IoD Directors' Briefing Your update on directorship and governance

In this edition’s Governance Perspective, Michael Peregrine and Charles Elson examine the impact that President Biden will have on corporate governance. Michael and Charles argue that the incoming Biden Administration can be expected to have a notable impact on corporate governance, both through specific proposals and by how its policies influence state legislation, “best practices” formulation and board conduct.

We’re again very pleased to invite you to take part in research being undertaken by the IoD Centre for Corporate Governance’s Stakeholder Governance Working Group. The Working Group would greatly value the views and perspectives of IoD members on the value of stakeholder governance and their experiences bringing stakeholder perspectives into boardroom decision making.

It is becoming an important topic and the Working Group is initially gathering views via an online survey, where your opinions will help inform their thinking – to complete the survey please click here.

Governance Perspective

Governance Perspective: Biden In the Boardroom – Michael Peregrine, partner at McDermott Will & Emery LLP, and Charles Elson, professor of corporate governance at the University of Delaware Alfred Lerner College of Business and Economics.

Companies

6 December | Deutsche Bank to link executive pay to sustainability goals

The lender has indicated in an internal memo that it plans to tie pay to its own sustainability goals. The policy will measure the volume of sustainable financing and investment that complies with environmental, social and governance criteria and how the bank is ranked by rating agencies on sustainability. [Bloomberg]

6 December | Sainsbury’s sought legal advice over rates relief repayment

The board of the supermarket took legal advice to ensure that waiving the £410m relief on its food stores “would not leave it open to legal action from disgruntled shareholders”. Morrisons, Asda, Aldi, Lidl, B&M, Pets at Home and Tesco have returned relief to HM Treasury. [The Times]

3 December | Adobe discloses that female workers earn 99% as much as men

In revealing the statistics, the US software company became the first major US tech firm to disclose its worldwide median pay based on gender. Median pay disclosures by companies have been mandated in the UK since 2018 and are increasingly required across Europe. [Fortune]

2 December | Green family to pay £50m into Arcadia pension scheme

Sir Philip Green’s family is to pay £50m into retailer’s pension scheme – almost a year earlier than scheduled. The payment comes as the Business Secretary, Alok Sharma, called on the Insolvency Service to take a “rigorous” look at the actions of directors at Arcadia. [The Guardian]

1 December | Boeing splits CEO and Chairman roles after investor vote

The aero maker split the board positions earlier this year but the move was not widely publicised. The structure is becoming more common in the United States;  according to Institutional Shareholder Services, in 2005, 30% of chairman and CEO roles at companies in the S&P 500 were split that has increased to 53% this year. [Bloomberg]

27 November | Boohoo hire retired judge to oversee supply chain

The Leicester retailer has hired Sir Brian Leveson, who led the judicial inquiry into the conduct of the British press in the wake of the News International phone hacking scandal,  the  to report directly to the board on the firm’s overhaul of its supply chain. The former judge’s reports will be published, which the retailer said would bring transparency and independence to the process. [The Guardian]

Charities and Public Sector

7 December | Conservative MPs criticise Barnardo’s over comments on racial inequality and white privilege

12 Conservative MPs wrote to Barnardo’s chief executive, Javed Khan, expressing their “concern and disappointment” at a blogpost exploring the topics. The MPs claimed that the term “white privilege” did “great damage to the cause of the poor and marginalised”. The Charity Commission has indicated that it is considering the MPs’ concerns.  [Third Sector]

3 December | Charity Commission acknowledges barriers to responsible investments   

The regulator has suggested that the legal framework and a perceived need to maximise financial returns are amongst the barriers stopping charities from adopting responsible investments. It also recognised that there is confusion over trustee duties created by the Charity Commission itself. The regulator is now considering in more detail how it can best support trustees in future.  [Civil Society]

28 November |  Charity Commission calls for charities to stop straying into politics

Writing in the Mail on Sunday, Baroness Stowell called on charities not to “jeopardise” public  goodwill “by getting drawn into the culture wars, on any side of the argument”. [Daily Mail]

Policy and Regulation

8 December | Deadline for Covid insolvency measure changes extended

The Government has announced a further extension until 30 April 2021 to changes to insolvency measures and the regulations for company AGMs, designed to relieve the pressure on businesses dealing with coronavirus. This includes a temporary removal of the threat of personal liability for wrongful trading from directors. Previously, the deadline was the end of this year. The move came after the IoD pressed for the extension.  [Accountancy Daily]

2 December | Nasdaq proposes rule requiring companies to disclose “consistent, transparent diversity statistics”

The exchange operator has proposed a rule that would require companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors. Additionally, the rules would require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+.

A company could have its shares delisted from the exchange if it does not comply. [CNN]

29 November | Swiss human rights and environmental due diligence proposal fails

A proposal in Switzerland to make multinationals headquartered in the country liable for human rights violations and environmental damage committed by their foreign subsidiaries narrowly failed in a referendum. The initiative won a narrow majority among voters, with 50.7 percent backing it, but failed because a majority of the country’s cantons rejected it. [New York Times]

26 November | FRC review of corporate governance warns of ‘formulaic’ approach

The Financial Reporting Council, which oversees the Corporate Governance Code, warned that too many businesses took a “formulaic” approach to stakeholder obligations. The watchdog also stated that many companies “stated the importance of diversity and diverse boards” the but “offered little . . . in the way of evidence to support their assertions”. [Financial Times]

Audit

4 December | EY partners under investigation over  Wirecard audit

German prosecutors have launched a criminal investigation into partners at the audit firm over potential violations of professional duties during the audit of collapsed payments group. The probe comes after the country’s audit watchdog indicated that the EY auditors may have acted criminally. [Financial Times]

ESG Issues

2 December | Mismatch between asset managers’ responsible investment claims and voting records

ShareAction, a responsible investments charity, analysed the voting decisions of 60 of the world’s biggest fund-management groups, looking at 102 shareholder resolutions related to climate and social issues between September 2019 and August 2020. Its research found that BlackRock and Vanguard, which manage around $13tn between them, were among the biggest “laggards”, having backed fewer than 15% of these resolutions at shareholder meetings. [Financial News]

Thought leadership, opinion and research

9 December | Reflections in 2020

This year we are asking you to join us in sharing your views and your experiences by completing a short survey “Reflections in 2020”.   It should take less than takes less than 10 minutes to complete (anonymously) 15 short statements. The results will be published in January 2021. [Survey Link]

8 December | Milton Friedman was wrong on the corporation

In this opinion piece, the Financial Times’ chief economics commentator Martin Wolf argues that Friedman’s shareholder primacy doctrine is mistaken given that corporations are not rule-takers but rather rulemakers. Wolf argues that businesses play games whose rules they have a big role in creating, via politics. [Financial Times]

1 December | How Wrong Was Milton Friedman? Harvard Team Quantifies the Ways

Harvard Law School’s George Serafeim’s work investigates the impacts on society over shareholder value. His work aims to assign a dollar value on the impact of products and operations on people and the planet, then add or subtract it from companies’ bottom lines. He discusses the impacts of his impact-weighted financial accounts with Bloomberg.   [Bloomberg]

1 December  | Boards and Sustainability: From Aspirations to Action

INSEAD’S Craig Smith an Ron Soonieus explain how

boards can turn their aspirations for sustainability into meaningful action, particularly in light of the fundamental questions boards should be asking in the wake of the COVID-19 pandemic. [Radix]

IoD in the news and advocacy

Head of Governance and Policy Roger Barker commented in The Telegraph on the Government’s coronavirus tiers saying: “Opening non-essential retail is a huge boost. The run-up to Christmas will be vital for companies, many of whom have invested significantly in becoming Covid-secure. It is now imperative that directors ensure their organisations and customers stick to the distancing guidelines.”

Responding to the Spending Review, IoD Director General Jon Geldart told The Times that the review provided a “sobering view of the challenge ahead, and funding for infrastructure and skills will be crucial to meeting that challenge. Just as significant was what the chancellor didn’t announce. Business leaders will be relieved that the Treasury is resisting the temptation to hike taxes on enterprise for now, but will be concerned that Brexit didn’t merit a mention.”

Videos and Podcasts

9 December | Companies, Shareholders and Sustainability Report Launch

The IoD Centre for Corporate Governance is pleased to publicly launch a University of Bristol Law Research Paper examining the shortcomings of the UK’s company law and corporate governance system. Written by Nina Boeger, Roseanne Russell and Charlotte Villiers, the paper discusses how the future design of the UK’s corporate governance and legal framework could deliver greater sustainability.. [YouTube]

Responding to the Coronavirus Crisis

The IoD’s Coronavirus Resources Hub is being updated frequently.

New resources include:

• Directors and Corporate Governance Resources
• Coronavirus Business Support – UK Government website
• Coronavirus (COVID-19): UK government response
• Guidance for Employees, Employers and Businesses
• How to Access Government Financial Support

• Coronavirus Toolkit from BEIS

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

• Dr. Roger Barker – Director of Policy and Governance ([email protected])

• Carum Basra – Senior Policy Adviser (Corporate Governance) and Editor of Directors’ Briefing([email protected])