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IoD Directors' Briefing: Your update on Directorship and Governance 03 - 17 September 2020

16 Sep 2020

Welcome to your fortnightly Directors’ Briefing. As children return to school and employees (tentatively) head back to the office, we’ve had busy fortnight of investors making themselves heard. In Australia, Rio Tito’s CEO was forced from office after investor pressure mounted following the miner’s destruction of an ancient Aboriginal site. Closer to home, investors voiced disquiet over executive pay at Pearson and Ryanair.

We also witnessed two major tech deals. Oracle agreed to partner with TikTok to allay the Trump Administration’s concerns around the Chinese social media platform’s handling of user data. Nvidia acquired Cambridge-based ARM Holdings and committed to maintain UK staff and R&D spending.

In this edition’s Governance Perspective, Sir John Tusa reflects on governance in the not-for-profit sector highlighting that there are many aspects of governance that apply universally across all sectors.

Governance Perspective
Companies
Charities and Public Sector
Policy and Regulation
Audit
Insurance
ESG Issues
Investors and Stakeholders
Thought leadership, opinion and research
IoD in the News and Advocacy
Podcasts and Videos
Responding to the Coronavirus Crisis
Resources for Directors

Governance Perspective

Governance is Governance - Sir John Tusa, author of  “On Board: The Insider’s Guide to Surviving Life in the Boardroom”

Companies

16 September | Hut Group lists in London

The online retail group successfully listed in London with shares rising 30% on the first day of trading. Investor interest came despite its unusual corporate governance arrangements that excluded Hut Group from the ‘premium’ segment of the LSE’s Main Market. The firm’s founder Matthew Moulding will remain both chairman and chief executive of the company, while the shares are to be issued in different “classes”, allowing him special voting rights. [Reuters]

15 September | UK’s ARM sold to Nvidia

ARM was sold to US firm Nvidia in deal valuing the Cambridge based chip designer at £31.2bn. The US firm committed to expand  ARM’s R&D presence in Cambridge, by establishing a world-class AI research and education centre. Herman Hauser, one of ARM’s co-founders has suggested that Nvidia’s commitments to the UK are "meaningless" unless ministers stepped in to make them legally enforceable. [BBC]

14 September | Shareholders voice disquiet over co-investment pay plan at Pearson

Investors in publisher Pearson have criticised the FTSE 100 firm over a proposed executive pay policy that would leave incoming  chief executive, Andy Bird,  in line for a £7.4m pay-out. Under the unusual co-investment  proposal, Bird would buy $3.75m of Pearson shares when he takes over as chief executive next month, but would be in line for an award up to the value of $9.375m, paid in three separate tranches. [Financial Times]

14 September | Oracle chosen as TikTok partner

Oracle has been chosen by ByteDance as a “technology partner” to allay US concerns over American users’ data.  The deal is understood to involve a restructuring rather than a sale, with Oracle handling TikTok’s US user data. It is unclear how much of TikTok’s US operations ByteDance and its investors will continue to own. [The Guardian]

13 September | Proxy advisor calls on investors to vote against Games Workshop’s Chair reappointment

ISS has advised investors in the FTSE 250 figurine maker to oppose the reappointment of Nick Donaldson who has served on the board for 18 years. Donaldson’s tenure is double the time after which the UK Corporate Governance Code suggests that a non-executive should no longer be ordinarily considered to be independent. [The Times]

12 September | Ryanair prepares for pay revolt after taking on State support

ISS said it was 'difficult to justify 'a €458,000 bonus for the Michael O’Leary chief executive of the Irish airline. The proxy advisor’s guidance comes after the airline furloughed staff through the government’s Job Retention Scheme   and accessed a £600m loan from the Bank of England. [Daily Mail]

11 September | Rio Tinto CEO resigns over destruction of ancient Aboriginal site

The Anglo-Australian miner announced the resignation of CEO Jean-Sebastien Jacques and two senior executives over the destruction of a 46,000-year-old Aboriginal site to expand an iron ore mine in Australia. Following a board investigation into incident, Rio Tinto said Jacques was stepping down "by mutual agreement”. An internal company review in August determined that "a series of decisions, actions and omissions over an extended period of time" had led to the incident. [Yahoo]

Charities and Public Sector

14 September | Just one in five charities fully comply with rules on fundraising reporting

According to the Fundraising Regulator, only 21% of charities include all the required information about fundraising in their annual reports. The Charities (Protection and Social Investment) Act 2016 requires charities to over a certain size to make disclosures about their approach to fundraising. [Civil Society]

Policy and Regulation

8 September | Europe’s push for mandatory human rights due diligence gets corporate backing

Twenty-six large corporates including Adidas, Aldi and Nestlé have signed a letter offering their support for mandatory human rights and supply chain due diligence. Earlier this year European commissioner Didier Reynders announced he hoped to have the legislation in place by 2021. Some MEPs have signalled concerns that the new laws will create an unequal playing field with companies outside of the EU’s jurisdiction. [Board Agenda]

8 September | Irish Commissioner set to take financial services portfolio

Following the resignation of the Irish Commissioner, Phil Hogan, Mairead McGuinness was chosen by the European Commission to take his place. If ratified by the European Parliament, McGuinness will be Commissioner for Financial Services, Financial Stability and Capital Markets Union. The Commission’s priorities in these sectors are not likely to change following her appointment. [BBC]

7 September | Amazon withheld e-mails from CMA

Amazon failed to meet the UK competition regulators’ deadlines to hand over emails between senior executive, including chief executive Jeff Bezos, during an investigation into the online retailer’s investment in food delivery firm Deliveroo. The CMA fined Amazon £55,000 for delays in providing documents. [Bloomberg]

Audit

15 September | EY chair expresses regret over Wirecard

Carmine Di Sibio, the firm’s global chair, expressed that fraud at the fintech firm was “not uncovered sooner”. He said the Big Four firm would increase its use of technology to improve audits including “using electronic confirmations for audit evidence” such as “matching the company’s records of banking transactions with those provided to EY by the bank”. All EY auditors will now be given annual training in forensic accounting.  [Financial Times]

11 September | Deloitte establishes separate audit board

Deloitte  announced plans for a new audit oversight structure. This represents the first move by a Big Four firm in the UK to comply with an agreement with the Financial Reporting Council to operationally split auditing from consulting. Baroness Margaret Ford of Cunninghame will chair the new oversight body which will be effective from January next year. [Bloomberg]

Insurance

16 September | Cost of D&O cover increases due to pandemic

Average prices of insurance premiums for directors and officers in the US jumped nearly 60 per cent and prices in the UK doubled in the second quarter of this year according to Marsh, a brokerage.  The jump has been attributed to Covid-19 and the increasing prominence of class action lawsuits.  [Financial Times]

15 September | FCA wins business interruption insurance test case

The Financial Conduct Authority brought a test case in front of the High Court earlier this year after insurers rejected business interruption insurance claims - even where lost earnings due to a pandemic appeared to be covered in policy wordings. the Court ruled on a representative sample of 17 policy wordings used by 16 insurers, after an eight-day hearing. The judgment found that most, though not all, of the disease clauses in the sample do provide cover.  [Daily Mail]

ESG Issues

15 September | New Zealand to make climate risk reporting compulsory for financial institutions

Around 90% of the country’s assets under management could be required  to report in line with the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD) by 2023, as its Government becomes the first in the world to make the framework mandatory. [Responsible Investor]

14 September | Leading investors warn corporate emitters of AGM pressure

Climate Action 100+, an investor group whose members include most of the world’s largest asset managers, has written to the boards of the largest corporate emitters of greenhouse gases. The investor group called on firms to produce a strategy to move their business to net-zero carbon emissions or face pressure at future AGMs. [Reuters]

Thought leadership, opinion and research

14 September | Trustworthy AI and Corporate Governance

University College London’s Martin Petrin reflects on the future of AI usage, including the ways it will impact corporations and their governance. Commenting the EU’s Guidelines for AI, Petrin suggests more specificity is needed regarding how they will harmonise with company law rules and governance practices. [Oxford University Law Blog]

11 September | What is needed for progress towards comprehensive corporate reporting?

Five framework and standard-setting institutions of international significance - CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB), have co-published a shared vision of the elements necessary for more comprehensive corporate reporting and a joint statement of intent to drive towards this goal. [CDP, CDSB, GRI, IIRC and SASB]

11 September |Institut Montaigne on Responsible Capitalism in Europe

The French think tank presents a set of measures designed to ensure growth and independence for European businesses and nations by creating the architecture of a capitalism that mobilizes the savings of Europeans and directs them towards “responsible” European businesses. In total, 16 recommendations are developed, among others; favouring long-term investments, designing a European legal framework to support and protect European Business and long-term shareholding, investigating the creation of a European pension fund, increasing employee participation in company ownership [Institut Montaigne]

10 September | Mazars / EcoDa Joint Report on Sustainability

A joint report emerging from discussion at roundtables hosted by directors’ institutes across Europe, including at 116 Pall Mall, around the progress made by the European business community on the adoption of a sustainable approach to business and the current challenges faced. [EcoDa]

10 September | What Milton Friedman Missed About Social Inequality

In the New York Times, former Delaware Chief Justice  Leo  Strine Jr and Allbirds CEO Joey Zwillinger reflect on Milton Friedman’s 1970 op-ed on the social responsibility of business. Strine and Zwillinger argue that boards must now embrace an affirmative duty to stakeholders and society. [New York Times]

7 September | Investor pressure unchanged by Covid

The proportion of FTSE 350 companies receiving significant opposition (at least 20 percent) to a resolution at their AGM was 22 percent in the first half of 2020, the same level as last year according to findings by  FTI Consulting and Proxy Insight. [FTI]

IoD in the news and advocacy

We called for an urgent extension to emergency insolvency measures to prevent a swathe of job losses and company collapses. Our demand for an extension featured in the Daily Mail, The Times and City AM with Director of Policy and Governance Roger Barker highlighting “many normally successful small firms are in a perilous position” and  need to be given “a chance to get back on their feet.”

Podcasts and Videos

11 September | Stigler Centre: Should Corporations Have a Social Purpose? (Video)

Fifty years ago, Milton Friedman declared that the only social responsibility of business was to maximise profits. While this idea has dominated academia and business for most of the last 50 years, it has recently been called into question. Should corporations have a purpose that is different from making money? What should this purpose be? Should ESG objectives be part of the corporate goals? Who should decide? The Stigler Centre presents a series of discussions around these themes with contributions from Harvard’s Lucian Bebchuk, the London Business School’s Alex Edmans and many more. [Stigler Centre]

8 September | Boardroom Governance with Evan Epstein (Podcast)

In this episode, Evan speaks with the IoD’s own Roger Barker about the development of corporate governance in the UK. In the hour long discussion, Roger and Even touch on range of topics including professional development for directors and role of institutional investors in shaping the corporate governance agenda in the UK. [Apple Podcasts]

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

  • Carum Basra – Corporate Governance Policy Adviser and Editor of Directors' Briefing (carum.basra@iod.com

Coronavirus Hub - IoD

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