How Wells Fargo Bought Millions in Services From an Independent Director’s Firm – TheStreet

VEA Vice Chair Nell Minow is quoted in an expose from The Street about “independent” director, Enrique “Rick” Hernandez Jr., whose board duties include chairing the risk committee at Wells Fargo until he is replaced next month following a serious “no” vote of 47 percent against him at the last annual meeting. His security business is hired by the companies on whose boards he serves, including MacDonald’s and Chevron. The individual payments are low enough as a percentage of revenue that they do not require disclosure, though the cumulative amount is considerable. It is meaningful enough — and pervasive enough — that failure to do so raises serious questions. “I’m stunned to hear about this,” Nell Minow, vice chair of consultant ValueEdge Advisors, which counsels big investors on corporate governance, said in a telephone interview. “That’s the kind of thing that used to go on all the time, but it’s generally frowned on now as invalidating the independence of the director.”

The issue is not limited to publicly traded companies.

Inter-Con also got security business from Children’s Hospital Los Angeles, the non-profit organization where he served as a trustee from 1990 to 2009, including seven years as vice chairman. His wife, Megan, has served on the board since 2010.

The Street says that payments from the charity have amounted to more than $15 million.

Source: How Wells Fargo Bought Millions in Services From an Independent Director’s Firm – TheStreet

What Slate’s Money Podcast Missed About ESG/Impact Investing

It really hurts to do this because I have nothing but admiration for all these guys and they get huge bonus points for a completely hilarious title for this episode. But holy moly did they get it wrong. Here’s their description:

Felix Salmon, senior strategy officer at a political risk startup, Anna Szymanski, Slate Moneybox columnist Jordan Weissmann, and Julia Shin—vice president and managing director of Impact Investing at Enterprise Community Partners—discuss:

the disbanding of Trump’s CEO council

companies’ responsibilities to their shareholders

impact investing

Here’s what they missed, very, very briefly:

Perhaps they think that their audience is primarily made up of the tiny fraction of Americans who sit at home and make individual stock picks. That’s not very likely; they’re over at Motley Fool. Most individuals, as the people on this podcast know very well, invest via mutual funds and pension funds. The story they should be looking at, which they touch on very briefly, is the evolving role of large institutional investors, like Blackrock, in the area they call “impact investing” or ESG, and, just as important, the way that evolving role reflects a more sophisticated understanding of metrics and indicators that are just as quantifiable and just as important for evaluating risk and return as too-easily manipulated traditional metrics like EPS and PE ratios. Both of these points are absolutely fundamental, but most of this podcast skirts those issues by accepting outdated notions about trade-offs between financial gain and investing to warm the cockles of the heart.

I won’t reiterate the extensive writing we have done on those issues, which we will continue to explore even more extensively in the future, I’m sure. We hope some day Slate will, too.

Source: The CEO council disbanding, companies’ responsibilities to shareholders, and impact investing.

WSJ Nearly Gets it Right on Accountability to Shareholders for Political Expenditures

We can’t argue with this part:

The fiduciary responsibility of a CEO is to safeguard the company’s assets and acknowledge this overriding principle: “It’s not our money but that of the shareholders.”

And we agree that shareholders (they say small but we say all shareholders) should be allowed to sue corporate managers and boards for political expenditures.

But the reasoning that follows in the Wall Street Journal op-ed by Jon L. Pritchett and Ed Tiryakian is skewed. Their definition of “political” would not be recognized by any dictionary and they are wrong in the examples they pick (and ignore) of corporate decisions unrelated to financial metrics.

The authors mean by “political” a decision that puts principle above immediate financial gain. They use as an example Target’s decision to make their bathrooms free from trans-phobia, attributing a drop in stock price to this particular decision. Is there a single Wall Street analyst report suggesting that this is the case? Is there no way to tie this decision to not just human decency but to Target’s brand choice of inclusion and dignity for all customers?

We would argue that the decision had no impact on the stock price and challenge the authors to prove otherwise. And on the topic of politics we would think a better example from Target would be their making a political contribution to a candidate who opposed gay rights contrary to the company’s longtime gay-friendly brand (they liked his economic policies), which led to extended protests and a lot of bad publicity, and then which led to an apology. That is what we consider politics, not making bathrooms available to customers.

The “Christmas cups” at Starbucks example the authors give in the article qualifies as fake news. Starbucks did have Christmas cups. They were red, which is a color associated with Christmas, and just as Christmas-y, or more so, than their previous cup with snowflakes or the one with a snowman, which somehow never offended anyone. Did the year the cup featured ice skaters constitute a “political decision?” It is the very definition of “ordinary business.”

The same applies to the near-unanimous decision of the CEOs to resign from President Trump’s advisory councils. The CEOs who left are experts at cost/benefit and risk/benefit analysis. They understand that associating themselves with a president who cannot bring himself to explicitly oppose Nazis and the KKK carried significant risk of damage to the reputation of their companies and their brands. As for benefit — the councils met just once and were not doing anything. To the extent that any potential prestige was beneficial to their companies, they rationally concluded that it had was disappearing quickly. An article in the Harvard Business Review the same week as the departure from the President’s advisory councils explicitly points to diversity as a brand and reputation enhancer for companies and Professor Jeffrey Sonnenfeld calls the decision to leave “courageous.” David Gelles, who covers business for the New York Times, wrote about the “forthright engagement” of executives.

Even this past week, it was easy to discern careful calculations made by executives who chose to speak out against Mr. Trump. Many faced calls to resign from the presidential advisory councils, and the prospect of boycotts if they did not.

But they also faced notable and new kinds of pressure from within — from employees who expect or encourage their company to stake out positions on numerous controversial social or economic causes, and from board members concerned with reputational issues. In the past week, business leaders have responded with all-staff memos and town-hall meetings.

In short, while companies are naturally designed to be moneymaking enterprises, they are adapting to meet new social and political expectations in sometimes startling ways.

So, Pritchett and Tiryakian have no basis to assume that the decision to leave the councils was motivated by anything other than their fiduciary responsibility to shareholders. We disagree with the authors’ idea of what constitutes “political.” We do agree entirely, though that investors should be able to sue for misuse of corporate assets in truly political expenditures like campaign contributions and lobbying, as for example to thwart environmental or occupational safety or product safety rules. A good first step is to require companies to disclose those payments. We suggest this as the topic for their next op-ed.

Vanguard seeks corporate disclosure on risks from climate change

Vanguard Group on Monday said it has urged companies to disclose how climate change could affect their business and asset valuations, reflecting how the environment has become a priority for the investment industry.

Under pressure from investors, Vanguard and other fund companies have pushed to pass several high-profile shareholder resolutions on climate risk at big energy firms like Exxon Mobil Corp and Occidental Petroleum Corp during the spring proxy season.Vanguard manages about $4 trillion and is often the top shareholder in big U.S. corporations through its massive index funds – giving it a major voice in setting corporate agendas.

Vanguard, the biggest U.S. mutual fund firm by assets, had not supported climate activists on similar measures. But Glenn Booraem, Vanguard’s investment stewardship officer, said in a telephone interview on Monday the issue as well as shareholder proposals have evolved.

Source: Vanguard seeks corporate disclosure on risks from climate change

Update: Trump’s Business Councils Disband in Light of His Support for Racist Groups

The New York Times reports that there was something of a race between the CEOs who wanted to abandon ship from President Trump’s business advisory councils and the President, who wanted to shut them down before there could be any more embarassing defections.

President Trump’s main council of top corporate leaders disbanded on Wednesday following the president’s controversial remarks in which he equated white nationalist hate groups with the protesters opposing them. Soon after, the president announced on Twitter that he would end his executive councils, “rather than put pressure” on executives.

Rather than putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am ending both. Thank you all!

— Donald J. Trump (@realDonaldTrump) Aug. 16, 2017

Moreover, the panels have not been seen to be particularly effective. After a few high profile events for the groups early in the Mr. Trump’s presidency, there have been few meetings since, and none more are planned.

“So far they haven’t done much,” Ms. Admati said. “They had a few meetings with a bunch of fanfare, but it was more symbolic than anything else.”

IRRCi Research Competition 2017

The Investor Responsibility Research Center Institute (IRRCi) has opened its sixth annual competition for research that examines the interaction between the real economy and investment theory. Practitioners and academics are invited to submit research papers by October 6, 2017, for consideration by a blue-ribbon panel of judges with deep finance and investment experience.

Two research papers – one academic and one practitioner – each will receive the 2017 IRRCi Research Award along with a $10,000 award. The winning papers will also be presented at the Millstein Center for Global Markets and Corporate Ownership at Columbia University in December 2017 in New York City.

The panel of respected judges includes:
Robert Dannhauser, Head of Capital Markets Policy, CFA Institute
James Hawley, Professor and Director of the Elfenworks Center for Fiduciary Capitalism at St. Mary’s College
Erika Karp, Founder, CEO and Chair of the Board of Cornerstone Capital
Nell Minow, VEA Vice Chair and Huffington Post Columnist

New Zealand super goes green | Financial Standard

Guardians of the New Zealand Superannuation Fund announced the $14 billion global passive equity portfolio will employ a low-carbon methodology, exiting active investment in companies including Genesis Energy and NZ Oil and Gas.This, according to fund chief executive Adrian Orr, makes the fund more resilient to climate change investment risks such as stranded assets, and brings its focus on addressing climate change risk in line with current global best practice by institutional investors.

“There is a global consensus that climate change presents material risks for long term investors,” Orr said.

“Leading investors around the world are adjusting their portfolios to address climate change risk and capture opportunities stemming from the transition to a low-carbon economy.”

Fund chief investment officer Matt Whineray said financial markets were under-pricing climate change risk over the fund’s long investment timeframe.

Source: New Zealand super goes green | Financial Standard

Danone can stomach new activist investor – Breakingviews

Carol Ryan writes approvingly about a small stake by an activist investor in a previously entrenched French company:

Danone can stomach a new activist investor. A stake reportedly taken by U.S. hedge fund Corvex Management in the French yoghurt maker may be small, but would bring welcome pressure on management to meet its new margin target. Danone was once shielded from a Pepsi bid by the French state. If new investors bring good ideas and discipline, such defences won’t be necessary.

Keith Meister, the founder of Corvex and previous right-hand man of activist Carl Icahn, owns approximately 0.8 percent of Danone’s share capital, according to Bloomberg. The bite-size holding means Corvex is in no position to make aggressive demands, such as its ongoing attempt to derail a merger between chemicals groups Clariant and Huntsman.

Still, Meister’s arrival steps up pressure on Danone Chief Executive Emmanuel Faber to make the $53 billion dairy group more efficient….Some needling might be useful at a company that has previously disappointed investors with poor execution.

Danone has become emblematic of impregnable French companies ever since the French government scuppered reported interest from Pepsi back in 2005, making the yoghurt maker appear takeover-proof….

Were Corvex to bring useful ideas and discipline, it would make Danone more efficient, more profitable and more expensive to a would-be buyer. That’s a far more reliable form of takeover defence.

Source: Danone can stomach new activist investor – Breakingviews

Business Leaders Respond to White Separatists Where Trump Failed

President Trump has been widely criticized by politicians of both parties for his failure to speak out forcefully about the racist demonstration in Charlottesville, Virginia that became deadly when a white man with a picture of Hitler on his Facebook page intentionally rammed the crowd protesting the demonstration, killing one person and injuring more.

Business leaders have been more effective at communicating their unequivocal opposition to the display, with marchers carrying Nazi and Confederate flags.  Airbnb not only canceled reservations made by people who were coming to Charlottesville to attend the event; it cancelled their accounts.   GoDaddy will be taking down the neo-Nazi website and Google has said they will remove it from their search engine.  Even the maker of the tiki torches carried at the event has expressed regret that they were used. The CEO of Merck, Kenneth Frazier, Intel CEO Brian Krzanich, and the CEO of Under Armor, Kevin Plank,  have resigned from President Trump’s Advisory Council in protest over his failure to respond appropriately to the demonstration.

merck statement

The New York Times asks, What About Other Executives? So do we. At Slate, Daniel Gross writes:

[S]even months into the Trump administration, we’re seeing that showing up and uttering pro forma support may not be a viable PR, business, or personal strategy for CEOs who want to lead their companies while being true to themselves.

 

Some CEOs have discovered that mouthing even anodyne support for Trump can have a really negative impact on their business relationships and stock price. In February, Kevin Plank, the CEO of apparel-maker Under Amour and a member of the manufacturing council, said “to have such a pro-business president is something that is a real asset to this country.” In response, some of the company’s leading endorsers, including Stephen Curry, expressed their anger, customers rebelled, and the stock was ultimately downgraded.

 

Other CEOs have discovered that while the policies of Trump and the GOP may be theoretically good for “business,” they are really bad for their particular business. Duh. Musk was the first to bail from Trump’s manufacturing council after Trump announced the U.S. would pull out of the Paris Agreement on climate change.

Meanwhile, companies are coming to two collective realizations. First, while the Trump administration is delivering favorable policy to energy companies, Wall Street, and for-profit colleges, the prospects for broad-based tax reform (or even tax cuts) aren’t particularly good. Second, given Trump’s unpopularity, his power to inflame the public against any single company has diminished.

Updated to add additional resignations.

Equilar | Declassified Boards Are More Diverse

The Equilar Gender Diversity Index (GDI) has reported that, at the current pace of growth in female representation on public company boards of directors, gender parity would not be reached until Q4 2055 for the Russell 3000. However, annually elected boards may already have an edge against their classified counterparts….Over the past five years, corporations have seen a strong migration away from classified boards to annually elected boards with no director classes. Indeed, almost 90% of large-cap companies now have declassified boards, up from about two-thirds in 2011.<P><P>In the Russell 3000, boards are more evenly split….For the Russell 3000, median prevalence of female directors for Q2 2017 in the Gender Diversity Index was 14.3% overall. However, when split into categories according to whether or not the board is classified, median prevalence differs notably—classified boards had 12.5% female directors at the median vs. 16.7% for declassified boards….Size doesn’t mean everything, but when it comes to gender diversity company size clearly correlates to higher female prevalence on boards overall.

Source: Equilar | Declassified Boards Are More Diverse