Moderated by Deborah Hargreaves, former business editor of the Guardian, the 90-minute online event drew an international audience of hundreds of company directors. For those who missed the event, here’s a summary of the key points.
Opening proceedings, Charlotte Valeur outlined her ambitions for the Centre noting that its establishment presented an opportunity to bring together a broad range of stakeholders with a common interest in governance, stewardship and ESG issues.
He concluded by calling for a renewed social contract between government and industry to establish common ground for tackling common challenges including the transition a more automated, less carbon-intensive economy.
Panel Discussion - ‘Will the coronavirus have a lasting impact on corporate governance?’
Mats Isaksson, OECD Head of Corporate Governance
Mats Isaksson argued that certain aspects of corporate governance would evolve over time, informed by the experience of the pandemic, highlighting that the pandemic had brought to the fore questions around both economic sustainability and resilience. Mats highlighted the need to adjust and refine our regulatory frameworks ensure that European companies have access to equity capital. He suggested that company law, securities regulation and listing requirements need to be flexible enough to allow for such investment noting that at present there were few IPOs in London or continental Europe.
Mats went onto urge open-mindedness and flexibility with respect to how tomorrow's companies organize themselves and suggested that new corporate forms may be more resilient. He suggested that allowing different capital structures to evolve and take advantage of new markets would build resilience.
Kit Bingham, Head of Board Practice, Odgers Berndtson
Kit Bingham explained that, in his view, COVID would change corporate governance arguing that the pandemic would accelerate existing trends that have seen shareholder primacy increasingly questioned. Kit called for an evolution to situation where Directors are accountable to shareholders but also for non-financial measures. Kit emphasised despite Section 172, CSR and calls for triple bottom line reporting had failed to bring down the “citadel of shareholder primacy” even if they had moved the needle. Kit argued that the pandemic marked a meaningful shift and had underscored the question of corporate purpose. Kit suggested that after the crisis many would reflect on how firms had responded, whether they opted to shift supply chains to bring forward the essentials, the way they treated their furloughed employees and so on.
Kit suggested that non-financial reporting would have to greatly improve to achieve much more widespread adoption with support from investors. He also argued that asset managers and other investors including sovereign wealth funds would have to use their votes to improve governance and outcomes arguing that they ought to vote against all-male boards for example.
Sandy Boss, Head of Corporate Governance, BlackRock
Picking up on Kit’s challenge, Sandy opened by arguing that BlackRock’s stewardship role meant it sought to create a better financial future for its clients by engaging with the boards of investee companies and ultimately by exercising voting rights. She argued that sustainability integrated portfolios deliver better risk adjusted returns for investors over the long term with sound governance and sustainable business practices enhancing a company's financial performance.
Sandy emphasised that BlackRock saw sustainability as being highly relevant to the way that companies have responded to and are recovering from the coronavirus crisis. She underscored that the crisis has raised serious questions about company resilience noting that companies that had strong profiles on material sustainability issues were better able to weather the crisis.
Sandy noted that the crisis had prompted a fundamental re-evaluation of the economic and social commitment that companies have to their employees, their suppliers, their customers and the communities in which they're operating. She emphasised that these commitments were becoming integral to the long-term strategies of many companies as they think about how to emerge from the crisis.
Sandy went on to stress that while social issues had come to the fore, governance remained critically important as a perennial indicator of corporate resilience. She argued that firms were being challenged to balance stakeholder interests for example making difficult decisions around executive compensation with workers furloughed or in receipt of government bailouts.
Sandy outlined BlackRock’s engagement priorities setting out that the asset manager was looking for targets and business practices that are increasingly aligned with Paris Agreement goals for carbon intensive firms and for major employers looking for evidence that they are creating opportunities for a diverse workforce. She emphasised that robust disclosures were essential so that investors are able to understand what companies are doing and also to track progress. She emphasised that BlackRock are increasingly choosing to vote against companies not satisfied with progress. Reflecting on this AGM season, she highlighted that BlackRock had sharpened its focus on climate risk and was increasingly holding directors accountable when a company fails to address this material issue.
There was an increasing blurring of the lines between financial and non-financial risk, Sandy suggested, arguing that today's non-financial risks are increasingly material and in some cases becoming near-term real financial risks. She emphasised a need for companies to have a strong sense of purpose to stakeholders so that they can connect more deeply with their customers and they can also anticipate the changing needs of society. She argued such companies would gain access to higher quality more patient capital while companies that aren't managing sustainability risks well and failing to respond to stakeholders endanger their viability and license to operate. Concluding, Sandy reflected upon the need for additional skills in the boardroom and the need for companies look to a larger and more diverse pool of potential director candidates.
Guy Jubb, former Global Head of Governance & Stewardship at Standard Life Investments
Guy Jubb, returning to a thread from Kit’s speech, put forward that shareholder primacy whilst not yet dead was beginning to “wither on the vine”. Guy argued that the pandemic had prompted an acceleration towards an enlightened stakeholder view where shareholders are on the same level as other stakeholders. He noted that whilst there had been a shift in this direction, it remained shareholders to whom boards are and should be accountable.
Guy argued that the pandemic had led to a significant shift in the way CEOs communicated with employees with senior executives taking to Zoom to speak directly to staff. Guy went on to suggest that NEDs could now also be far more visible to the workforce and argued that boards should think more innovatively about how they engage across organisations.
Turning to the way in which boards engage with investors touching on AGMs, Guy asked what the purpose of AGMs are when large institutional shareholders often fail to use the opportunity to actually have a discussion or a dialogue.
Guy concluded by reflecting on audit quality, stressing that auditors know that “they have to pull their socks up” noting the for capital markets to have access to high-quality information to ensure that capital is allocated efficiently. Guy argued that there was an opportunity to reform audit citing the Brydon Report.
Colin Mayer, Professor at Said Business School
Colin Mayer opened by stating that the pandemic would fundamentally alter corporate governance, emphasising the State’s role in extending supporting firms in response to the crisis. He noted that support had been extended with public support arguing that this had been conditional on the presumption that business would I turn support an inclusive recovery. Colin argued it was important that business did not squander that public support because the ramifications from so doing would be much more severe than they were after the financial crisis.
Colin contended that the idea of ‘corporate purpose’ was central because it provides a way of understanding how companies should and will react to the crisis. Illustrating this, Colin referred to firms making the hard trade-offs that exist between supporting their employees as against their customers through cutting costs.
Reflecting on support to firms through the pandemic, Colin emphasised that it would be critically important that what is provided going forward is predominantly in the form of equity rather than debt. He argued that companies should seek to solve problems that we face as individuals and collectively, and to do so in commercially viable and profitable ways. Colin argued that such an approach was concerned with generating returns for shareholders as much as it is for promoting the interests of broader stakeholders. He argued that the notion of purpose was not tantamount to CSR but something that is absolutely core to what a business does and the whole notion of how one should frame corporate governance. Colin argued that placing purpose at the centre of corporate governance required drawing measures of performance that go beyond traditional financial metrics.
Bob Garratt, Author of The Fish Rots from the Head
Opening, Bob Garratt reflected on the danger that the UK’s approach to corporate governance could become overly focussed on compliance and highlighted a need to return the focus on what actually happens in the boardroom. Bob emphasised that the challenge directors face is around how to drive an organization forward and on the other how to maintain prudent control.
Taking the long view, Bob argued achieving that balance was a perennial concern highlighting that Ancient Greeks appointed helmsman to keep ships on course. Reflecting on the Enlightenment, Bob contended that good corporate governance was chiefly concerned with redistributing power, wealth and justice citing the work of Rousseau, Adam Smith and the US Declaration of Independence. Bob argued that CEOs were not supreme beings and for the need to re-establish the supremacy of the board emphasising the need for professionalism.
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