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IoD Directors' Briefing: Your update on Directorship and Governance 29 May - 11 June 2020

09 Jun 2020

Welcome to your fortnightly IoD Directors’ Briefing  providing an update on developments relating to directorship and corporate governance.  

 This edition’s Governance Perspective focusses on how the Government could seek to embed higher standards of governance as it looks to support larger firms by taking equity in them. In this edition, we’re also delighted to be able feature an additional contribution from Anthony Carey CDir.

Governance Perspective

Which companies should we bail out? - Dr Roger Barker, Head of Corporate Governance, IoD

Companies

9 June | South Korean prosecutors denied arrest warrant for Samsung heir

A court has denied an arrest warrant request sought by state prosecutors for Samsung heir Lee Jae-yong. Since 2014, he has been considered the de facto boss of the entire Samsung group of businesses. Charges against Mr Lee included bribery, embezzlement, hiding assets overseas and perjury. [BBC]

8 June | China’s JD.com prepares for year’s largest IPO

The Chinese e-commerce and tech company is planning a secondary listing for its shares on Hong Kong's stock market. The transaction could raise more than $4 billion for the company, assuming it prices at the top of the range. In regulatory filings, JD cited the heightened US regulatory environment and the potential passage of the bill as possible risk factors. [CNN]

5 June | Reddit board member resigns and urges BAME replacement

Alexis Ohanian, co-founder of social media firm Reddit, announced his resignation from the company’s board and called on the company to replace him with a black candidate. The firm has been repeatedly criticised for the way in which it treats racist material. [Bloomberg]

4 June | HSBC and Standard Chartered back Hong Kong Security law

The UK banks with significant exposure to China expressed support for the controversial legislation drawing criticism from British lawmakers including the Chair of the Foreign Affairs Select Committee. Hong Kong accounted for 90% of HSBC’s pre-tax profit and 41% of Standard Chartered’s in 2019. [Reuters]

3 June | Axa to defy regulators with dividend payment

The French insurer ignored calls from EU regulators to pause dividends and conserve cash to better weather the coronavirus outbreak. Germany’s  Allianz and Italy’s Generali have also announced dividend payments in recent weeks in defiance of the EU’s umbrella body for regulators, EIOPA. [Reuters]

2 June | Facebook employees criticise Zuckerberg from Trump stance

The social media firm’s CEO is facing an employee revolt after the company failed to take action over President Trump’s controversial posts on the platform. Trump indicated on social media that he would respond to violent protests with military force. While Facebook competitor Twitter hid the post from view for ‘glorifying violence’, Facebook took no action. In response, many senior members of staff took part in virtual walkouts. [Financial Times] 

Policy and Regulation

8 June | Government to strengthen takeover regime to curb foreign influence

Number 10 is understood to be pressing for legislation to make it mandatory for UK firms to report attempted takeovers that could give rise to security risks, backed by the threat of criminal sanctions. There are concerns that the recession could by UK firms more vulnerable to state-backed foreign takeovers than ever before. [The Times]

7 June | TheCityUK argues that firms need new equity

According to the finance industry trade body, around  a third of the debt being taken on by UK companies via the Government’s lending schemes could be unsustainable, raising the need for fresh capital from new investors. [Reuters]

4 June | Airlines borrow almost £2bn from Bank of England

Struggling airlines have borrowed almost £2bn via the Bank of England’s Covid Corporate Financing Facility. German chemicals company BASF is currently the biggest borrower. In total, £16.2bn has been lent out under the scheme so far, with £67.7bn approved for 152 firms that have applied successfully. Those businesses are able to  draw on this money if they need to. [Daily Mail]

29 May | Gender pay gap reporting tumbles

The number of UK organisations reporting on their gender pay gap has halved during the past year as firms take advantage of the Government easing reporting requirements in response to coronavirus. [Financial Times]

2 June | EU seeks to curb state-backed foreign rivals

In similar moves to those being examined in the UK, the European Commission is seeking new powers to review and potentially block takeovers of EU firms by rivals deemed to have received unfair support from a foreign government. [Financial Times]

Audit

8 June | EY under scrutiny over audit

The global auditing firm is facing scrutiny in multiple jurisdictions after its handling of the audits of Dubai gold company, NMC Health and Wirecard. EY audits 30 per cent of Fortune 500 companies and around 25 per cent of the FTSE 100. [Financial Times]

8 June | Tesco probe closed by the FRC

The watchdog announced that it had closed a probe following the supermarket’s September 2014 announcement it had overstated profits by 263 million pounds. has dropped a total of three probes, including one into Tesco’s chief financial officer in 2016 and one into its auditors at PricewaterhouseCoopers in 2017.  [Bloomberg]

Investors and Stakeholders

9 June | Record year for environmental, social investor petitions

Sixteen investor petitions concerning social or environmental issues have passed at US companies in 2020. An increasing number of petitions concerning climate change have passed for the first time; BNP Paribas won a petition concerning Chevron’s lobbying efforts and three proposals passed this year have asked for reporting in line with the Sustainability Accounting Standards Board. [Financial Times]

7 June | Investors rebel on executive pay

Shareholders have continued to put pressure on boards over executive pay in spite of the coronavirus crisis. According to data from FTI, to the end of May, there were the same level  of shareholder revolts as in 2019, despite fewer UK annual meetings so far this year as companies delayed AGMs due to the pandemic.  [Financial Times]

3 June | Japan’s all-male boards face shareholder revolt

Hundreds of Japanese companies face shareholder backlash as investors plan to vote against the leadership of firms with no female directors. The move comes as Goldman Sachs Asset Management and other asset managers change their voting policies to strengthen diversity. More than halve of Japanese listed firms have no female board representation. [Financial Times]

ESG Issues

5 June | Corporate America respond to Black Lives Matter

From Nike to Disney, Google to Bank of America, many of the world’s largest firms are positioning themselves alongside campaigners and in solidarity with protestors. Amazon donated $10m to organisations to support economic opportunities for African Americans while other firms have made commitments to focus on diversity. [The Telegraph]

4 June | Switzerland to vote on corporate liability for human rights abuses

Swiss citizens are due to vote in a referendum on an initiative that could require Swiss companies to apply mandatory due diligence to identify global risks to people and the environment, even involving suppliers abroad, and let victims seek redress in Switzerland. [Reuters]

3 June | World Economic Forum to focus on ‘Great Reset’

Next year’s annual meeting in Davos will focus on how to rebuild the global economy after the pandemic subsides, while tackling inequality according to organisers. [The Telegraph]

28 May | SEC chair warns over ESG metrics

The Chair of the US securities regulator has warned that any analysis that combined separate environmental, social and governance metrics into a single ESG rating would be imprecise. The SEC has asked for feedback from asset managers about ESG ratings as concerns rise about the spread of so-called ‘greenwashing’. [Financial Times]

Thought leadership and research 

8 June | LGIM’s Sacha Sadan on ESG

LGIM’s Director of Investment Stewardship reflects on how ESG issues came to prominence in the wake of the financial crisis and how asset managers are improving corporate governance. [Financial News]

9 June | UK Corporate Insolvency and Governance Bill: A Game-Changer?

Cleary Gottlieb Steen & Hamilton LLP offer an overview of the provisions of the Corporate Insolvency and Governance Bill. [Oxford Business Law Blog]

1 June | The Siren Song: Algorithmic Governance by Blockchain

Kevin Werbach, Professor of Legal Studies & Business Ethics at the Wharton School, explains that to succeed at scale, blockchain-based networks and services must address the problem of governance. [Oxford Business Law Blog]

IoD in the news and advocacy

 8 June | Carum Basra, the IoD’s Corporate Governance Policy Advisor called for leaders to be proactive in showing they understand the concerns of the BAME community in response to the Black Lives Matter movement with a view to widening the route to the top of business in The Guardian.

8 June | Roger Barker, the IoD’s Head of Corporate Governance commented on proposed changes to the UK’s screening of foreign investment arguing in The Guardian that any interventions are based on legitimate principles that are implemented in an impartial and non-political manner – ideally in coordination with international partners.

Upcoming Webinars

12 June | Does the global pandemic signal a paradigm shift in law and the economy?

Dr Roger Barker will be participating in a webinar alongside a number of corporate governance experts including the Saïd Business School’s Professor Colin Mayer to discuss the impact of the pandemic on the governance of firms. [External Link]

16 June | CEO Effectiveness Series: Working With the Board

Dr Roger Barker will be participating in a webinar with the Association of Chief Executives. The webinar will attempt to address how CEOs can effectively work with their non-executive teams to best support their organisations in the delivery of their work. [External Link]

18 June | Executive Pay: Reframing for the Long-Term

Charlotte Valeur will join a panel of governance experts to discuss the role of executive pay as a proxy for a company’s relationship with many of its stakeholders, including with shareholders and with the CEO. [External Link]

Letters and Comments

How well connected is your board? | Anthony Carey CDir shares a comment piece on the need for boards to be well connected both in terms of technology and relationships with key stakeholders. [External Link]

Responding to the Coronavirus Crisis 

The IoD’s Coronavirus Support Hub is being updated frequently.  

New resources include: 

Resources for Directors

UK Corporate Governance Code (Financial Reporting Council) 

The leading source of governance principles and recommendations for companies with a premium listing on the London Stock Exchange.  

Wates Principles (Financial Reporting Council)

Key governance principles for large private companies. 

Corporate governance: Board responsibilities at major banks (Bank of England)

Supervisory guidance from the Prudential Regulation Authority for the boards of regulated firms. 

OECD Guidelines  on Corporate Governance of state-Owned Enterprises (OECD)

The OECD Guidelines provide an internationally agreed benchmark to help governments assess and improve the way Governments exercise their ownership functions in state-owned enterprises.

The European Confederation of Directors Associations (ecoDa) 

The umbrella body for directors associations in Europe. 

The Global Network of Director Institutes (GNDI)

The umbrella body for directors associations around the world. 

IoD Corporate Governance Team