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IoD Directors' Briefing: Your update on Directorship and Governance 26 June - 9 July 2020

09 Jul 2020

Welcome to your fortnightly IoD Directors’ Briefing, providing the latest news and insight in the field of directorship and corporate governance. Since our last briefing, it’s been all change across the FTSE 250 as Lloyds, Aviva and Babcock all announce changes at the helm. Meanwhile, supply chain issues have rocked online fashion retailer Boohoo, regulators have outlined principles for the structural separation of audit at the Big Four and the CMA has called for additional powers to address the dominance of Google and Facebook in online advertising.

Amidst calls for a shake-up of the audit profession, Dr Roger Barker focusses in this edition’s Governance Perspective on the need for a professionalisation of Directorship within a framework which goes beyond a legal baseline and encompasses conduct, ethics and relevant training.

Governance Perspective Responding to the Coronavirus Crisis  
Resources for Directors

Governance Perspective

Lessons for the future of corporate governance – revisiting the Brydon report - Dr Roger Barker, Head of Corporate Governance, IoD

Companies

7 July | Lloyds board refresh

The UK retail bank’s chief executive António Horta-Osório will step down next year after a decade at the helm of the bank. Lloyds also appointed Robin Budenberg as new chairman. Last year, Lord Blackwell said he would retire as Lloyds chairman during 2020. Horta-Osório joined Lloyds in 2011 and helped to return the bank to private ownership during his tenure, after its £20.3bn taxpayer-backed rescue. [BBC]

6 July | Shell CEO hints at moving HQ to London

Ben van Beurden, the oil major’s CEO, has hinted that the Anglo-Dutch firm could move its headquarters to the UK. Asked whether Shell planned to follow Unilever who recently announced plans to move from Rotterdam to London, Van Beurden told a Dutch newspaper “One always needs to keep thinking. Nothing is permanent and of course we take the investment climate into account. But moving your HQ is not a trivial measure, one should not be too easy about that.”. [The Times]

6 July | Bondholders call for Virgin Australia sale to be blocked

Bondholders owed $2bn by Virgin Australia have asked the Australia’s Takeovers Panel to prevent Bain Capital taking full control of the airline. A group of bondholders has asked the panel to declare that the sale process run by administrators Deloitte unacceptable because it failed to allow voting on an alternative deal. [The Guardian]

6 July | Aviva appoints new chief executive

Amanda Blanc takes on the role at the helm of the insurer after Maurice Tulloch stepped down due to family illness.  Blanc previously ran Zurich’s EMEA operations and has served as Chair of the Association of British Insurers. Her appointment raises the number of female FTSE 100 CEOs to just six. [The Guardian]

5 July | TM Lewin’s assets bought by new owner 

The collapse of the high-street retailer into administration resulted in 600 job losses as all stores were closed and the businesses new owners took all sales online. TM Lewin’s assets have been bought  by its owner Torque Brands, an investment vehicle for private equity firm Stonebridge, through a pre-pack deal. The move comes after Torque acquired the brand from Bain, the private equity firm. [Sunday Times]

1 July | Babcock announces new CEO

David Lockwood will take over as chief executive of the British FTSE 250 defence contractor in September. Lockwood previously led Cobham before the firm was acquired by the private equity group Advent in January. Babcock holds a number of significant MoD contracts including the repair and maintenance contract on Britain’s fleet of nuclear submarines. [City AM]

Policy and Regulation

7 July | Deutsche Bank fined $150m by New York regulators over Epstein links

The bank was fine for ‘significant compliance failures’ that allowed Jeffery Epstein to conduct hundreds of transactions totalling millions of dollars that should have prompted additional scrutiny. The New York State Department of Financial Services said that the bank had failed to properly monitor account activity. [CNN]

7 July | UK cautioned over Huawei ban

As tensions between the UK and China escalate, China’s ambassador to London warned that banning the firm from Britain’s 5G infrastructure would send a ‘very bad message’ to Chinese firms. Ambassador Liu Xiaoming  warned the UK would ‘have to bear the consequences’ if it sought to treat China as a hostile actor. Oliver Dowden, the Culture Secretary, has indicated that any changes to Huawei’s role in the UK’s 5G network would be announced within weeks.  The move comes two weeks after the Pentagon released a list of Chinese companies, including Huawei, with ties to the country’s military. [Independent]

6 July | Former Barclays’ chief executive denies ‘deceiving’ board over 2008 Qatar deal

John Varley denied to the High Court that he ‘deceived’ the bank’s board over two £322m side deals struck with Qatar during the bank’s £7.3bn cash call in 2008. Varley appeared in court as part of the legal battle between Barclays and PCP Capital Partners. [The Times]

1 July | CMA calls for new powers curb Google and Facebook’s dominance

The UK’s competition regulator voiced concerns that the two tech firms had ‘developed such unassailable market positions that rivals can no longer compete on equal terms’ within the market for digital advertising. Google holds more than 90% of the £7.3bn search advertising market in the UK while Facebook captures  more than half of the £5.5bn UK online display advertising market. The watchdog called for a Digital Markets Unit to enforce a new code of conduct and improve data accessibility for rivals. BEIS said it would consider the CMA’s recommendations. [BBC]

27 June | Project Birch loan agreed with Celsa Steel

HM Treasury agreed a loan with Cardiff-based Celsa Steel through its programme to support strategically important enterprises. The terms of the loan required commitments from the company concerning jobs, climate change and net zero targets, improved corporate governance and restraints on executive pay and bonuses. The Treasury is in advanced talks with five other companies about potential rescue packages. [Financial Times]

Audit

6 July | FRC tells Big Four to outline separation plans by October

The UK’s audit regulator instructed  KPMG, Deloitte, EY and PwC to submit plans for implementing operational separation, which will need to be completed by June 2024. The four firms are responsible for over 95% of FTSE 350 audits. The FRC has stated that separation is aimed at ensuring that ‘audit practices are focused above all on delivery of high-quality audits in the public interest, and do not rely on persistent cross subsidy’.  The ring-fenced practices will have separate boards, profit/loss accounts and no cross-subsidy. [CNN]

2 July | Brydon calls for urgent audit reform

In the wake of the Wirecard scandal, Sir Donald Brydon who was commissioned by the Government to review the audit market last year called for a shake-up of the profession arguing auditors ‘should have an obligation to find fraud rather than stumble over it’. [Financial Times]

Investors and Stakeholders

8 July | Axa Investment Management calls for greater gender diversity

The French asset manager has adopted a new policy which will see it vote against boards which fail to appoint sufficient female directors. In developed markets where women do not account for at least a third of board members it will use its voting power. Whilst, in emerging markets and Japan It has also pledged to use its vote — either by voting against the head of the nomination committee or against the signing off of company accounts — where women do not hold at least one seat or make up 10 per cent of larger boards. [Financial Times]

29 June |  Climate Financial Risk Forum publish  guide to climate-related financial risk management

The Climate Financial Risk Forum co-chaired by the Financial Conduct Authority and the Prudential Regulation Authority published a new which aims to help financial firms understand the risks and opportunities that arise from climate change, and provides support for how to integrate them into their risk, strategy and decision-making processes. [FCA]

28 June | Swiss Re call for ‘cyber resilience’ reports

The reinsurer suggested that such reports would tell customers, suppliers and investors how well prepared they were for potential attacks. Such reports could include information such as what sort of protective measures the company has in place, summaries of cyber incidents and how cyber security is governed. [Financial Times]

ESG Issues

5 July | Boohoo faces supply chain investigation

Workers in Leicester supplying clothes for the online retailer are paid as little as £3.50 an hour according to an investigation by the Sunday Times.  Boohoo’s share price tumbled by more than 16% on Monday following the report having been Britain’s fastest-growing online retailer valued at £4.9bn. [Sunday Times]

2 July | Zuckerberg dismisses financial threat of ad boycott

Facebook’s chief executive told staff that the social media firm would not change its ‘policies or approach on anything because of a threat to a small percent of … revenue’. More than 600 brands including Adidas, Unilever and Volkswagen have pulled advertising from the platform over Facebook’s failure to tackle disinformation and hateful content. [BBC]

26 June | Danone adopts enterprise à mission structure

The French producer of Activia, Alpro and Volvic adopted a new legal structure which will allow the CAC 40 firm to define a social and environmental purpose beyond profit and bind itself to pursing specific sustainability goals. 99 per cent of shareholders voted for the change. France modified its civil and commercial codes last year to allow companies to take greater consideration of social and environmental issues. Danone’s chief executive was instrumental in driving these legislative changes. [Wall Street Journal]

Thought leadership and research 

7 July | Margins: Estimating the Influence of the Big Three on Shareholder Proposals

The Big Three index funds - Vanguard, BlackRock, and State Street—play an increasingly important role in proxy voting.  The Big Three combined are the largest shareholder in 96% of Fortune 250 companies. The Big Three rely upon small ‘stewardship teams’ to determine how they should vote. Caleb N. Griffin assistant professor of law at the Belmont University College of Law asks what does ‘shareholder democracy’ look like in an era where three stewardship teams can decide the outcome of a majority of shareholder proposals with limited input from their investors? [Oxford Business Law Blog]

6 July | Criminally Insane Corporations

The University of Iowa’s Mihailis E. Diamantis asks if individual criminal defendants can claim the insanity defence then why not corporate criminal defendants? Diamantis argues that whilst corporations cannot be physically committed to a place of treatment they could be banned from certain business operations, or be subject to  monitoring or be forced into robust receivership or temporary nationalization in order to neutralise the public danger they pose. [Oxford Business Law Blog]

3 July | ‘Less is More’ in Non-Financial Reporting Initiatives

Brunel University’s Georgina Tsagas and Bristol University’s Charlotte Villiers argue ‘less is more’ in the non-financial reporting landscape and explains how an effective decluttering of the non-financial reporting landscape can take place by focusing on improving and widening the scope of the application of the EU’s Non-Financial Reporting Directive. [Oxford Business Law Blog]

2 July | Key Takeaways and Best Practices from Virtual Shareholders Meetings in 2020

Soundboard Governance produced an analysis of best practice based on attendance at ten Virtual Shareholders Meetings during the spring 2020 annual meeting season. Based on this analysis it published a list of 18 best practices for such meetings ranging from giving shareholders the ability to ask questions in advance of the meeting through to providing real-time closed captions for the hearing impaired. [Harvard Law School Forum on Corporate Governance]

28 June | High Pay Centre analysis of new pay ratio reports

The High Pay Centre published an interim report on the basis of new pay ratio disclosures in companies’ annual reports, requiring them to report their CEO’s pay relative to the top quarter, median and lower quarter pay of their employees. The think tank analysed annual reports published by the first 107 companies to comply with the new requirements in the first four months of this year. The High Pay Centre found that the FTSE 100 median CEO/median employee ratio is 74: 1 and the median CEO/lower quartile employee is 109: 1. [High Pay Centre]

IoD in the news and advocacy

29 June |The Financial Times reported the establishment of the IoD Centre for Corporate Governance highlighting that the Centre’s initial areas of focus will include sustainability, the feasibility of stakeholder-oriented governance, and the implications for boards of emerging technology such as artificial intelligence. The newspaper also noted that the launch of the Centre comes as the Institute rolls out accredited virtual professional development courses for directors in response to the virus lockdown.

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

Contact Press Office

Euan Holmes, Press Officer

020 7451 3280


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