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IoD Directors' Briefing: Your update on Directorship and Governance 8 - 20 January 2021

21 Jan 2021

Welcome to your second Directors’ Briefing of 2021. The pandemic remains the backdrop to all our deliberations, even if vaccines provide some light at the end of the tunnel. Many companies with December year ends are now focusing on closing-off their accounts for 2020, beginning the audit process and considering how to engage with shareholders at AGMs later in the year. For their part, investors are demanding a more interactive AGM experience than last year in order to hold directors accountable.

Audit is back on the policy agenda, as the UK’s new Business Secretary declares his intention to push forward with the reforms advocated by the earlier Brydon, Kingman and CMA reviews. And a number of governance concerns have arisen in the not-for-profit sector – which highlight the importance of directorship and governance for any type of organisation.

In this edition’s Governance Perspective, Alex Tamlyn considers how companies can fulfil the expectations of investors and wider society in respect of Sustainability and other ESG factors. He argues that it is no longer attractive or interesting for a business to merely show ESG awareness or intention.  Such a business must have a credible and meaningful strategy which is consistent with its corporate purpose. Ultimately what matters most is a company’s authenticity – and corporate leadership must demonstrate that it can deliver.

Governance Perspective
Companies and Investors
Charities and Public Sector
Policy and Regulation
Audit
ESG Issues
Thought leadership, opinion and research
Events
Responding to the Coronavirus Crisis Resources for Directors

Governance Perspective

Governance Perspective: Beyond WOKE – acting now on SESG. Alex Tamlyn, a Partner at DLA Piper, argues that directors must have a credible and meaningful sustainability and ESG strategy which is consistent with corporate purpose. Ultimately what matters most is a company’s authenticity – and corporate leadership must show that it can deliver.

Companies and Investors

17 January | UK companies warned against shutting investors out of AGMs

In 2020, most FTSE 350 companies held their AGMs behind closed doors. Shareholders were only allowed to submit questions by email – with some arguing that legitimate challenges were being screened out by companies. ShareAction, a charity, has written to FTSE Chairs, asking them to engage with shareholders through virtual meetings which allow for the possibility of live interaction using video technology. [The Times]

20 January | Japan Inc faces potential forced sell-off of cross-shareholdings

The cross-shareholdings between Japanese companies have long been criticised by western investors, who argue that they reduce corporate accountability – as companies provide each other with mutual support at the expense of investor interests. However, this year changes to the Tokyo Stock Exchange’s listings framework will make it less attractive to retain this kind of ownership structure. [The Financial Times]

Charities and Not for Profit

7 January | World Rugby reveals interim findings of independent-led governance review

The World Rugby Council has endorsed the findings of a governance review of World Rugby by the former UK Olympics and Sports Minister, Sir Hugh Robertson. The recommendations include a target of at least 40 per cent female representation on committees with the promotion of women leaders in the sport. [Around the Rings]

9 January | RICS governance row sends shock waves through the property industry

The governance framework at the RICS has been criticised in media reports due to the alleged suppression of an external report into its finances, and the forced departure of several non-executive directors who expressed concerns. [Building]

13 January | Governance failings are putting UK universities at risk of collapse

A new report by Henley Business School argues that many governing bodies of universities do not possess the necessary personnel and skills to act as high-performing bodies. Due to the complexities of universities, it is hard for council members to understand what is going on, or fully appreciate what matters most to the university. [Times Higher Education]

14 January | Regulator cracks down on pension scheme governance failures

The Pensions Regulator has banned a corporate trustee and one of its directors from acting as pension scheme trustees after multiple governance failures which it said highlighted a lack of competence, capability and integrity. [Accountancy Daily]

14 January | David Bernstein criticises football's governance

The former Football Association chairman David Bernstein has called on the government to urgently hold the “fan-led review” of the game it promised in its 2019 election manifesto. The Government claims that it has started the process, but impatience is growing with its slow pace. [The Guardian]

17 January | Ministers urged to intervene on schools’ governance

In the wake of a governance crisis at a school in Gloucester, the National Governance Association has called for the Government to prevent members of academy school leadership teams from also sitting on the board of trustees. [Schools Week]

Policy and Regulation

18 January | Joe Biden names Gensler as new SEC Chair

Joe Biden has appointed Gary Gensler, a former Goldman Sachs banker and financial regulator during the Obama administration, to be the next chair of the Securities and Exchange Commission. [Financial Times]

20 January | Evaluations of UK company boards will be subject to a Code of Practice

A government-commissioned review has recommended the adoption of a code of practice for board evaluations. The review into the effectiveness of independent board reviews was coordinated by the Chartered Governance Institute, with the IoD participating as a member of its stakeholder advisory panel. External board reviewers will be asked to commit publicly to the standards in the code by becoming signatories. [ICSA]

Audit

13 January | New UK business secretary pledges to target Big Four audit reform

Kwasi Kwarteng, the UK’s new business secretary, has vowed to prioritise reforming the UK audit market. The government has already accepted the findings of three independent reviews into audit and corporate reporting (the Brydon Review, the CMA Review and the Kingman Review), and now appears committed to acting on their recommendations. [Financial Times]

19 January | Autonomy auditors criticised in FRC investigation

The FRC has published a report detailing its findings from an independent disciplinary tribunal into the audit of Autonomy by Deloitte and two former partners - prior to the acquisition of Autonomy by HP in 2011. According to the report, Autonomy’s financial position was overstated in the audited accounts by undisclosed sales of hardware and sales to value added resellers which were later reversed or replaced. [Accountancy Age]

ESG Issues

12 January | UK urged to introduce mandatory climate votes at AGMs

The Investor Forum, a group representing asset managers owning a third of the UK equity market by market capitalisation, has called on the government to consult on the introduction of a “say on climate” vote for shareholders at AGMs. The idea had previously been advocated by hedge fund activist Sir Chris Hohn. [Reuters]

Thought leadership, opinion and research

8 January | Climate-related disclosures to get stricter for UK plc

Pinsent Masons argue that UK companies should prepare for a significant toughening up of climate-related disclosure requirements. New requirements have already been announced by the FCA, and are aligned with global standards set by the Task Force on Climate-related Financial Disclosures (TCFD). The new rules will initially apply to premium listed companies for accounting periods beginning on or after 1 January 2021 – but are likely to be extended to a wider range of companies in subsequent years. [Pinsent Masons]

11 January | Report on Practices for Virtual Shareholder Meetings

Douglas K. Chia and Ann S. Lee describe a range of practices that are being used by US companies to conduct virtual shareholder meetings. They argue that each company should tailor its arrangements to its particular facts and circumstances and hold its annual meeting in a way that bests serve the needs of the company and its shareholders. [Harvard Edu]

18 January | Boards Are Obstructing ESG — at Their Own Peril

Writing in the Harvard Business Review, Tensie Whelan argues that many boards have little ESG-related expertise and do not recognize the need to pay attention to sustainability issues. And yet ensuring good performance on ESG is not only a board’s fiduciary duty, but also essential to financial performance and continued relevance in modern society. [Harvard Business Review]

Events

25-29 January | Davos Agenda taking place on-line

During 2021, the IoD is collaborating with the World Economic Forum in the run-up to COP 26. During next week, the Davos Agenda 2021 will convene under the theme: A Crucial Year to Rebuild Trust. IoD members are warmly invited to participate along with the world’s foremost leaders to address the economic, environmental, social and technological challenges following the COVID-19 pandemic. Sessions which may be of particular interest to IoD members include: Pathways to Economic Transformation; Building the Evolution of Stakeholder Capitalism; Reorienting Boards for the Long Term; Financing the Net-Zero Transition; Accelerating Grassroots Innovation; and Fostering Responsible AI Leadership. The link to the event is: Davos Agenda

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

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