Key Governance Developments - August 2019

Corporate leaders downgrade profit maximisation in favour of broader business goals


The statement by CEOs gathered in the US Business Roundtable that profits and shareholder value should not outweigh broader business and social aims, including employee benefits and conditions, environmental sustainability and encouraging equality and diversity, represents a significant shift in focus for executives who for decades have concentrated on maximising returns (and often their own share price-sensitive remuneration). It comes at a time when pressure is growing from shareholders to curb excessive senior manager pay awards, and as financial institutions are facing greater regulatory and shareholder scrutiny about the environmental performance and carbon emissions of the companies to which they provide financing or investment.


 US CEO group says maximising shareholder value not primary goal

The Business Roundtable, a group of leading US CEOs chaired by Jamie Dimon of JP Morgan Chase, says profit and shareholders’ interests should not be the primary goal of companies. The statement marks a shift away from the prioritising of shareholder value in corporate responsibilities, which often favours a focus on short-term results and is also seen as encouraging decision-making that boosts the value of stock options held by senior management. Listed companies face growing pressure from institutional shareholders to temper executive pay and to focus on the broader business environment, including staff pay and conditions, climate change and equality.

Best source: Washington Post (subscription required)

 

French financial firms fall short on environmental disclosures: government

Financial firms subject to France's environmental disclosure laws have fallen short of their reporting requirements, according to the government. Only half of the 48 large insurers, pension funds and asset managers subject to the requirement published a full report on their environmental, social and governance policies, while 21 published inadequate reports without explaining the gaps as required by law, and three failed to publish a report at all. The French ministers for the environment and finance, who are responsible for implementing the law, have refrained from imposing strict obligations on the companies but have detailed best practice.

Best source: Les Echos (subscription required, in French)


ESMA surveys identify governance issues among gaps in fintech regulation

Two surveys of national regulators by the European Securities and Markets Authority have identified gaps in the licencing regime for financial technology companies, with the biggest shortfalls relating to crypto-assets, initial coin offerings and distributed ledger technology. National regulators say they need greater clarity at the EU level on the definition of financial instruments and the legal nature of crypto-assets, as well as regarding governance and risk management relating to cyber-security and cloud-based outsourcing.

Best source: European Securities and Markets Authority

 

Remuneration of big UK company CEOs falls under pressure from investors

Average remuneration of CEOs at FTSE100 companies, the largest listed stocks in the UK, has fallen to a five-year low, according to a report by Deloitte. Median total pay was £3.4m in the latest financial year, down from £4m a year earlier. Investors have mounted protests about what they see as unjustified pay increases for senior executives at listed companies, including banks Standard Chartered and Barclays, printer De La Rue and home grocery delivery company Ocado.

Best source: Financial Times (subscription required)

 

Institutional investors push for restructuring at Imperial Brands

Institutional shareholders in tobacco company Imperial Brands are becoming increasingly frustrated at the slow pace of change at the company, which has promised to sell some brands and invest more in alternatives to cigarettes. Under UK law, Imperial Brands must replace chairman Mark Williamson soon, which could trigger a review of the management team and a revision to its corporate strategy.

Best source: Financial Times (subscription required)

 

World Bank backs governance changes at Ukraine state banks

The World Bank is supporting efforts to improve governance at state-owned banks in Ukraine. The country's new Law on Banks mandates the introduction of bank supervisory boards on which two-thirds of the members are independent. The World Bank says board independence is central to tackling corporate governance problems and the resolution of problem loans.

Best source: Unian Information Agency

 

New Revolut COO promises enhanced governance and controls 

Revolut’s new chief operating officer, Richard Davies, one of a number of senior recruits from the traditional finance sector to join the digital bank in recent months, has promised to strengthen the institution's governance as it seeks to raise up to $500m from investors by the end of the year. Revolut, which has almost 6 million customers and is valued at $1.7bn, has faced criticism over the quality of its compliance systems, an aggressive working environment and links to Russia.

Best source: Financial Times (subscription required)


Sports Direct auditors resign over late disclosure of Belgian tax bill

Accountancy firm Grant Thornton will resign as auditors to London-listed retailer Sports Direct after the company informed it of a €674m tax bill in Belgium just hours before Sports Direct’s accounts were due to be signed off. Publication of the company’s annual results had already been delayed, and further deadlines for filing were missed. The company has admitted it is struggling to find other auditors that are willing to work for it. One Sports Direct shareholder, Holland Advisors portfolio manager Andrew Hollingworth, has urged Sports Direct to devote more resources to corporate governance, and learn from other founder-controlled companies such as pub and hotel chain JD Wetherspoon.

Best source: Financial Times (subscription required)

See also: Financial Times (subscription required)

 

ECB warns banks over governance implications of Brexit preparations

The European Central Bank has urged London-based banks to accelerate the transfer of activities and key staff to jurisdictions outside the UK, as the chances of a no-deal Brexit on October 31 increase. The ECB notes in a report that banks have done far less than initially projected, and recommends they move faster to catch up. The central bank had previously judged as manageable the risks of disruption in the event of Britain quitting the EU without a withdrawal agreement and transition period, but it now believes institutions may not be ready by November 1, especially regarding management capacity and governance.

Best source: Les Echos (subscription required, in French)

 

UK proposes former Goldman banker Dingemans to head audit regulator

The UK government is proposing former Goldman Sachs banker Simon Dingemans to head the Financial Reporting Council, the regulator for the accounting industry in the UK and Ireland. After heading European mergers and acquisitions at Goldman, Dingemans spent eight years at GlaxoSmithKline before leaving his post as chief financial officer earlier this year. The regulator has come under attack for lacking adequate authority, and is due to be replaced by a more powerful Audit, Reporting and Governance Authority.

Best source: The Times (subscription required)