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IoD Directors' Briefing: Your update on Directorship and Governance 20 August - 03 September 2020

02 Sep 2020

Welcome to your fortnightly Directors’ Briefing. As MPs return to Westminster this week, legislators around the world have been busy. In the German Bundestag, legislators opened a full inquiry into the collapse of Wirecard. In the US House of Representatives, lawmakers argued that the Trump Administration’s small business loan scheme had resulted in fraud. In California, State Assembly members passed a law mandating boardroom diversity.

This edition’s Governance Perspective comes from Carum Basra and examines the role of the State as a shareholder in light of the HM Government taking equity stakes in a number of firms as a response to the pandemic.

A reminder that on 17 September, beginning a series of events organised by the IoD Centre of Corporate Governance we’ll hear from Sir John Tusa on how he navigated the pitfalls and challenges of serving on the boards of major arts and cultural institutions from around the world. Register here.

And finally, another friendly reminder, working alongside the Global Network of Directors’ Institutes we are launching a short survey on corporate boards and their response to the COVID-19 pandemic.  The results will be used to identify ways in which directors have helped organisations to respond to the COVID-19 pandemic and the challenges that directors might be expected to face in the future. To complete the survey please click here.

Governance Perspective
Companies
Charities and Public Sector
Policy and Regulation
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

The State’s stakes: HM Government as shareholder - Carum Basra - Corporate Governance Policy Adviser, IoD

Companies

31 August | McDonald's claims former CEO ‘lied’ about relationships

The fast food chain told a judge that ex-CEO Steve Easterbrook lied about four alleged sexual relationships with junior colleagues to convince directors into permitting him to leave with stock awards as part of his severance. The company made the allegations in Delaware court filings as part of its efforts to claw back at least $37m. [The Telegraph]

30 August | Activist investor calls for Barclays’ CEO to go over Epstein links

Activist investor Sherborne, run by Edward Bramson, claimed that Jes Staley’s possible departure as Barclays’ chief executive had become “a foregone conclusion”. Sherborne claimed in a letter to Barclays’ investors that links between Staley and the deceased sex offender Jeffrey Epstein would damage the bank’s reputation. [The Times]

29 August | Hertz pushes for $5.4m in bonuses amidst bankruptcy

The car rental firm described the "incentive" bonuses in court documents. The payouts would have to be approved by the judge overseeing Hertz's bankruptcy. Executives at retailer JC Penny and Neiman Marcus received comparable payments in similar circumstances earlier this year. [Wall Street Journal]

25 August | £1.2bn Virgin Atlantic rescue deal approved by creditors

99% of the almost 200 trade creditors, each of whom is owed more than £50,000, voted to approve a deal to rescue the airline at a hearing at the High Court in London. Under the terms of the rescue deal, each creditor will receive 80% of the money owed by Virgin Atlantic, to be paid in instalments. [The Guardian]

25 August | TPG prepares two blank-check companies

The private equity firm is preparing to raise around $700 million via two special purpose acquisition companies or SPACs. According to Bloomberg, one company will  focus on the technology sector, while the other will seek out a target that operates in the environmental, social and governance sector. These so-called blank-check companies  raise funds from public markets, then find a company to merge with. 78 SPACs have raised a combined total of almost $31 billion on U.S. exchanges this year. [Bloomberg]

Charities and Public Sector

1 September | Syria charity struck off by Charity Commission

An investigation into Aid Convoy, a UK charity working in Northern Syria, by the regulator found ‘serious failures’ of due diligence and governance put the charity’s property at undue risk. The investigation also found that trustees had put the charity at risk of associations with terrorism. Two former trustees of Aid Convoy have been disqualified from trusteeship and senior management functions for a period of eight years. [Accountancy Daily]

28 August | Nottingham Council announce overhaul of municipal energy company

Nottingham City Council has agreed significant changes to how council owned Robin Hood Energy is governed after recommendations were set out by external auditors who found governance failures. One of the key recommendations put forward was a review of how councillors are best used on the boards of companies; ensuring that all board members have required knowledge and experience to challenge the management of companies. [Public Sector Executive]

Policy and Regulation

1 September | German MPs launch inquiry into Wirecard

The Bundestag is to hold a full inquiry into the collapse of Wirecard as questions mount as  to why the government failed to detect fraud at the payment processor. The decision to pursue a full inquiry came after a series of hearings of the Bundestag’s finance committee with Ministers. [Financial Times]

1 September | US policymakers warn of fraudulent small business loans

Democratic members of the House of Representatives voiced concerns about tens of thousands of loans worth billions of dollars granted through the Paycheck Protection Program. Republicans claimed the scheme had seen lower levels of fraud than other large government relief programs, such as those following Hurricanes Sandy and Katrina. [Reuters]

30 August | Shenzhen Stock Exchange to categorise firms by risk level

The Chinese bourse will segment the market into four categories ranging from high-risk to normal in a bid to improve supervision and risk control. The classification will be based on five criteria - risks involving accounting fraud, business operation, corporate governance, market operation and delisting risk. [Reuters]

30 August | California legislators pass board diversity statute

Members of the State’s Assembly approved a measure that would require publicly held corporations headquartered in the US’ most populous State to have at least one director from an underrepresented community by the end of 2021. The legislation if approved by the State’s Governor would require boards to include at least one board member by the end of next year who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or as gay, lesbian, bisexual or transgender. [Wall Street Journal]

28 August |European Parliament to examine corporate due diligence

MEPs met to discuss corporate due diligence and corporate accountability. The move comes after the European Commission indicated it would  implement a legislative initiative on mandatory human rights and environmental due diligence obligations for EU companies in early 2021. The initiative will include liability and enforcement mechanisms as well as access to remedy provisions for victims of corporate abuse. [ecoDa]

25 August | UK Government propose law to protect rainforests

The Department for the Environment, Food and Rural Affairs has launched a consultation on new legislation intended to curb deforestation. If introduced, new laws would require larger firms to undertake due diligence on their supply chain to ensure that commodities such as rubber and cocoa were produced in line with local laws to prevent deforestation. [The Independent]

24 August | Taiwan scrutinises UK registered firm over China links

Taobao Taiwan, an e-commerce firm owned by a British-registered company called Claddagh Venture Investment, has come under scrutiny by the investment commission of Taiwan’s Economics Ministry. The body stepped up monitoring after it claimed the firm was in effect controlled by China’s Alibaba Group Holding Ltd. Chinese investment is subject to enhanced scrutiny in Taiwan with Chinese-backed firms barred from certain sectors. [Reuters]

Investors and Stakeholders

20 August | KKR expands board diversity push in the US

The private equity firm stated that it had added at least two ‘diverse’ directors to the board of every company it controls in the US. About 30% of directors on the boards of KKR-owned American firms are now women or ethnic minorities. [Bloomberg]

ESG Issues

1 September | Asset managers oppose US Government plans to limit use of ESG investment criteria

State Street, BlackRock and Fidelity have voiced their opposition to proposals issued by the Department of Labor that would make it more difficult for them to incorporate environmental, social and governance factors when making investment decisions. Fidelity claimed that the notion that ESG investment strategies sacrifice returns were not ‘well grounded or supported by much of the emerging data’. BlackRock said the characterised the proposals as ‘overly prescriptive and burdensome’. [Financial Times]

24 August | Rio Tinto executives lose bonus over Aboriginal cave destruction

The world’s largest iron ore miner has opted to cut bonusses for CEO  Jean-Sebastien Jacques and two other senior executives after the company destroyed two ancient scared sites in Western Australia. Jacques is set to lose  a total of £2.7m. The dual-listed company has indicated that further detail on bonus cuts will be provided in its 2020 remuneration report. [BBC]

21 August | Climate activists take seats on Harvard endowment board

Three activists calling for divestment from fossil fuel assets  took seats on the  University’s Board of Overseers which approves candidates to serve on a body which oversees a $41bn endowment. The new appointees will not directly determine investment decisions but the group said the y hoped their election would ‘send a clear message to Harvard that it must take more urgent action’ on climate and responsible investing. [Reuters]

Thought leadership, opinion and research

3 September | ecoDa and INSEAD  training programme

The European Confederation of Directors’ Associations will host a two-day training programme focussing on new governance challenges. The programme will compare different models across Europe including the one tier and two tier systems. The Institute’s Head of Corporate Governance, Dr Roger Barker, will be among those presenting. The course will take place on 22 and 23 October. [ecoDa]

26 August | A company is a social organism as well as a financial entity

In a letter to the Financial Times, the World Economic Forum’s Klaus Schwab defends stakeholder capitalism calling for business leaders ‘to take decisions with one clear objective in mind: to strengthen the vitality of the enterprise, and in such a way serve best the interests of all stakeholders who have a long-term perspective’. [Financial Times]

24 August | CEO Power and Luck: Impact of Stock Markets on Building Powerful CEOs

According to  new research from the University of North Carolina at Chapel Hill, CEOs are getting the benefit of luck as they struggle with their boards for power. The research argues that boards are often unable to distinguish between exogenous factors and firm-specific performance noting that CEOs seeking to entrench their power following strong market performance are more likely to succeed at companies with weaker governance. [Institutional Investor]

23 August | 87% of S&P 500 opt for virtual AGMs

According to data provider MyLogIQ, 87 percent of companies in the S&P 500 opted for a virtual AGM this year compared with 23 percent of meetings held remotely in 2019. According to a recent study of more than 90 annual meetings by the Hebrew University of Jerusalem, virtual investor events held by S&P 500 firms  in 2020 ran for an average of seven minutes shorter than in-person shareholder meetings held last year. Executives allocated less time for business updates and for answering shareholders’ questions compared with in-person meetings in 2019. [Wall Street Journal]

21 August | CEOs’ plans to reset capitalism bump into reality of pandemic

The Financial Times’ Andrew Edgecliffe-Johnson and Billy Nauman reflect upon the impact of the pandemic on the realisation of the priorities outlined in last year’s Business Roundtable statement. [Financial Times]

IoD in the news and advocacy

 Tej Parikh, chief economist at the IoD tells the Daily Mail that 'As the furlough scheme winds down, job losses are starting to mount’. Policy Voice reveals that fewer than one in five business leaders who have furloughed staff say the Government’s £1000 job retention bonus will help them keep hold of their workers.

Podcasts and Videos

26 August | Saving the SME sector and recapitalising UK businesses post-Covid (Video)

In this discussion organised by the Centre for the Study of Financial Innovation, the Chief Executive of TheCityUK Miles Celic and EY’s UK Financial Services Lead Omar Ali discuss their joint work on recapitalising SMEs. In June, TheCityUK Recapitalisation Group published a report that found by March 2021, UK businesses are likely to face between £97bn to £107bn of unsustainable debt.  [YouTube]

ESG Insider | The ESG implications of a proposed US Labor Department rule (Podcast)

In this podcast by S&P Global, the U.S. Department of Labor proposals on limiting the importance of ESG criteria outlined in this briefing are discussed in depth. The presenters speak to sustainability experts on both sides of the debate. [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

Coronavirus Hub - IoD

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