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IoD Directors' Briefing: Your update on Directorship and Governance 23 July - 06 August 2020

06 Aug 2020

Welcome to your fortnightly IoD Directors’ Briefing, providing the latest news and insight in the field of directorship and corporate governance. Despite now being well into the summer, it’s been another busy two-weeks.

The leaders of the largest US tech firms appeared before a Congressional Committee to answer questions concerning their apparent market dominance. Though the session focussed on antitrust, Facebook’s Mark Zuckerberg, Amazon’s Jeff Bezos, Google’s Sundar Pichai and Apple’s Tim Cook also faced questions on China, alleged censorship and their relationships with law enforcement.

Closer to home, we discovered the departing chief executive of Standard Life Aberdeen, the asset manager, is set to be named  interim chairman of the Financial Reporting Council later this month.

This edition’s Governance Perspective focusses on how the anticipated mountain of bad debt created by the coronavirus crisis could be handled with Carum Basra arguing that when it comes to money lent through the Government’s Business Interruption and Bounce Back schemes, the State could adopt a system akin to student loans with repayments based on ability to pay and made via the tax system.

And finally, we’re pleased to announce that the Institute has joined the Good Governance Academy. The Academy is an international initiative that brings together business schools, institutions and universities to share information on critical governance and business science issues. The Academy’s website is here.

Governance Perspective
Companies
Charities and Public Sector
Policy and Regulation
Audit
Executive Remuneration
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

Bad debt requires good thinking - Carum Basra, IoD Corporate Governance Policy Adviser

Companies

4 August | BP halves dividend and signal shift to carbon neutral future

The energy company halved its dividend as it posted a $6.7bn quarterly loss. BP traditionally generates one of the largest dividends across the FTSE 100.  Despite BP's loss and a lower dividend, the company's share price rose. The company indicated its desire to shift from being a traditional oil company to an "integrated energy company" and said it expects to achieve "net zero" carbon emissions for the company by 2050. [BBC]

3 August | Microsoft in discussions to acquire TikTok

The US tech firm is talks with TikTok’s parent company, ByteDance, for its US, Canada, Australia and New Zealand operations, aiming to complete the talks no later than 15 September. President Trump has said that the US Treasury should receive payment as a portion of any deal between the ByteDance and a US company. [The Guardian]

2 August | James Murdoch resigns from News Corp board

Murdoch cited “disagreements” over editorial content. News Corp’s News UK division owns the Times, the Sunday Times and the Sun newspapers. Its other assets include Dow Jones, the owner of the Wall Street Journal, broadsheet newspaper the Australian, and the Australian tabloids the Daily Telegraph, the Herald Sun and the Courier-Mail. Earlier this year, James Murdoch and his wife Kathryn criticised coverage of the climate change in the family’s outlets. [The Guardian]

Charities and Public Sector

5 August | Donors and friends appointed to Civil Service boards

Analysis by The Times has found that over half of new appointments to departmental boards this year have gone to close political colleagues of cabinet ministers. According to the newspaper, of the 13 appointments that have taken place this year, eight have gone to what they describe as ‘Tory party insiders’. Departmental boards were introduced in 2010 to bring in “independent” non-executive directors who could “fundamentally transform the way government operates, scrutinising decisions and sharpening accountability”. [The Times]

29 July | Hedge fund manager Hohn charity must make $360m grant after Supreme Court ruling

The Children’s Investment Fund Foundation (CIFF) has been ordered to make a $360m grant to another charitable venture. Hohn and his now ex-wife, Jamie Cooper, had  agreed to transfer the money to Big Win Philanthropy, a charity set up by Cooper, on condition that she resigned as a CIFF trustee after they fell out. Both then recused themselves from a formal vote on transferring the cash - leaving it up to final board member Marko Lehtimaki. A protracted legal wrangle then ensued over whether Lehtimaki had the power to block the deal. [The Telegraph]

Policy and Regulation

4 August | HMRC accuses GE of $1bn fraud

The tax authority has asked the High Court to annul a 2005 agreement between itself and General Electric , which would force GE to pay 15 years of taxes on a controversial  transaction, plus interest and fines, totalling more than $1bn. In court documents, HMRC claimed that its 2005 decision relied in part on the minutes of a board meeting at GE in which crucial passages had been removed.  [Financial Times]

30 July | SFO to prosecute Airbus subsidiary over corruption linked to Saudi  Arabia

The UK’s Serious Fraud Office has said it will charge GPT, a subsidiary of airplane maker Airbus, with corruption relating to its activities in Saudi Arabia. The decision comes after an investigation that was started in August 2012 after complaints from a former GPT employee. The prosecution relates to alleged corruption in the awarding of contracts carried out for Saudi Arabia’s national guard. [The Guardian]

30 July | CEOs of Amazon, Apple, Facebook and Google appear before US Congress

The tech CEOs faced tough questions and documents that raised concerns about their competitive tactics during a high-profile antitrust hearing. The hearing was called to focus on whether the companies abuse their dominant positions in the market. It comes as lawmakers consider new tough regulations. [CNN]

28 July | ECB calls on banks to pause dividends

The European Central Bank has extended a de facto ban on banks returning capital to shareholders and urged them to show restraint on bonuses after the coronavirus outbreak. The supervisory authority has asked that banks not pay dividends or buy back shares at least until January, three months longer than initially indicated, and “to be extremely moderate with regard to variable remuneration”. [Bloomberg]

27 July | Push for UK to adopt light-touch post-Brexit state-aid regime

Some within Number 10 are reported to be arguing against any legislation that would see the UK’s internal market subsidy regime between England, Scotland and Wales governed by an independent regulator. May had planned to allow the existing Competition and Markets Authority to be the regulator for the new state-aid regime — this  approach that has since been abandoned. [Financial Times]

25 July | Tata Steel calls for £900m Government cash injection

Britain's biggest steel producer, Tata Steel, has asked the government to take an equity stake in the company in return for a cash injection of close to £1bn in a bid to secure the long-term future of the vast Port Talbot plant in south Wales. [Sky News]

23 July | MPs press HSBC over Hong Kong customer vetting

The London-listed bank is reported to have screened clients for ties to the region’s pro-democracy movement in the wake of the imposition of China’s new national security law. MPs across the House including the Shadow Foreign Secretary and the Chair of the Foreign Affairs Select Committee criticised the bank for the practice. Credit Suisse, Julius Baer and UBS are also reported to have begun probing clients’ pro-democracy ties. [The Telegraph]

23 July | Italian prosecutors seek custodial sentences for Shell and Eni executives over alleged corruption in Nigeria

A multi-year trial nearing conclusion in Milan focuses on a $1.3 billion deal in 2011 through which the energy firms secured joint ownership of an exploration block off the Nigerian coast. Prosecutors allege that the companies knew that while the deal was with the Nigerian government, most of the purchase price would end up in corrupt payments to middlemen and politicians. The prosecutors are seeking eight years in prison for Claudio Descalzi, Eni’s chief executive, and 88 months for Malcolm Brinded, a former Shell executive. [The Times]

Audit

3 August | Keith Skeoch to become acting chair of FRC

Skeoch, Standard Life’s departing CEO, is to become the interim chairman of the audit regulator. According to Sky News, Skeoch’s appointment will be announced later this month. He was also named as the new chair of the Investment Association earlier this year  [Sky News]

3 August | German regulator to investigate EY over Wirecard

Germany’s Auditors’ Regulator (Apas) is examining the work of the audit firm after it approved the accounts of the now collapsed Munich-based payment services company. According to Handelsblatt, the regulator is examining all audits that EY had conducted of Wirecard’s accounts since 2015. [Reuters]

2 August | European Commission to examine role of audit committees in wake of Wirecard

Valdis Dombrovskis, the bloc’s executive vice-president for economic policy, has indicated that the Commission is exploring how to reinforce the role of audit committees at listed companies to make sure they do sufficient due diligence. [Financial Times]

28 July | PwC refuse to audit FTSE 250 miner due to poor corporate governance

The auditor has said that it will not work with the Russia focussed gold miner Petropavlovsk due to concerns over a boardroom battle that has seen two rival groups of shareholders vying for control of the company. PwC said it had turned down the appointment because of “the significant changes to the board of directors at the recent AGM, namely the removal of the majority of both independent and executive directors”. [City AM]

Executive Remuneration

5 August | High Pay Centre publishes annual FTSE 100 CEO pay report

The think tank reported that median pay for chief executives fell by 0.5% between 2018 and 2019 at £3.61m compared to £3.63m. However, this is still 119 times that of the average (median) UK full-time worker earning £30,353. While 36 companies cut executive pay in response to the crisis, the report suggests these are mainly superficial or short-term. The most common measure, taken by 14 companies, has been to cut salaries at the top by 20%. However, salaries typically only make up a small part of a FTSE 100 CEO’s total pay package. [BBC] 

Investors and Stakeholders

23 July | TCI accuses Italy of ‘expropriation’

TCI Fund Management, an investor in infrastructure group Atlantia, made the accusation in a letter sent to Italy’s Treasury after the Italian Government ordered Atlantia to sell down its stake in Autostrade following the 2018 collapse of a motorway bridge in Genoa that the firm operated. [Reuters]

ESG Issues

5 August | US regulators seek to curb use of ESG criteria by retirement fund managers

US Labor Secretary Eugene Scalia has proposed a technical rule that would circumscribe the ability of investors to use environmental, social and governance, or ESG, factors when choosing investments. Scalia couched the proposal in terms of his duty to protect the rights of pension plans’ members and ensure fund managers focus solely on investment returns. [Bloomberg]

28 July | Passive ESG investing on the rise

According to a report by the US SIF Foundation, index-based funds with ESG considerations have grown in both number and assets, although they are still vastly outnumbered by actively managed ESG funds. The first ESG index, called the Domini 400 Social index and now known as the MSCI KLD 400 Social index, was developed in 1990 by KLD Research & Analytics. Today, there are more than 1,000 ESG indexes according to the report. [Pensions & Investments]

24 July | Moody’s describes Lloyds’ ethnic diversity plan as ‘credit positive’

The credit rating agency has described the bank’s programme to promote more black employees to senior roles as “credit positive”, marking the first time that it has explicitly linked a company’s stability to ethnic diversity measures. Moody’s said the measures would “improve staff diversity at all levels and reduce Lloyds’ exposure to social risk”. [Financial Times]

Thought leadership, opinion and research 

1 August | 2020 Activist Investor Report

CGLytics, a data provider, has produced a report on activist interventions at companies around the world. The report finds that there has also been a broadening of focus—activism is no longer the sole province of hedge funds and other specialized investors; activism is now not just seeking to unlock value, but also to intervene in governance and performance areas. [Harvard Law School Forum on Corporate Governance]

31 July | Covid-19 offers a chance to revive the public markets

Merryn Somerset Webb, the editor-in-chief of MoneyWeek, argues that governments should work to revive public markets by making delisting less attractive by taxing private equity and provide incentives — or even subsidies — for listing. [Financial Times]

31 July |Renewed Interest in IPOs of Public Benefit Corporations

Cydney Posner examines the changes to Delaware law that could see novel corporate forms seeking to list. A “public benefit corporation,” according to the Delaware General Corporation Law, “is a for-profit corporation…that is intended to produce a public benefit…and to operate in a responsible and sustainable manner”. [Harvard Law School Forum on Corporate Governance]

28 July | Why SPACs are the new IPO

Bryan Marker examines the rise of Special purpose acquisition companies (or SPACs). These vehicles have raised record amounts in the last few years. Some 28 SPACs have had IPOs this year, raising $8.9 billion. Marker explains SPACs raise funds from public markets, then find a company to merge with. When they announce the merger, shareholders can either accept stock in the new company or redeem their shares at the original price of the offering. [Medium]

27 July | Greater gender diversity improves performance

According to a report by The Pipeline, FTSE 350 companies which have executive committees with female membership of more than 33% have a net profit margin over 10 times greater than those companies with no women at this level. Companies with no women on their executive committees have a net profit margin of 1.5%, whereas those with more than 33% women at this level reached 15.2% net profit margin. [BBC]

27 July | Has the boom in private equity made high-street chains too weak to survive Covid-19?

Sam Chambers examines the way in which Covid-19 shockwave has impacted the high-street exposing less resilient operators and reigniting a debate over the shortcomings of private equity ownership that some argue as seen chains saddled with debt. [The Times]

23 July | Leadership in Risk Management: European Report 2020

Board Agenda, in association with Mazars and INSEAD, asked C-suite executives and non-executives about their preparedness for a pandemic in the wake of the Covid-19 crisis, as well as gauging their changing attitude to risk and their views of the current risk environment. [Board Agenda]

IoD in the news and advocacy

4 August | Tej Parikh, the IoD’s Chief Economist, told The Times that plans to recoup nearly £1.6 billion of unspent Covid-19 grants by the Government should be scrapped. Tej argued that given funding has been earmarked to help struggling small businesses that ‘it would be deeply frustrating to see it evaporate, particularly when many firms are in need’. [The Times]

Podcasts and Videos

27 July | Rock Center for Corporate Governance discussion with Starbuck’s COO Roz Brewer (video)

The Rock Center is a joint initiative between Stanford Law School and Stanford Graduate School of Business with a mission to advance the global scholarship, practice and understanding of corporate governance. The Rock Center has launched a series of online sessions including a timely conversation with Roz Brewer, COO, Group President, and Director at Starbucks and Director at Amazon, about corporate America's response to George Floyd's murder and the ensuing public protest. [YouTube]

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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