Mon 10 Jul 2017
News - Key Governance Developments June - July 2017
Key Governance Developments June - July 2017

Sustainability moves higher up governance priority list
Directors overwhelmingly agree that boards should be paying close attention to the sustainability strategies (or lack of them) at companies they oversee, but they admit that is happening in only a minority of organisations at present. By contrast, boards of investment companies are much more focused on the importance of sustainability in selection of securities. Not surprising: Episodes such as VW’s ‘Dieselgate’ emissions cheating scandal have highlighted that environmental and regulatory breaches often occur in tandem with corporate governance failings.

Audit committees changing corporate behaviour in Central Europe: study
A joint report by the Institute of Chartered Accountants in England and Wales and consultancy Deloitte has found that the introduction of audit committees has made a significant difference to corporate governance and behaviour in central and eastern Europe over the past 10 years. Committees were found to have a greater impact in areas such as financial reporting and internal controls at private companies than at state-owned entities.

UK government drops governance reform commitments
The UK government appears to have dropped its planned reforms of corporate governance and executive pay in the latest legislative programme. The Queen’s Speech to Parliament setting out the new Conservative government’s intentions made no mention of plans to require employee representation at board level. In its election programme the government also promised measures including annual voting on executive pay at listed companies.
Pinsent Masons

NGO report criticises Germany’s failure to pursue lobbying reforms
A report by non-governmental organisation LobbyControl has criticised the failure of Angela Merkel’s governing coalition in Germany to tighten oversight of corporate lobbyists. It says the lack of controls played a role in corporate scandals such as the use by VW of electronic mechanisms to cheat on vehicle diesel emission tests, and the ‘cum/ex’ dividend-stripping tax avoidance ploy.
Deutsche Welle

Investors warned about relying only on ESG ratings
Fund managers have warned investors not to base decisions on equity and bond investment solely on ratings of companies’ environmental and social responsibility and governance. They say ESG ratings from different providers are weakly correlated, suggesting that they use dissimilar models and weightings in evaluating firms in areas such as employee rights, toxic emissions and product failures. By contrast, credit ratings are more closely correlated between competing agencies, suggesting a more uniform approach.

Activist investors worry about China’s inclusion in MSCI index
Activist investors and analysts are concerned that the decision by MSCI to include Chinese stocks in its emerging market index will expose investors to risks related to the country’s weak corporate governance. China ranks ninth of 11 Asian economies for corporate governance, according to the Asian Corporate Governance Association.

Index funds may sap investor influence on corporate governance
The increasing size and market weight of index funds may be harmful to efforts to improve corporate governance, since few fund providers have an interest in ensuring that standards are met and that executives are held accountable for their actions. Activist investors claim index fund providers do not assert their rights as shareholders sufficiently, although asset managers such as BlackRock, a leading passive fund provider, have challenged companies including ExxonMobil, DuPont and Arconic.
Wall Street Journal
Financial Times

Corporate boards should be more involved in sustainability: study
Surveys by MIT Sloan Management Review and the Boston Consulting Group have found that only 48% of directors say their CEOs are engaged in their companies’ sustainability efforts. Although 86% say boards should play a strong role in ensuring that companies tackle sustainability issues, only 30% say that sustainability efforts currently enjoy strong board-level oversight. By contrast, last year 75% of investment company executives believed sustainability is an important factor in investment decisions.
Huffington Post

Swiss regulator fines director over systematic insider trading
Swiss financial regulator FINMA has demanded a CHF1.4 million penalty from a former board member of multiple companies for repeated and systematic insider trading. Swiss media has identified the individual as Hans Ziegler, who holds board positions at steel producer Schmolz & Bickenbach, technology group OC Oerlikon and robot manufacturer Kuka.

Investors call on French regulator to examine Renault-Nissan governance
Shareholder adviser groups Proxinvest from Europe and CtW from the US, along with French pension fund trustee group RAIR, have called on French market regulator AMF to investigate potential conflicts of interest involving Renault-Nissan CEO Carlos Ghosn and other possible governance failings at the group. They claim Ghosn, whose pay package was rejected by shareholders in 2016, faces conflicts through his multiple roles as chairman and CEO of Renault as well as chairman of both Mitsubishi and Nissan, and that Renault has failed to inform shareholders adequately about a “creeping” transfer of decision-making powers to its Renault-Nissan BV joint venture in the Netherlands,

Diversity and ESG low priorities for pension schemes: report
Board diversity, ESG investing, and external reviews are relatively low governance priorities for pension scheme trustees and managers, according to a survey of 84 pension scheme trustees and managers and in-depth interviews with scheme chairs commissioned by peer learning network firm Winmark and law firm Sackers. The study concludes that while many survey participants recognise the need for diversity of skills and perspectives, they do not give characteristics such as gender, age or ethnicity the same importance as other aspects of governance, and often trustee boards lack a wide choice of candidates.