Key Governance Developments  November 2023
Dismissal then reinstatement of CEO Sam Altman highlights contradictions of OpenAI’s governance structure

The boardroom drama that took place over five days at OpenAI, leader of the burgeoning market for generative alternative intelligence and large language models, has highlighted the fragility of a governance model intended to straddle two potentially contradictory aims: to exploit the commercial potential of AI, but also to ensure the technology benefits all of humanity by incorporating checks and balances intended to ensure its safe use. The intention to put this broader mission ahead of generating returns for investors was reflected in the parallel structures of a non-profit entity alongside a so-called 'capped-profit' limited partnership, and an overarching board whose members included only one of OpenAI's co-founders and no representatives of its investors. This delicate balance crumbled at its first test, when the board dismissed co-founder and CEO Sam Altman, before being obliged to reinstate him days later in the face of a mass exodus of executives and staff to dominant investor and commercial partner Microsoft. Non-profit boards in the US cannot be compelled to step down or change without their consent, except by state attorneys-general. Analysts believe the debacle of Altman's dismissal have demonstrated that OpenAI did not have the right governance structure to manage the conflicts between its different aims. Finding a better one is the daunting task for its new board members, executives, ethicists and investors.

Founder Sam Altman to return to OpenAI as CEO after winning power struggle with board that dismissed him

Former Salesforce CEO Bret Taylor and ex-US Treasury secretary Larry Summers are set to join OpenAI as directors under a deal in which Sam Altman, ousted by the company's then board on November 17, has returned as CEO after five days of turmoil that threatened the company's dominance of the burgeoning generative artificial intelligence sector. Altman will be supervised by a new interim board, initially consisting of Taylor as chairman, Summers and existing director Adam D’Angelo. The reinstatement of Altman resolves a crisis that saw the company's employees and investors challenge the outgoing board, with OpenAI shareholder and business partner Microsoft expressing support for Altman's return to OpenAI but also being ready to recruit him and other staff to build its own AI business. Nearly all of the company's 770 employees signed a letter calling on the board to step down and threatening to join Altman at Microsoft if he was not reinstated.
Best source: CNBC
See also: Wall Street Journal (subscription required)
See also: Financial Times (subscription required)
See also: Le Monde (in French)

CEOs cite regulation and retention of talent as major growth issues: KPMG survey

Regulation and the attraction and retention of skilled employees are among the five main concerns that could put business growth at risk, according to Luxembourg CEOs questioned by KPMG as part of a survey of more than 1,300 international executives. Respondents from the grand duchy also cite geopolitics and political uncertainty, operational issues, and emerging and disruptive technology as key business risks, while 70% cite ethical issues as their biggest challenge arising from the adoption of generative AI. KPMG Luxembourg managing partner David Capocci says CEOs must also address stakeholder expectations regarding the environmental and social impact of their businesses.
Best source: Delano

Luxembourg’s business climate worsening amid concern about high cost of labour: Chamber of Commerce

The Luxembourg Chamber of Commerce has warned that the country's business climate is continuing to deteriorate, noting that 64% of business executives are concerned about employment costs. Just one in five of the 647 companies surveyed between September 18 and October 6 for the chamber’s Economic Barometer say they plan to create jobs over the next six months. CEO Carlo Thelen says Luxembourg companies are suffering from the increased cost of borrowing on top of the burden of index-linked wage increases.
Best source: L'essentiel (in French)
See also: RTL Infos (in French)

ILA urges Luxembourg government to prepare for European court VAT ruling on board members’ fees

Virginie Lagrange, chairwoman of the Institut Luxembourgeois des Administrateurs, has called for the establishment of a working group including the finance ministry and the Administration de l'enregistrement des domaines et de la TVA (AED) to address the challenges of an expected European Court of Justice ruling that the fees of independent directors will no longer be subject to VAT in Luxembourg. The ruling, which is expected in the coming months, is likely to follow an opinion delivered by advocate-general Juliette Kokott in July on a case brought by a lawyer and member of the board of several Luxembourg public limited companies. Kokott argued that independent directors cannot be considered to be carrying out an independent economic activity since their remuneration is received as part of a collective body, meaning there is no independent assumption of risks, and fees are not determined by negotiation but by another body of the company.
Best source: Luxembourg Times (subscription required)

Board turned down proposal by abrdn CEO Stephen Bird to sell investment business

Abrdn CEO Stephen Bird proposed selling the £368bn investment business of the Edinburgh-based group last year after its acquisition of investment platform ii, but its board of directors turned him down, deciding to keep the business together. The group's US business recently acquired healthcare fund management company Telka Capital Management last month, while abrdn sold its $4bn US private equity and venture capital business to alternative investment boutique HighVista Strategies. Following the ii deal, Bird presented the board with strategic options, but directors decided the group's core business was investment management.
Best source: Investment Week
See also: Financial News (subscription required)

Fund directors’ fees fell on average by 16% over past year in Luxembourg and Ireland: Fitz Partners study

The average fees received by directors of funds domiciled in Luxembourg and Ireland has decreased by 16% over the past year to €34,741, according to a survey of 170 investment firms carried out by London-based fund research company Fitz Partners. CEO Hugues Gillibert says the scale of the decline in fees suggests that asset managers are changing their approach to remuneration. The study also found that directors' fees vary significantly from one board to another, with directors able to charge higher fees if they oversee larger funds or an umbrella fund comprising multiple portfolios.

Best source: Financial News (subscription required)
See also: Portfolio Adviser

Banks seek legal declassification clauses for ESG-linked loans
Banks issuing and advising on sustainability-linked bonds are looking to add new clauses to contracts allowing them to strip the sustainability claims made in documentation from the loans in future. Banks fear that current loan terms are too opaque and not available for public inspection, which could lead to legal claims of mis-labelling if companies and their boards are deemed not to have used the bond proceeds for sustainable purposes or miss their targets.
Best source: Bloomberg

FCA urges UK bank directors to consider consumer duty rules when deciding bonuses as EU cap is lifted
The UK's Financial Conduct Authority has called on the heads of banks' board remuneration committees to incorporate Britain's new consumer duty rules into their policies on awarding bonuses to employees. The regulator's warning accompanies the lifting of restrictions on bonuses imposed when the UK was an EU member in 2014. The FCA says incentives should take into account the obligation throughout the financial industry to put customers first.
Best source: Reuters (free registration)

Asset managers join initiative to raise proportion of women on German listed companies’ executive boards to 30%
Leading asset management companies including Allianz Global Investors and Amundi have established the 30% Club Germany, a group that is urging 90 listed companies to raise the proportion of women on their executive boards to at least 30% by 2030. Antje Stubbe, head of stewardship at the Allianz subsidiary, says there is a lack of diversity at senior leadership levels at listed companies, with women running into a glass ceiling. The six founding members of the initiative have €4.5trn of assets under management between them.
Best source: Börsen-Zeitung (subscription required, in German)

Institutional Shareholder Services adds board structure and executive pay parameters to ESG scoring methodology
Institutional Shareholder Services is expanding the range of factors used in its ESG scoring to incorporate a broader spread of data on board composition and director tenure, as well as members' independence and diversity. The proxy adviser is also adding seven new parameters relating to compensation, including requiring data on opposition to say-on-pay shareholder motion votes. In addition, ISS is stepping up governance scrutiny, adding questions about regulatory enforcement actions against individual directors or executives.
Best source: IR Magazine

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2023 Forum for Directors of Luxembourg Credit Institutions: Picture report