Key Governance Developments - October 2020

How Covid-19 is helping to reshape corporate priorities worldwide

Institutional investors and proxy advisers are opposing remuneration packages and bonus payment awards for company executives that they regard as excessive in light of the impact on business of the Covid-19 pandemic. They point to companies' resort to furloughs and redundancy programmes in order to reduce costs, their acceptance of government loans and grants, and the reduction or suspension of dividend payments to shareholders. There is particular concern about remuneration policies in the airline industry, where Ryanair and IAG, parent of British Airways and Iberia, are proposing substantial executive bonuses despite a collapse in business over the first half of the year. Another company facing a shareholders' revolt is educational publisher Pearson, which is planning to pay a large 'golden hello' to its incoming CEO, in addition to a generous salary and housing allowance.

Pandemic increases pressure on shareholder-centric corporate governance models: academic

Companies are having to adapt their corporate governance structures to account for a wider range of variables and stakeholders than under the hitherto dominant shareholder-centric models, according to Harvard Business School professor Lynn S. Paine. She says the primacy of the shareholder-centric agency theory model is being eroded as social issues challenge the notion that companies exist only to maximise their returns to shareholders. Paine expects public health, corruption, climate change and wealth inequality to feature more prominently in future governance considerations, changing the way in which executives and shareholders view companies and their activities.

Best source: Harvard Business Review

China adopts stricter corporate governance rules for listed companies

The Chinese government has adopted measures to improve corporate governance and transparency at the country's listed companies, which number more than 4,000 and with a market capitalisation exceeding CNY79trn (€9.95trn). Stricter rules will apply to controlling stakeholders, directors, supervisors and senior management, with greater involvement for institutional investors in corporate governance. Tougher measures will be introduced against misappropriation of funds, market manipulation and insider trading.

Best source: Xinhua


US companies change pay schemes to avoid executives losing out after Covid-19

US companies are changing performance metrics and disregarding targets for executives to ensure that senior management pay levels do not fall as a result of the Covid-19 pandemic. According to executive pay adviser Semler Brossy Consulting Group, at least 20 companies have changed their annual bonus plans to incorporate metrics in addition to profit, such as cash flow and operations, 10 have altered their performance pay periods and eight now allow board discretion in order to maintain pay-outs. Casino operator Wynn Resorts, Darden Restaurants and oil and gas company Schlumberger are among groups that have altered their executive pay schemes.

Best source: Financial Times (subscription required)

See also: Business Insider


EU targets big tech with stricter transparency and data rules

The European Commission is planning to introduce stricter rules on transparency and data sharing for up to 20 of the largest technology companies, including Facebook and Apple. The companies may be obliged to share data with smaller competitors in order to combat market domination by the bigger firms, and the Commission may also gain powers to break up companies in extreme circumstances under the draft Digital Services Act package, which will be published in early December. The UK Competition and Markets Authority is also planning to place tech sector mergers under increased scrutiny.

Best source: Financial Times (subscription required)

See also: CNBC


Vanguard votes against Alphabet, Uber and Ocado executive pay resolutions

US asset manager Vanguard has voted against CEO remuneration resolutions at Alphabet, Uber and UK online grocery delivery firm Ocado. It is the third year that Vanguard has voted against CEO pay at Alphabet, saying the $218m awarded to Sundar Pichai is not aligned with his performance, and the asset manager had the same complaint about Uber’s award of $55m in stock to CEO Dara Khosrowshahi. Vanguard also says the £58.7m awarded to Ocado’s Tim Steiner was excessive and poorly structured, despite the company's good performance.

Best source: Financial Times (subscription required)

See also: Philadelphia Inquirer

Investors unimpressed by South Korean corporate governance measures

Institutional investors have expressed dissatisfaction with the efforts of President Moon Jae-in's government to improve corporate governance at family-controlled conglomerates in South Korea. Robeco engagement specialist Ronnie Lim says companies regard governance as a box-ticking exercise, leading to poor capital allocation and small dividends for minority shareholders. The government is planning a legal change that would allow minority shareholders to appoint independent board members, a move opposed by chaebol management.

Best source: Bloomberg (subscription required)


Big four accounting firms and World Economic Forum publish ESG reporting metrics

Deloitte, EY, KPMG and PwC, along with the World Economic Forum, have drawn up metrics for companies to follow for ESG reporting. The standards consist of four pillars of principles of governance, planet, people and prosperity, and are aligned with existing non-financial disclosure requirements. According to a study by WEF, 86% of corporate executives believe that reporting using a universal set of ESG disclosure standards would be beneficial for financial markets and the economy.

Best source: Accounting Today


Large US groups announce pledges on carbon neutrality and renewable energy

Leading US corporations have stepped up commitments to climate change and sustainability goals in pledges announced to mark Climate Week. Walmart and General Mills have published new net-zero emissions targets, while PepsiCo has set out plans to use renewable electricity, and AT&T says its global businesses will be carbon-neutral by 2035.

Best source: S&P Global Market Intelligence


Climate Action 100+ calls for companies to pledge net zero emissions

The Climate Action 100+ investor group has called on the world’s largest corporate greenhouse gas emitters to commit to net zero targets by 2050 or earlier, including for scope 3 end-user emissions. The group’s members, which manage more than $47trn in assets, say the 161 companies should set medium-term targets for reducing emissions by 45% from 2010 levels by 2030. Climate Action 100+ will create a new benchmark next year to track progress of the companies targeted, which include Chevron, Rio Tinto and Honda.

Best source: Financial Times (subscription required)

See also: Chief Investment Officer


More than 60% of FTSE 350 companies comply with new governance code

A survey by EY has found that 61% of companies in the UK's broad-based FTSE 350 index comply with all the elements of the new UK corporate governance code, while 80% comply with all but one provision of the code. Most non-compliance was related to a lack of independence among directors and chairs, remuneration committee independence and staff engagement. However, only 45% of the 100 firms polled comply with a requirement to publish a statement on how directors consider the interests of stakeholders when making key decisions.

Best source: Accountancy Daily