Key Governance Developments - November 2019

Human rights become increased concern for institutional investors 

Shareholders and pressure groups continue to highlight the poor records of multinational companies over employee and human rights in their supply chains around the world. Norway's influential NOK10.2trn (€1trn) sovereign wealth fund is often at the forefront in pushing companies to adopt a more ethical, transparent and pro-active stance on social issues, and has set an example by dropping international security firm G4S for its involvement in abusive treatment of migrant workers in the Middle East. Other shareholders are also giving human rights a higher priority because of the risk of economic losses as a result of reputational damage to brands.

UK directors’ group calls for new boardroom ethical code

The UK's Institute of Directors has called for a more stringent code of governance to set ethical standards for companies' board members, and has called on Britain's political parties to make enhanced corporate governance controls part of their manifesto for the December 12 general election. The organisation has also proposed the creation of a new public service corporation classification, with legal requirements to balance the interests of employees, firms in their supply chain, shareholders and other stakeholders.

Best source: Financial Times (subscription required)

See also: City A.M.


Norwegian wealth fund divests from security firm over human rights violations

The manager of Norway’s sovereign wealth fund is to divest its holding in security firm G4S after the Government Pension Fund Global’s council of ethics uncovered alleged human rights abuses at the company’s businesses in the Middle East. The council found that migrants working in Qatar and the UAE paid recruitment fees to work for the company, often through loans taken out in their home countries. The workers were also harassed, had their passports confiscated, and were paid lower wages than agreed. The fund’s manager, Norges Bank Investment Management, has already excluded other companies from the fund's investments on human rights grounds.

Best source: Financial Times (subscription required)

Regulators urge Deutsche Bank’s Sewing to give up dual role

The European Central Bank and BaFin are urging Deutsche Bank's Christian Sewing to give up his dual role as CEO and head of investment banking, because the current situation poses a conflict of interest that could interfere with the bank's restructuring. They argue that the CEO must promote prudent risk-taking, while the chief investment banker is a risk creator. The roles had traditionally been kept separate until Sewing took on the investment banking position in July. However, Deutsche insists it has no intention of changing leadership of the investment bank again.

Best source: Financial Times (subscription required)

See also: Handelsblatt (in German, subscription required)


Regulator calls for break-up of Big Four accountants in UK

The UK government should break up the Big Four accounting firms, Deloitte, EY, KPMG and PwC, argues Simon Dingemans, chairman of the country's Financial Reporting Council. He says that operational separation of accounting and consultancy at the Big Four, and even the bigger six, should be the centrepiece of a reform to drive up audit quality. Dingemans has also spoken out against the joint auditing formula imposed by the Competition and Markets Authority, saying it leads to duplication, confusion of responsibility, and increased cost without providing any clear added value.

Best source: Financial Times (subscription required)


Unilever replaces chairman after failure of single headquarters proposal

Unilever has replaced Marijn Dekkers as chairman with Nils Andersen, the former CEO of shopping company AP Moller-Maersk and brewer Carlsberg, and who has been a member of the Unilever board since 2015. Dekkers was appointed chairman in April 2016, but was criticised by shareholders for persisting with plans to consolidate the company’s dual headquarters in Rotterdam, at the expense of London, to which shareholders objected for fear that Unilever would be removed from the FTSE 100 stock market index.

Best source: Reuters


Wirecard expands scope of accounting enquiry by KPMG

Markus Braun, CEO of German payment company Wirecard, has widened the scope of a review of the group's accounts by KPMG in order to challenge allegations by the Financial Times that its finance team in Singapore inflated sales and profit figures from operations in Ireland and Dubai. The enquiry will examine separate claims that Wirecard overstated cash advances to merchants, and that its accounting for third-party transaction acquisition was incorrect. The review should be complete before the end of March next year.

Best source: Reuters

LVMH and Starbucks among companies criticised for weak human rights disclosure

The not-for-profit group Corporate Human Rights Benchmark has criticised Amazon, LVMH, Qualcomm, Costco, Starbucks and other large listed groups for a lack of transparency in identifying and addressing human rights issues in their businesses and supply chains. A report found that around half of the 200 apparel, food and drink, technology manufacturing and resource extraction companies analysed fail to demonstrate that they are addressing human rights issues at all. The CHRB's chairman, Steve Waygood, who is chief responsible investment officer at Aviva Investors, says the overall picture is poor.

Best source: Financial Times (subscription required)

See also: edie


Fund industry group warns UK listed firms over executive remuneration

The Investment Association, the industry group that represents 250 UK fund management companies, has written to the heads of remuneration committees at companies in the FTSE 350 index to warn against excessive and opaque executive pay packages. The organisation says listed companies should simplify compensation structures, justify executive pay, and strengthen provisions to claw back bonuses after executives leave their jobs.

Best source: Financial Times (subscription required)

Standard Chartered cuts CEO and CFO remuneration after investor complaints

Standard Chartered has lowered the pension allowance of CEO Bill Winters from £474,000 to £237,000 next year, and reduced that of chief financial officer Andy Halford from £294,000 to £147,000, after complaints from shareholders. Nearly 40% of shareholders declined to approve the bank’s proposed executive remuneration package at its annual general meeting in May.

Best source: Financial Times (subscription required)


Wetherspoon chairman criticises treatment of long-standing non-executive directors

Tim Martin, the founder and chairman of JD Wetherspoon, a UK pub chain, has criticised large institutional shareholders Columbia Threadneedle and BlackRock for failing to back the re-election of non-executive directors who have been on Wetherspoon’s board for longer than nine years. Martin has also criticised proxy adviser Pensions & Investment Research Consultants for recommending that shareholders vote against the latest annual report over concern that he spent company money on pro-Brexit materials and campaigns.

Best source: Sky News