Governance in Brief – December 02, 2021
Activision Blizzard CEO considers departure Activision Blizzard CEO Bobby Kotick has reportedly signaled his potential resignation in case the company’s sexual harassment and cultural issues are not resolved with sufficient haste. Recently, around 1,330 employees petitioned Kotick to resign following media allegations that he had ignored and failed to disclose sexual harassment and gender discrimination complaints from female employees. Additionally, a group of shareholders has called for the CEO’s resignation, the retirement of the Chairman and the Lead Independent Director, and the nomination of a non-executive Activision Blizzard employee to the board. In response, the company announced that it had formed a fully independent “Workplace Responsibility Committee” tasked with overseeing the company’s progress on workplace culture improvement, adding that it “is working” on adding a “new, diverse” director. The controversy around Activision Blizzard emerged in July 2021, when the California Department of Fair Employment and Housing announced that a two-year investigation had revealed sexual harassment and discrimination practices at the company.
Governance in Brief – November 25, 2021
Toshiba prepares three-way split Toshiba has announced plans to split into three freestanding businesses, respectively focusing on 1. energy and infrastructure, 2. hard disk drives and power semiconductors, and 3. Toshiba’s current stake in Kioxia Holdings, Toshiba Tec Corp., and other assets. This plan is the result of a five-month review triggered by the resignation of former CEO Nobuki Kurumatani in April 2021. This resignation came a week after the company declined a USD 21 billion takeover offer by CVC Capital Partners and two months before a shareholder-commissioned investigation concluded that management had colluded with Japanese government officials to curb oversees shareholders’ influence at the 2020 AGM. The review had also considered the possibility of going private, although discussions to this end with private equity funds ultimately failed to bear fruit. An extraordinary meeting to approve the split is scheduled for March 2022, with the split expected to be finalized by March 2024. However, initial media reports suggest that the plan could face some degree of investor opposition when put to vote.
Governance in Brief – November 18, 2021
Boeing settles lawsuit over 737 MAX safety Boeing’s board has agreed to a USD 237.5 million settlement in a lawsuit brought by major investors over the board's safety oversight of the 737 MAX aircraft. Investors claimed that the board members “failed in their fiduciary responsibility” to protect the company and its stakeholders. Two fatal 737 MAX crashes in 2018 and 2019 killed 346 people and have cost the company around USD 20 billion. In September 2021, a Delaware court ruled that investors could bring claims against the board, as the directors ignored the first crash as “a red flag.” Nevertheless, the settlement is not expected to include admission of board wrongdoing, and the financial penalty will be paid by insurers. Going forward, Boeing will be required to adopt several measures to enhance its governance and oversight. Under the settlement, the company must appoint an additional director with safety oversight or aviation/aerospace expertise within one year, while ensuring that at least three directors have similar expertise. Additionally, the company must amend its bylaws to separate the CEO and Chairman positions and set up an ombudsperson program in charge of internal complaints from employees on behalf of the Federal Aviation Administration. Softbank announces USD 8.8 billion buyback program SoftBank has announced the repurchase of circa 15% of its own shares, estimated at JPY 1 trillion (USD 8.8 billion). CEO and founder Masayoshi Son states that the board approved the buyback in response to the firm’s estimated trading discount of 52%. The company also announced significant quarterly losses, mainly due to the poor performance of its Vision Fund, whose Chinese investments have suffered from regulatory pressure and a share price decline. Following the announcement, the company’s share price increased by more than 10%, after it lost 40% of its peak value from May 2021 when a JPY 2.5 trillion buyback program was completed. Reuters | Yahoo | City A.M. The Williams Cos. loses appeal on blocked poison pill plan The Delaware Supreme Court has upheld a February 2021 lower court ruling barring the continuation of the poison pill adopted by the Williams Cos. in March 2020. Earlier this year, the company appealed the initial decision of the Delaware Chancery Court that blocked the company’s plan on basis that it included “extreme” measures, most notably a 5% ownership trigger. In 2020, amid the beginning of the Covid pandemic and an oil price war that caused the company’s share price to plummet, the company’s board enforced a poison pill which was contested by shareholders and used as grounds for a shareholder lawsuit against the company and its board. Reuters | Bloomberg | Delaware Court Copyright ©2021 Sustainalytics. All rights reserved Reuters | WSJ | Market Watch | Seattle Times
Governance in Brief – November 11, 2021
SEC publishes new guidance on shareholder proposal exclusions SEC publishes new guidance on shareholder proposal exclusions The U.S. Securities and Exchange Commission (“SEC”) has published new guidance that will make it more difficult for companies to block ESG-related shareholder proposals from being included on proxy ballots. Under the previous guidance, corporations were able to exclude proposals that dealt with matters relating to the company’s ordinary operations unless they raised significant social policy issues for the company. Additionally, proposals related to operations accounting for less than 5% of the company’s assets and earnings were subject to exclusion. Under the revised guidance, the previous company-specific approach would be replaced by a broader societal impact analysis. Specifically, proposals that the SEC previously deemed excludable due to their lack of a significant company-level policy issue will no longer be viewed as such if they have a broad societal impact. Additionally, proposals related to operations not meeting the economic thresholds should not be excluded provided they raise issues of broad social concern related to the company’s business. Moreover, companies will not be able to exclude climate-related resolutions if they require timeframes or targets “so long as the proposals afford discretion to management as to how to achieve such goals.”
The Impact and Cost of Air Pollution: U.S. Petroleum Refineries
Investors can examine to what extent petroleum refiners manage their Non-GHG Air Emissions and assess the quality of a company's programs to reduce air pollutants. For instance, examining all the petroleum refiners assessed by Sustainalytics, we observe that only 3% have a strong program to manage non-greenhouse gas emissions.
Governance in Brief – November 04, 2021
Volvo Cars shares jumped as much as 22% in the first day of their trading on Nasdaq Stockholm as the company raised SEK 20 billion (USD 2.3 billion) in an IPO which valued the company at SEK 158 billion. The successful debut came after Volvo Cars cut the size of the offering by a fifth and priced it at the bottom of the initial range, in response to investors’ concerns over how much control China’s Zhejiang Geely Holding Group Co (“Geely”) would retain. Moreover, Geely agreed to convert its common shares of class A, carrying 10 votes per share, into a corresponding number of common class B shares, which are entitled to one vote per share. Prior to agreeing to convert the shares the enhanced voting rights would have given Geely 98% voting power despite its stake in the company dropping to around 84%. Additionally, Geely decided not to exercise an upsize option that would have allowed it to increase the offering by 20%. The amended offering could result in a free float of 16% to 17.9% depending on whether an overallotment option is exercised. Volvo Cars shares closed at SEK 57.99 on November 2, up from the SEK 53 listing price.
Governance in Brief – October 28, 2021
Hong Kong’s Financial Reporting Council has launched an inquiry into Evergrande's accounts for 2020 and the first half of 2021, as well as an investigation into the audit of the firm’s 2020 accounts conducted by PwC. According to the regulator, as at the end of 2020 reported cash and cash equivalents amounted to RMB 159 billion, failing to cover the firm’s current liabilities of RMB 1,507 billion, in addition to the further borrowings of RMB 167 billion maturing in 2022.
Biodiversity: A Crisis Equaling, Possibly Exceeding, Climate Change
According to the UN’s Convention on Biological Diversity the main drivers of biodiversity loss are habitat loss and degradation, climate change, pollution, over-exploitation, and invasive species. Habitat loss is directly linked to the conversion of natural ecosystems to agricultural lands and unsustainable use of water resources.
Governance in Brief – October 21, 2021
The U.S. SEC has announced that it is reopening comments on a proposed rule that would claw back executive compensation in cases of financial restatement due to “material noncompliance.” The rule was initially proposed in 2015, as mandated by the Dodd-Frank Act, but has yet to be finalized. The clawback would apply to incentive-based compensation awarded to current and former executives during the three fiscal years preceding the restatement “regardless of whether the misstatement was due to fraud, errors, or any other factor.” The recovered amount would equal the excess compensation relative to the amount to which executives would have been entitled based on the restated financial statements. The clawback provisions would apply to compensation that is granted, earned or vested upon the attainment of a financial reporting measure, including stock price and total shareholder return. Additionally, under SEC’s proposal, stock exchanges would have to establish listing standards requiring public companies to adopt and comply with clawback policies. Issuers would be subject to delisting in case they fail to disclose their policies and comply with their provisions. The SEC is seeking public input on the proposed rule for a period of 30 days.
Bringing Investors and Companies Together to Accelerate Human Rights Progress
Human rights issues have been rising on the responsible investment agenda in recent years. The COVID-19 pandemic and the Black Lives Matter movement have provoked even more pointed discourse on the topic. The European Union’s current efforts to introduce rules to hold companies accountable for social and environmental risks in their supply chains further accelerate that ascent. This wave of legal requirements and normative expectations is impacting financial markets worldwide, with responsible business regulations already in place or quickly becoming valid.
Governance in Brief – October 07, 2021
At its 2021 AGM, Frasers Group shareholders approved a GBP 100 million compensation scheme for incoming CEO Michael Murray, amid backlash from independent investors. While the remuneration policy was supported by nearly 85% of votes cast, there was around 49% dissent among independent shareholders.
Governance in Brief – September 30, 2021
The U.S. Department of Justice has opened an investigation into Zoom Video Communications’ deal to buy American software company Five9, citing potential national security risks posed by foreign participation. In July, Zoom had announced an all-stock deal to acquire Five9 for USD 14.7 billion, contingent on Federal Communications Commission (“FCC”) approval.
Governance in Brief – September 23, 2021
Philip Morris International Inc (“PMI”) secured nearly 78% of UK inhaler maker Vectura’s shares through a public tender offer. These developments mark a milestone in PMI’s pursuit of Vectura, which involved a bidding war with U.S. private equity firm The Carlyle Group and backlash from health groups.
Governance in Brief – September 16, 2021
Private market investors and global non-profit organization CDP launched the Private Markets Pilot which aims to increase environmental disclosure from private companies. The CDP platform will allow investors to benchmark private companies and compare them in terms of environmental performance.
The circular way forward could be the key to reducing food waste
Indications that a food crisis is imminent are clear. Fundamental changes in the global food system are required to address these challenges. This decade is a watershed moment for urgent efforts to close the loop, and companies and investors can play a pivotal role. Despite being closely connected to issues such as climate change and basic human rights, food waste has attracted comparatively less attention from companies, investors, and other stakeholders.