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 has been agreed that the Charity Governance Code will receive a ‘refresh’ rather than a wholesale re-write, Oracle has entered the race to acquire TikTok’s US operations and the Government has begun to consider how it could extend crisis support to indebted private equity owned companies.
We’d also like to highlight two upcoming online events focusing on governance that may be of interest. On 1 September IoD Central London will be hosting an event examining what being a ‘Purpose Driven’ business really means with insights from the London Business School’s Alex Edmans (register online). Later in the month, on 17 September, beginning a series of events organised by the IoD Centre of Corporate Governance we’ll hear from Sir John Tusa on how he navigated the pitfalls and challenges of serving on the boards of major arts and cultural institutions from around the world (register online).
And finally, working alongside the Global Network of Directors’ Institutes we are launching a short survey on corporate boards and their response to the COVID-19 pandemic. The results will be used to identify ways in which directors have helped organisations to respond to the COVID-19 pandemic and the challenges that directors might be expected to face in the future. To complete the survey please click here.
Share buybacks - their economic drivers, psychology and results - Philip Arnold, Chief Executive Officer, Excellence in Learning
18 August | Oracle enter talks to acquire TikTok’s US division
The US tech firm’s interest in the Chinese video sharing platform comes after President Trump ordered ByteDance the Chinese owner of TikTok to divest its US operations within 90 days. Trump’s move followed a recommendation from the Committee on Foreign Investment in the US, the panel tasked with vetting foreign transactions. Microsoft has also held discussions to explore acquisition of TikTok’s operations in the US, Canada, Australia and New Zealand. [Bloomberg]
17 August | McDonald’s file lawsuit against former CEO
Steve Easterbrook, who was sacked by the fast food chain as chief executive last November for having a relationship with an employee, was sued by the company. McDonald’s claims Easterbrook had three additional sexual relationships with staff which he failed to disclose. McDonald’s said that if it had known about the extent of Easterbrook’s “inappropriate” behaviour it would not have agreed to him retaining £32m in stock-based benefits on his departure. [Sky News]
14 August | Major Toshiba investor calls AGM probe claiming votes not recognised
Singapore-based hedge fund 3D Investment Partners claimed that voting rights representing a 1.1 percent stake in Toshiba were not reflected in the results of the meeting in a letter to Toshiba’s board. Calling for a third party investigation, the fund said it was “strongly concerned that many other shareholders might have been hindered in exercising their voting rights”. [Reuters]
11 August | Tesla announces 5-1 stock split
The US automaker announced the move after Apple announced a four-for-one split in late July. Stock splits have traditionally are a way for companies to make shares more accessible to retail investors by attracting investors who make small trades. However, brokerages now increasingly allow customers buy parts of shares, making the benefit of share splits less clear. [Reuters]
10 August | NMC Health under investigation over ‘fake’ invoices
NMC Health, the Abu Dhabi based healthcare chain previously listed on the London Stock Exchange, is being investigated over false invoices relating to fake medicine sales to a connected entity. These purported sales were used to underpin large-scale debt raising. The investigations are being undertaken by Neopharma, a pharmaceuticals company also controlled by NMC’s founder BR Shetty. NMC allegedly used fake documents to simulate orders for pharmaceutical supplies from Neopharma to obtain credit from banks. [Daily Mail]
10 August | Kodak loan put on hold after allegations of wrong doing
A $765m loan to the firm agreed by the Trump administration under the Defense Production Act to support the production of Covid-19 drugs was put on hold until allegations of wrongdoing are resolved. Kodak’s share price soared when the loan was made public, but the timing of the announcement has led to claims of insider trading that are now being investigated by the Securities and Exchange Commission, as well as by Congress. [Bloomberg]
9 August | Saudi Aramco pays dividend despite fall in profits
The largely state-owned oil producer paid a dividend despite profits collapsing. Aramco became the most valuable listed company in history when it floated on the Saudi stock exchange last year, boasting the biggest profits in the world. Unlike other oil companies including BP, Shell and ExxonMobil, Aramco has not written down assets because of lower oil prices, but it has indicated it will cut spending. [The Guardian]
Charities and Public Sector
14 August | Charity Governance Code ‘refresh’ planned
The steering group which oversees the Code has stated that it plans to “refresh” the Code rather than undertaking a full rewrite following consultation with the sector. The consultation received almost 800 responses. Of those responding, 90% have either fully, or partly adopted or are working towards full adoption of the Code. A refreshed version of the Code was planned for July, but has been delayed by the pandemic and will instead be published towards the end of this year. [Civil Society]
7 August | Charity Commission open statutory inquiry into education charity
The regulator opened the inquiry into the Birmingham Education Trust over concerns about the management of the charity by its trustees . The Commission initially opened a compliance case into the charity in March 2019, to examine its repeated failure to comply with its statutory duty to file its accounts and annual returns. The case then identified wider concerns, including that the charity was operating in breach of its governing document in having only two trustees who were husband and wife. This also raised concerns about potential unmanaged conflicts of interest. The case was escalated to a statutory inquiry after trustees failed to demonstrate any progress in addressing concerns. [BBC]
Policy and Regulation
17 August | Government considers extending loans to private-equity owned firms
Officials in the business department are examining ways in which state-backed loans could be extended to indebted companies owned by private equity groups. EU State Aid rules prevent companies whose losses exceed 50 per cent of their share capital from drawing on Government support of this kind. PE-backed companies typically carry high levels of debt to reduce their tax bill, resulting in statutory losses even when they are generating cash and have therefore been largely ineligible for support to date.[Financial Times]
14 August | Project Birch talks with Jaguar Land Rover and Tata Steel end
HM Treasury’s discussions with the automaker and the metals firm both owned by India’s Tata Group have come to an end after the Government determined they did not qualify for taxpayer support. According to the Financial Times, strict conditions on lending made support unpalatable for Tata. So far, the UK subsidiary of Spanish steelmaker Celsa is the only firm to have successfully agreed a loan through the Project Birch scheme. Project Birch is intended to support those firms of strategic importance to the UK economy that have exhausted all other financing options. [Financial Times]
14 August | Australian PM criticises firms using Government support to subsidise dividends
Scott Morrison reiterated that the purpose of his Government’s jobkeeper scheme is to support employees after it was reported that some companies that received supported have, at the same time, paid significant dividends to shareholders. Morrison’s concerns were echoed by the Opposition Labor Party and the Australian Council of Superannuation Investors called for payments under the scheme to be disclosed in order to give investors a clear idea of company performance. [The Guardian]
13 August | Chinese firms continue with US IPOs
Despite American warnings that Chinese firms that do not meet US accounting standards could be forced to delist, according to data provider Refinitiv, Chinese companies have already raised $5.23 billion in US listings in 2020. Beike, a Chinese property management company, listed in New York earlier this month becoming the 18th Chinese firm to list there this year. The firm’s IPO came just three days after US Treasury Secretary Steven Mnuchin warned that Chinese companies that do not comply with US accounting standards would be delisted at the end of 2021. [Reuters]
Investors and Stakeholders
13 August | ISS plans to sue SEC over new proxy adviser rules
Institutional Shareholder Services, a proxy adviser, is pressing ahead with a lawsuit against the Securities Exchange Commission after the regulator introduced new rules that require proxy advisers to provide a copy of their reports to corporations at the same time they release them to clients. The rule will take effect for the 2022 proxy season if the challenge is unsuccessful.[Reuters]
10 August | Investors raise concerns over Rio Tinto after destruction of Aboriginal caves
The UK’s Local Authority Pension Fund Forum backed calls for improved accountability at the FTSE 100 mining group after the firm’s CEO Jean-Sébastien Jacques admitted that had not read a critical archaeological report about the site when appearing for a hearing in Australia’s Parliament. The Forum’s chair Doug McMurdo suggested that the oversight called into question “the company’s governance and oversight processes.” [IPE]
14 August | BHP to closely monitor industry climate lobbying
The world’s largest listed miner has committed to closely monitor the work of industry associations to ensure they reflect its own position on keeping global warming below 2 degrees. BHP, which quit the World Coal Association in 2018, said it will publish annually a list of material association memberships and disclose in real time if any of the associations breach its global climate policy standards. [Reuters]
Thought leadership, opinion and research
20 August | ecoDa and INSEAD training programme
The European Confederation of Directors’ Associations will host a two-day training programme focussing on new governance challenges. The programme will compare different models across Europe including the one tier and two tier systems. The Institute’s Head of Corporate Governance, Dr Roger Barker, will be among those presenting. The course will take place on 22 and 23 October. [ecoDa]
19 August | Enacting Purpose within the Modern Corporation
A new report published by the Enacting Purpose Initiative, a project led by Oxford’s Saïd Business School, provides guidance to boards of directors on how to enact purpose. It draws on research findings from different academic disciplines together with best practice insights. According to the report’s authors, their aim is to provide boards and senior executives with a simple framework to govern purpose. By following the guidance included in this report, they argue that boards and senior executives will be better able to put purpose intent into practice, demonstrating how purpose informs strategic choices and delivers value for a range of stakeholders. [Enacting Purpose]
12 August | Companies desperate for cash must be better corporate citizens
Writing in the Financial Times ShareSoc’s Catherine Howarth argues that private financial actors could make recapitalisation conditional on business behaviour that also serves the public interest noting that many institutional investors have supported conditions attached to Government support. [Financial Times]
11 August | Shareholder Complaints Seek to Hold Directors Liable for Lack of Diversity
Francesca Odell, Victor Hou, and James Langston of Cleary Gottlieb Steen & Hamilton LLP reflect on three separate lawsuits filed against Oracle, Facebook, and Qualcomm over lack of boardroom diversity. The facts alleged in the Oracle, Facebook, and Qualcomm complaints differ, but the core claims are similar. In each case, a shareholder seeks to assert derivative claims on behalf of the company against its directors and certain officers on the alleged basis that they, among other things failed to monitor the companies’ compliance with anti-discrimination laws and breached their fiduciary duties by failing to ensure diverse candidates were nominated. [Harvard Law School Forum on Corporate Governance]
10 August | Blindsided by Social Risk: How Do Companies Survive a Storm of Their Own Making?
David Larcker and Brian Tayan of the Stanford Graduate Business School examine how companies respond to social risk. The authors distinguish it from other risks in that the primary cause of damage is reputational, whereby an incident harms reputation and, subsequently, performance. The authors suggest boards take three steps to avoid such risks including examining past events that have impacted peers, undertake scenario planning and prepare responses. [Harvard Law School Forum on Corporate Governance]
7 August | Will digital AGMs replace meeting directors over a prawn sandwich?
The Financial Times’ Madison Darbyshire reflects on the rise of virtual annual meetings in light of the pandemic and some retail investors’ concerns that AGMs could move online forever removing the opportunity for interaction with directors. [Financial Times]
6 August | ‘Stakeholder’ Capitalism Seems Mostly for Show
Writing in the Wall Street Journal, Lucian Bebchuk and Roberto Tallarita of the Harvard Law School Program on Corporate Governance argue that corporate leaders remain primarily focused on delivering shareholder value despite statements to the contrary in recent months. The authors reflect on the last summer’s Business Roundtable statement which committed signatories ,including some of the US’ biggest firms, to a more stakeholder orientated approach noting that only one of the 48 signatories sought board approval. Bebchuk and Tallarita argue that the lack of board approval demonstrates that CEOs didn’t regard the statement as a commitment to make a major change in how their companies treat stakeholders. [Wall Street Journal]
Podcasts and Videos
17 August | George Roberts, Co-Chairman and Co-CEO of KKR & Co (Video)
In this discussion with Goldman Sachs’ Alison Mass, the private equity firm’s co-CEO talks about founding and growing KKR into a leading global investment firm, the investing principles that have guided his career and investing in a landscape fundamentally altered by the pandemic.[YouTube]
17 August | Hidden Forces: Margaret Heffernan on learning to navigate an unpredictable world (podcast)
This episode features an hour long conversation with journalist, author, and documentary filmmaker Margaret Heffernan, whose best-selling book Wilful Blindness, was recently named one of the most important business books of the decade by the Financial Times. Heffernan discusses her new book Uncharted which examines the flaws associated with forecasting and attempting predict events in a complex business world. [Apple Podcasts]
11 August | Money Talks: Tik for Tok (podcast)
In this episode of The Economist’s Money Talks podcast, Rachana Shanbhogu discusses what President Trump’s call for ByteDance to divest from TikTok’s US operations means for Chinese firms in the US more broadly. [Apple Podcasts]
Responding to the Coronavirus Crisis
The leading source of governance principles and recommendations for companies with a premium listing on the London Stock Exchange.
Key governance principles for large private companies.
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