Key Governance Developments - October 2021

Company boards under increasing pressure from shareholder sustainability resolutions

The past two years have seen a dramatic surge in the level of shareholder support for annual general meeting resolutions relating to global warming and other sustainability issues. Until recently institutional investors offered little backing to shareholder activists on climate and social matters, but today some of the largest US asset managers, led by BlackRock, State Street and Vanguard, are increasingly throwing their support behind proposals pushing companies into more rapid action. Investors are particularly focused on diversity, equity and inclusion, as well as corporate governance issues headed by executive and boardroom remuneration. BlackRock has also announced it will enable institutional clients to vote directly at AGMs. Facing potential consequences ranging from reputational damage to the removal of directors or the rejection of compensation reports, companies are increasingly engaging with activist investors and institutions and stepping up disclosure of climate and social policies to head off damaging clashes in full public view.

Investors increase pressure on US company boards over ESG commitments

The boards of listed US companies are preparing for an increase in shareholder support for resolutions demanding progress on ESG and especially climate action. Law firm Sullivan & Cromwell says an unprecedented 12 shareholder proposals were passed with majority support last year, and Morningstar says the average level of support for all environmental and social motions has risen to 34% in the 12 months to July; diversity, equity and inclusion resolutions received average backing of 43% and nine were approved. The change has been triggered by large asset managers such as BlackRock, State Street and Vanguard, which until two years ago rarely backed activists' resolutions.

Best source: Financial Times (subscription required)

See also: Sullivan & Cromwell

See also: Morningstar (registration required)

Ignoring ESG factors represents risk to directors and officers insurers as well as clients: Allianz

Insurers and their business customers who ignore ESG issues face enhanced directors and officers risks including the possibility of regulatory and legal action, along with the possibility that their share price might fall, according to a report by Allianz Global Corporate & Speciality. The authors say that directors and officers insurers and underwriters should be aware of ESG issues in order to understand the risk borne by their insurance products.

Best source: Canadian Underwriter

Irish financial institutions have little to fear from personal accountability: regulator Derville Rowland

Derville Rowland, head of financial conduct at the Central Bank of Ireland, has reassured financial institutions that they have little to fear from the country's new regulatory regime holding individuals accountable for wrongdoing by their subordinates, since most employees approach their jobs responsibly. The initial focus will be on integrating the new framework into central bank processes and encouraging institutions to do the same.

Best source: RTE

UK e-commerce group founder to relinquish special share rights

Matthew Moulding, founder of UK online retailer and logistics company THG, previously known as The Hut Group, has relinquished his special voting rights after a 35% fall in the company’s share price. Moulding's golden share accorded him increased voting rights for three years after the company’s flotation, but the dual class structure excluded the company from eligibility for membership of the London Stock Exchange's flagship FTSE 100 index. THG may also consider appointing a non-executive chairman amid criticism of Moulding's dual role as CEO and executive chairman.

Best source: Sky News