Key Governance Developments -  June 2023

Sexual misconduct allegations bring UK asset manager and business group to brink of collapse
The perils of allegations of sexual impropriety and abuse at companies and other organisations have been exposed in the UK, where one of the country's best-known hedge fund management groups, Odey Asset Management, is on the brink of collapse as a result of charges of abuse against founder Crispin Odey spanning more than two decades. Although Odey, who was acquitted of historic sexual misconduct charges in 2021, was quickly ousted by his partners following publication of a damning media report, service providers including prime brokers and custodians have given notice of ending their relationships with the group, putting its survival in jeopardy. Critics say that for years other executives sought to manage rather than address Odey's well-known misconduct, although their ability to discipline him was circumscribed by his 75% ownership of the business. One of the country's leading employers' groups, the Confederation of British Industry, is also struggling to move on from a series of sexual abuse allegations, including rape, despite the ousting of its director-general earlier this year; it continues to be shunned by government ministers and officials and by other business organisations.

Odey Wealth Management looks at handing over funds to other firms as fallout from sexual misconduct allegations spreads
Odey Asset Management is examining various options for its future as a business, including the disposal of funds and management teams to other firms, after service providers and investors backed away in response to sexual misconduct allegations against the group's founder, Crispin Odey. Odey Asset Management says many service providers have contacted executives to discuss withdrawing their services, while several prime brokers to the group's hedge funds have served notice to end their relationship; at least five of Odey Asset Management's 15 funds have been suspended. The UK's Financial Conduct Authority has imposed a range of restrictions on both the hedge fund business and the wealth manager in order to stabilise their operations. The firm is selling off equity stakes held by its funds as it attempts to meet investor redemption requests.
Best source: Financial Times (subscription required)
See also: Funds Europe
See also: Citywire (free registration)
See also: Financial Times (subscription required)

German fund groups to back Brenntag board nominees in stand-off with UK activist investor
Germany's leading fund groups, DWS, Deka and Union, plan to oppose a slate of candidates proposed by London-based activist investor PrimeStone Capital for the board of the world's leading distributor of chemicals, Essen-based Brenntag, and support the firm's choices, putting them in opposition to proxy advisers Glass Steagall and ISS, who support the PrimeStone candidates. The test of strength in the election at a virtual annual general meeting on June 15 points to a widening gap between the German asset managers and institutional investors from the UK and US, which generally follow the recommendations of the proxy advisers, especially on issues of sustainable investment.
Best source: Handelsblatt (subscription required, in German)

Former Permanent TSB CEO could face €1m fine over responsibility for Irish tracker mortgage loan wrongdoing
The former CEO of Irish bank Permanent TSB could face a fine of €1m, along with costs and other penalties, for regulatory breaches relating to his role in the wrongful exclusion of home loan borrowers from cheaper mortgage loans that track European Central Bank interest rates. During the period David Guinane headed Permanent TSB, home loan customers were charged higher rates when their promotional and fixed-rate loan periods ended. The bank was fined €21m in 2019 for mistreating customers, many of whom lost their homes as they could not meet the larger monthly payments. Guinane is the first executive personally to face a regulatory investigation, headed by former UK financial ombudsman Peter Hinchcliffe.
Best source: Business Plus

ECB bank supervisors reject Commerzbank board choice for chief risk officer
Supervisors at the European Central Bank have rejected the nomination of Rüdiger Rass to become chief risk officer at Commerzbank, prompting the board of directors headed by chairman Jens Weidmann to withdraw his nomination. Rass has agreed to stay in his current position as chief credit risk officer while Germany's second-largest private sector bank launches a search for another candidate to join its executive board as chief risk officer. Commerzbank executives, including Rass, have been cleared of wrongdoing in the bank's engagement with failed payment group Wirecard by internal and external investigations.
Best source: Handelsblatt (subscription required, in German)

UK business lobby group struggles to regain policymaker access after allegations of sexual misconduct
The UK’s Confederation of British Industry is struggling to revive its access to policymakers and government contacts, following allegations of sexual misconduct including rape against executives and other employees. Despite the removal of director-general Tony Danker, member companies including retailer John Lewis and insurer Aviva quit the organisation earlier this year. The remaining members subsequently voted to reform the CBI’s culture and governance, but government ministers have boycotted the organisation since April and other business groups refuse to engage with it or allow its representatives to attend meetings with officials. The British Chambers of Commerce, Federation of Small Business, Institute of Directors and Make UK recently attended a meeting with business minister Kemi Badenoch which the CBI was forbidden to attend.
Best source: Financial Times (subscription required)
See also: The Guardian

EU set to soften sustainability reporting rules in face of companies’ pushback
EU proposals to ease disclosure requirements under its Corporate Sustainability Reporting Directive will give companies greater room to exercise their own judgement about the impact of their activities and some disclosures will now be voluntary rather than mandatory, according to Patrick de Cambourg, chairman of the European Financial Reporting Advisory Group’s Sustainability Reporting Board. A public consultation on the revised detailed rules drafted by EFRAG is expected to follow shortly; the directive requires the first batch of data to be collected next year for annual reports to be published in 2025. The CFO Platform of the European Round Table for Industry, comprising the chief financial officers of around 30 companies, has criticised the timing of the directive's implementation, which coincides with a range of other related rules and guidelines, including the European Sustainability Reporting Standards, the Environmental Delegated Act, and amendments to the Climate Delegated Act. 
Best source: European Round Table for Industry
See also: Reuters (free registration)

Investment fund managers turn to climate litigation over environmental damage and greenwashing
The number of investment funds with strategies that involve suing companies for climate damage and greenwashing is growing. They are joining charities and foundations by offering funding for class action claims around the world, taking part of the proceeds as their returns when cases are won. UK investment firm Harbour Litigation Funding spent over £17m as part of a case on behalf of 15,000 Indonesian farmers against oil well operator PTTEP Australasia in Western Australia, after a spill damaged marine wildlife and destroyed the farmers’ seaweed crops. Harbour received more than two-fifths of the compensation awarded, or £43m. Litigation investors Prisma Capital of Brazil and North Wall Capital of the UK are funding part of a class action by 700,000 claimants against miner BHP Billiton over the 2015 collapse of its Fundão tailings dam.
Best source: Financial Times (subscription required)

Oil company executives granted almost £15m in bonuses last year for meeting climate targets: Common Wealth
Executives at the big six international oil companies were paid bonuses totalling £14.9 (€17.3m) last year for achieving targets for curbing climate change and switching to renewable energy, according to think-tank Common Wealth. Chevron, ExxonMobil, Shell, BP, Eni and Total all paid bonuses, despite some of the groups increasing fossil fuel production. Common Wealth says all the oil and gas producers have set sustainability targets that are too easily met; it notes that only BP has announced plans to cut production by 2030, and it has in fact lowered its reduction target from 40% to 25%.
Best source: Open Democracy

Swiss government to receive seat on UBS board after Credit Suisse acquisition: SEC filing
The Swiss government will obtain a seat on the UBS board of directors following its acquisition of Credit Suisse to enable officials to monitor the guarantees given to the merged bank and adjust them if needed, according to a filing with the US Securities and Exchange Commission. The government has guaranteed CHF9bn of potential losses, with UBS responsible for the first CHF5bn.
Best source: Börsen-Zeitung (subscription required, in German)

US investor support declines for environment and social impact resolutions
Investor support for environment- and social impact-focused shareholder resolutions at US companies' annual general meetings fell from 36.6% in the first five months of 2022 to 23% this year, according to the Sustainable Investments Institute. Votes in favour of human rights motions also dropped, from almost one-third to 21.6%. Despite a record number of resolutions being filed, investors may be deterred from voting in favour because companies are already becoming more transparent about their sustainability approach. Some institutions such as BlackRock say recent resolutions have often been overly prescriptive, and others are deterred by the political backlash against ESG policies from Republican state officials.
Best source: Financial Times (subscription required)

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Nomination and Remuneration Committee & Board Composition Committee – Way forward
A note from Jean-Pascal Nepper