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IoD Directors' Briefing: Your update on Directorship and Governance 17 September - 01 October 2020

01 Oct 2020

As public health measures were tightened across the UK, the Government announced a Winter Economic Plan bringing an end to the furlough scheme and removing the suspension of ‘wrongful trading’. Also in Westminster, MPs voiced concerns about the UK becoming a hub for money laundering as leaked documents revealed that the US considers the Britain to be a ‘high risk jurisdiction’ for such activity.

In this edition’s Governance Perspective, Dr Roger Barker examines the future of AGMs at publicly listed companies. During the pandemic, a number of meetings have gone online giving rise to criticism from investors. Roger calls for the development of best practices for virtual AGMs suggesting that this could be incorporated into the UK Corporate Governance Code or associated guidance.

We’re delighted to also feature Chartered Director Dr Richard Smith’s response to Sir John Tusa’s Governance Perspective in last editions Directors’ Briefing. We continue to welcome your thoughts on any of the issues covered in this briefing and would be particularly keen to hear from you on the Chancellor’s Winter Economic Plan.

Finally, we'd like to provide a brief reminder that the IoD AGM will be held online on 8 October. Click here for further details and to register your attendance. 

Governance Perspective
Companies
Charities and Public Sector
Policy and Regulation
Audit
ESG Issues
Diversity and Inclusion
Thought leadership, opinion and research
IoD in the News and Advocacy
Upcoming Events
Comments and Responses
Responding to the Coronavirus Crisis
Resources for Directors


Governance Perspective

The Future of the AGM at Listed Companies - Dr Roger Barker, IoD Director of Policy and Governance

Companies

25 September | Volkswagen to pay compensation to workers affected by its collaboration with Brazil's former dictatorship

The German automaker has agreed to pay around £5m in compensation to the Brazilian workers and their families who worked for the firm during the Brazil’s military dictatorship which lasted from 1964 to 1985. Collaboration between VW and the regime had consisted of allowing political arrests on factory premises as well as spying on Volkswagen workers. [Deutsche Welle]

25 September | Independent review reports ‘weak corporate governance’ at Boohoo Group

A review undertaken by Alison Levitt QC on behalf of the fast fashion retailer, found that allegations of poor working practices in the company’s supply chain – initially denied – were “substantially true”. Levitt’s Review, published by the retailer, found that Boohoo’s monitoring of factories was “inadequate” due to “weak corporate governance”.  Despite failings, Levitt said that Boohoo had “made a significant start on putting things right” as the company announced a series of reforms. Investors responded positively with the company’s share price rising 16% on the day of publication. [The Guardian]

22 September | Kingfisher to return £23m in furlough money

The owner of B&Q and Screwfix announced plans to return £23m of furlough pay to the government after retail profits rose more than 47%.  The firm intends to pay back the £23m received in the UK unless there are any “material changes in the trading environment” and has also said it will not avail of the Government’s £1,000 per staff member bonus for rehiring workers on the furlough scheme. [The Guardian]

18 September | Toshiba acknowledges  uncounted votes

The Japanese conglomerate said more than 1,000 postal voting forms submitted ahead of its AGM went uncounted. The bank tasked with tallying  votes also carries out a similar job for almost a thousand listed companies and said the oversight may not have been limited to Toshiba. 1,139 voting forms, representing a combined 1.3% stake, were left uncounted.  [Reuters]

18 September | Unilever’s Dutch shareholder back unification plan

The company’s Dutch investors voted in favour of plans to unify the company. British investors are expected to vote on 12 October. If approved by both sides, the Anglo-Dutch firm hopes to unify on 22 November and move to a simpler structure headquartered in London. [Reuters]

Charities and Public Sector

28 September | Charity Commission launches investigation into Unicef UK

The regulator opened a probe in to the charity after its executive director, chair and one of its vice-chairs resigned soon after one another following allegations of bullying. Sacha Deshmukh, executive director of Unicef UK, resigned last Tuesday after alleging that he had suffered bullying and aggressive behaviour from chair Douglas Alexander. Alexander, who denied the allegations and said he was surprised by them, stepped down to allow an inquiry to take place. [Third Sector] 

24 September | Kreuger Review calls for shake-up of charity regulation

The review commissioned by the Prime Minister and delivered by the Conservative MP Danny Kruger proposes a new Community Power Act which would allow charities and other groups a right to request a role in the design of public services. The review also recommends the creation of a new "probation" status for new charities, so that organisations can set up quickly after passing "basic probity tests", with a fuller appraisal after two years [Civil Society]

Policy and Regulation

30 September | Government fails to extend ‘wrongful trading’ suspension

The Government extended a number of emergency insolvency measures alongside the Winter Economic Plan announcement including limiting statutory demands and winding-up petitions are until the end of the year. Notably, however, the Government did not extend the suspension of wrongful trading rules for directors. [Bloomberg]

25 September | US regulators make it more difficult for shareholder to bring forward proposals at AGMs

The SEC made it harder for small-time shareholders to put forth proposals aimed at cracking down on excessive pay, climate change and other corporate governance concerns. Previously, investors could issue proposals if they owned at least $2,000, or 1 percent, of a public company’s voting shares for at least one year. Under the new threshold, a shareholder with at least $2,000 of a company’s securities must hold them for at least three years. [Reuters]

24 September | SPACs under SEC scrutiny over pay

Special purpose acquisition companies or so-called bank cheque companies are under scrutiny from the US securities regulator. The SEC’s Chair Jay Clayton said the regulator was concerned that shareholders don’t fully comprehend how incentives tied to executive pay differ from traditional initial public offerings. SPACs, which list on public stock exchanges to raise money for the purpose of acquiring other companies, have exploded this year.  [Bloomberg]

23 September | MPs concerned after UK labelled “higher risk” jurisdiction for money laundering

The Commons’ Treasury Committee has written to HMRC and the FCA asking that they investigate reports that banks have been moving trillions of dollars of potentially illicit funds around the globe, including through the UK. The reports are the result of a leak of documents known as the FinCEN Files which detail more than $2 trillion in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance teams. The leaked documents show that the US Government describes the UK as a ‘higher risk’ jurisdiction. [ICIJ]

19 September | Overhaul of Companies House proposed

The Government has announced plans to reform the register of companies in response to criticism that Companies House is too open fraud and abuse by money launderers. Under the Government’s plans, Directors will be required to verify their identity before they can be appointed. However, the proposed reforms require primary legislation to be enacted.  [Bloomberg]

Audit

22 September | Germany’s KfW considering dropping EY over Wirecard

The country’s state-owned development bank is considering dropping EY as its auditor in response to the Wirecard accounting scandal. The news comes after Commerzbank, Germany’s second-largest lender, and DWS Group, Deutsche Bank’s asset-management arm, both decided against using EY Germany as their auditor. [Going Concern]

17 September | Deloitte fined £15m for Autonomy audit failings by FRC

The Big Four auditor was fined the record sum or failings in its audits of the software company Autonomy between January 2009 and June 2011. Two former partners were also fined and sanctioned by the FRC.  [The Guardian]

ESG Issues

30 September | Labour calls for mandatory climate reporting

Labour have called for all listed companies to be forced to report on their exposure to climate-change risks by this time next year. In a letter to the Business Secretary, Labour’s Shadow Business team argued “Given that the City of London, as the world’s leading financial centre, is home to companies and financial institutions that together are responsible for approximately 15% of global emissions, it can fundamentally shape the global response to this global threat”.  Labour’s calls come as the FCA concludes a consultation on the matter. [Bloomberg]

29 September | OECD calls on governments, regulators and businesses to work together to improve ESG reporting

The intergovernmental organisation’s Secretary General, Angel Gurría, warned that ‘fragmented ESG frameworks and inconsistent disclosure requirements mean that both institutional investors and corporates cannot properly communicate on their ESG-related decisions, strategies and performance criteria, with beneficiaries and shareholders’. The OECD believes it is “urgent” that a common set of global principles and guidelines for consistent, comparable and verifiable ESG data is developed. [PensionsAge]

22 September | Big Four join forces on ESG reporting standards

The leaders of EY, Deloitte, KMPG and PwC have come together in joint initiative to unveil a reporting framework for environmental, social and governance standards. The framework has 21 core metrics and 34 extended metrics, covering issues ranging from emissions to social factors such as pay and gender ratios and governance targets. [Financial Times]

22 September | NGO claims BlackRock and Vanguard failed to act on climate change

Majority Action, claimed that two of the world’s largest asset mangers voted to undermine global investor efforts to promote responsible corporate climate action in the US––despite public commitments to hold directors accountable in 2020. According to the group, the two asset managers voted for 99% of U.S. directors proposed by the energy, utility, banking and automotive companies. [Bloomberg]

Diversity and Inclusion

28 September | New York pension funds push for diversity data

After calls from the New York City comptroller and three NYC retirement funds, more than thirty of the largest US companies have agreed to new disclosures of previously private race, gender and ethnicity workforce data. Amazon, Goldman Sachs and General Motors are among the firms. [Al Jazeera]

24 September | Report finds women only account for 13% of FTSE 100 executive roles

Cranfield University’s annual Female FTSE Board Report shows women have occupy 324 or 40.8% of FTSE 100 NED positions. However, that is in contrast to the number of women holding executive roles which still only totals 31 positions, or 13.2%. [The Guardian]

24 September | Wells Fargo CEO apologies for claiming there was a lack of minority talent

The bank’s CEO Charles Scharf said in a memo to employees 'there is a very limited pool of black talent to recruit from' in corporate America. He later said in a statement that his comments were 'insensitive' and reflected how own ‘unconscious bias'. [Daily Mail]

Thought leadership, opinion and research

28 September | Synthetic Governance

In this Working Paper, academics from the University of California and the University of Pennsylvania propose the creation of  bespoke governance index funds. Such funds would allow asset managers to offer investors the opportunity to choose an index that corresponds to their governance preferences. They argue that such funds would allow for the collection of evidence on the economic impact of corporate governance by providing a market-based tool for evaluating the relationship between corporate governance and stock returns. [ECGI]

24 September | Corporations, Directors’ Duties and the Public/Private Divide

In this Working Paper, Monash University’s Jennifer Hill examines the tension between public and private conceptions of the corporation. She suggests that  a number of recent developments in corporate law have highlighted the negative externalities and social harm that corporate actions can cause. These developments suggest the emergence of a more cohesive vision of the corporation that encompasses both private and public aspects. [ECGI]

IoD in the news and advocacy

Writing in the Daily Telegraph, IoD Director General Jon Geldart  responded to the Winter Economic Plan. While voicing support for measures allowing firms to spread out loan and deferred tax repayments. Jon warned that that the Job Support Scheme may not go far enough in protecting jobs. Jon argued that with the Chancellor’s plan “the Government showed that while it still wants to support many jobs and companies, the extent of this support is being reduced - with significant implications for many companies and the wider economy”.

We warned that the Government’s failure to extend  the suspension of ‘wrongful trading’ could open the door to a wave of insolvencies. Our warning featured in Bloomberg with Director of Policy and Governance Roger Barker highlighting the suspension of these rules had “given business leaders greater confidence to press on and seek a way through the uncertainty for their organization and staff” noting that now “the message to businesses against the wall appears to simply be to shut up shop.”

We congratulated the Government on its  announcement that it will press ahead with plans to beef up the powers of Companies House to verify information. IoD Corporate Governance Policy Advisor Carum Basra told The Times it represented a  ‘a step in the right direction.’  But in our full response (available here) he cautioned “finding time on the legislative agenda may prove a challenge, with wider corporate governance reform already stuck on the runway for some time now.” 

Upcoming Events

16 - 18 October | 2020 ECGI Conference on Sustainable Finance and Corporate Governance

This conference is hosted by the European Corporate Governance Institute brings together leading academics with participants from industry and government. The first day of the conference features keynote presentations and panel discussions, primarily targeted at a non–academic audience. The second and third conference days consists of presentations of current research. [Register here]

6 October | Interview with Dame Inga Beale, former CEO of Lloyd's of London

In conversation with the Financial Times’ Brooke Masters, Dame Inga will discuss her career so far, how to be an inclusive leader and the value of resilience. During her five-year tenure at Lloyd’s of London, Dame Inga modernised the organisation by embedding a culture of innovation and, as the first female Chief Executive of Lloyd’s, also played a critical role in advancing diversity and inclusion initiatives across the global insurance sector. With over three decades of global business experience she was awarded her Damehood in 2017 for services to the UK economy. [Register here]

Comments and Responses

Dr Richard Smith CDir FIoD writes in response to Sir John Tusa’s Governance Perspective in last edition's Directors’ Briefing.

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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