vote, but others welcome ideas for ways to enhance London's international appeal. SVM chief investment officer Colin McLean warns dual-class share structures may conflict with stewardship requirements and limit the ability of shareholders to remove company managers or alter the direction of a business.

Best source: Financial Times (subscription required) 

See also: CNBC

See also: Bloomberg (subscription required)

 

Swedish activist investor calls for ESG targets in executive compensation plans 

Swedish activist investor Cevian Capital has called for companies to include environmental, social and governance targets in their executive compensation plans. Managing partner Christer Gardell says very few companies meaningfully incorporate ESG factors into incentives for senior management.

Best source: Reuters

 

Accounting bodies to merge and harmonise ESG standards 

The Sustainability Accounting Standards Board is merging with the Integrated Reporting Council by the middle of this year to form the Value Reporting Foundation. The two bodies are also working with the Global Reporting Initiative, Climate Disclosure Standards Board and Carbon Disclosure Board on harmonising environmental, social and governance standards. The International Financial Reporting Standards Foundation is also consulting on proposals to create an international sustainability standards board, which could challenge the ambitions of the planned merger.

Best source: Accounting Today

 

Former Austrian foreign minister Kneissl named to Russia’s Rosneft board 

Former Austrian foreign minister Karin Kneissl has been named to the board of Rosneft, joining former German chancellor and board chairman Gerhard Schröder at the controversial Russian oil and gas company. Kneissl, an independent politician named as minister by the Austrian Freedom Party when it was part of a government coalition, was accused of undermining EU foreign policy when she invited Russian president Vladimir Putin to her 2018 wedding and danced with him in front of cameras. Matthias Warnig, CEO of the Nord Stream 2 pipeline project opposed by the US, is Rosneft board deputy chairman.

Best source: BBC News

See also: Neue Zürcher Zeitung (subscription required, in German)