General Electric CEO Jeff Immelt says President Donald Trump’s imagination is at work if he doesn’t believe in climate change science or the Paris agreement that President Barack Obama signed onto before leaving office.And Immelt is calling on other companies to step up to fill the void that the administration is leaving behind.
“Companies must be resilient and learn to adjust to political volatility all over the world,” Immelt wrote Wednesday in an internal company blog post obtained by POLITICO. “Companies must have their own ‘foreign policy’ and create technology and solutions that address local needs for our customers and society.”
Nicholas Benes writes about significant steps forward in Japanese corporate governance:
The good news is that Japan’s corporate governance code set a base that can be improved upon and has given a firm foothold to the aspirational concept of ‘best practices’ in Japan.This by itself is historic, especially when you consider that some of the practices were totally new here. For instance, after I proposed the concept to the Financial Services Agency, a Japanese word had to be invented for ‘lead independent director’. Similarly, at the time, few here would have understood what was meant by ‘executive sessions’ or ‘board evaluation’.
Today, Japan has made significant progress:About 80 per cent of companies listed on the first level of the Tokyo Stock Exchange (TSE1) now have two or more independent directors (INEDs) on their boards, according to ascertainable criteria for ‘independence’. This is almost four times the percentage recorded only two years ago. At almost 23 per cent of TSE1-listed firms, INEDs make up one-third or more of the board.
Approximately 40 per cent of TSE1 companies now have a voluntary ‘nominations committee’ of some form, a level which is eight times as high as it was 2014. Voluntary compensation committees are also increasing in number.
About one-fourth of TSE-1 companies claim to fully comply with the code and 90 per cent have implemented at least 90 per cent of its 73 provisions. There is now vastly more disclosed information about actual governance practices and policies at each company. This is because the code not only requires ‘comply or explain’ statements, but also (irrespective of that) disclosure about each company’s policy on 11 different topics. Even when such disclosure is shoddy, at least one can confirm that those companies lack rigor and substance. Investors now have so much to shoot darts at that my organisation has constructed a special search engine.About 40 per cent of TSE1 companies have some form of voluntary ‘corporate governance guidelines’, although that is not required by the code. Even if many of them need more detail, this self-disciplining concept has taken hold. (I proposed it to Japan’s Financial Services Agency for the code, but to no avail; but the Board Director Training Institute gave several free seminars explaining why ‘policies’ have to actually exist in order to be ‘disclosed’.)
Most Japanese companies are more open to engagement by investors than before, a trend that is supported by the stewardship code. The ecosystem is improving.
He cautions, however:
The reforms were put in place so fast that companies need more time to understand what the principles of the code require in terms of detailed practices and mindset. At the same time, investors also need to learn how to leverage the code’s principles, by considering with experts how its principles can be reflected in granular procedures in the context of Japanese law and telling companies exactly what they expect. There’s actually a lot to mine in the code.
Theo Francis reports that CEO Alex Molaniroli was able to hide eleven months of his pay due to a merger with Tyco International. VEA Vice Chair Nell Minow commented:
But some say that doesn’t justify giving incomplete pay figures, and leaving investors unsure how much has been omitted. “The immediate question is, what are you trying to hide, and why are you trying to hide it?” said Nell Minow, a longtime corporate-governance advocate.
In Sunday’s New York Times, Gretchen Morganson writes about the importance — and opportunities — of shareholder initiatives and engagement on the environment and other issues. She quotes VEA Vice Chair Nell Minow:
Say that the new leaders at the Securities and Exchange Commission and the Environmental Protection Agency relax their agencies’ oversight, as anticipated. That would mean shareholder votes in favor of holding executives accountable on executive pay, climate change issues and other governance matters are especially important.
“There’s never been a better time to address these issues, whether as an institutional investor or an individual,” said Nell Minow, vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on how to reduce risk in their portfolios. “If you are worried that your company is lobbying to weaken environmental rules, for example, then it’s really a fabulous opportunity for you to join in with the institutions and other economic forces making it clear to companies that they can’t get away with it.”
Norway’s second largest pension fund has decided to withdraw investments from companies linked to the controversial Dakota access pipeline project, which is backed by Donald Trump. Pension fund for the public sector KLP has announced that it will sell shares worth £55m from four companies, which own part of the project and are building the pipeline “due to an unacceptable risk of contributing to serious or systematic human rights violations”. The Sami Parliament in Norway, which represents the indigenous Sami people, convinced the pension fund to divest in an act of international solidarity between indigenous people, according to the Guardian.
When trillions of dollars – or euros, as the case may be – in private investment are flowing toward solutions for food security, universal education and sustainable development, let it be said that Dutch and Swedish pension funds helped lead the way…Last December, 18 Dutch financial institutions managing more than €2.8 ($3) trillion in assets, declared their support for “maximizing ‘SDG investing’” in the Netherlands and around the world. They were quickly followed by a half-dozen of Sweden’s largest institutional investors, including the insurer Folksam and the AP7 pension fund, which declared their intention to align their investments with the SDGs as well. Major funds in Australia, Canada and elsewhere are jumping on board (see, “Sustainable Development Goals take hold as a universal impact investment framework“). Today, the Dutch pension fund PME, representing the metal and electrical engineering industry, announced its ambitious goal to bring 10 percent of its €45 ($49) billion investment portfolio in line with the SDGs. “Investments can produce satisfactory long-term returns only if society develops in a balanced way,” said Eric Uijen, PME’s executive board chairman.
On March 22, 2017 IRRC is hosting a webinar on its new report with shocking new information on the undisclosed corporate political expenditures at the state level:
Join us to review the latest research from the IRRC Institute, “How Leading U.S. Corporations Govern and Spend on State Lobbying”, conducted by the Sustainable Investments Institute.
This research reveals virtually no disclosure of corporate expenditures related to political lobbying activities at the state level. Even at the federal level, only 25 percent of companies have board-level policies on lobbying and only 12 percent disclose actual spending.
A summary of the findings:
Just one-quarter of the S&P 500 have board-level policies regarding lobbying. However, this is an increase from only 16 percent in 2013. (Chart, p. 9, shows corporate governance trends.)
By contrast, company oversight and disclosure of election spending is commonplace among the largest American companies, with 90 percent of the S&P 500 having a policy that addresses election contributions and half of the index companies specifically requiring board oversight. Further, 75 percent of the S&P 500 explains which corporate officials oversee election spending.
The contrast between the level of disclosure about election spending and lobbying is stark. Only 12 percent of S&P 500 companies report how much they spend on lobbying; most only report on spending at the federal level. Voluntary disclosure about state lobbying on company websites is nearly non-existent: Just two companies report appear to report on all their state
expenditures, while 5 percent identify the states where lobbying occurs but not the amounts spent, and 2 percent report on aggregate state spending.
Companies are revealing more about how much they spend in elections and lobbying but remain reticent about disclosing how much they give to intermediary groups that use corporate money to pursue political objectives—trade associations, non-profit “social welfare” organizations or charities that have clear partisan goals. These intermediaries pursue their goals
at all levels of government through election spending and lobbying. Half of the S&P 500 have some sort of policy on these groups, up from only 14 percent in 2010; and 31 percent of companies make public at least some of their payments to these groups, a three-fold increase from just 9 percent in 2010. Yet most policies are about money in elections, not lobbying.
Source: Register here
NACD has an excellent summary of changes boards are making to respond to new challenges, including more focus on cybersecurity, more use of search firms to find new directors, and:
Information Rich, Insight Poor Boards receive much information from management but express concerns about the quality of that information. While directors noted an average increase of 12 hours for document review in preparation for meetings, roughly 50 percent of respondents noted a glaring need for improvement in the quality of information provided by management.
Increased Shareholder Engagement Boards are increasing their shareholder engagement, but their level of preparedness to address activist challenges is uneven. This year, 48 percent of respondents indicate that a representative of their board held a meeting with institutional investors over the past 12 months, compared to 41 percent in 2015. Only 25 percent of respondents have developed a written activist response plan, which may be a critical tool to effectively address a forceful challenge from an activist.
On Harvard’s Corporate Governance and Financial Regulation blog, Steve Lydenberg, is Founder and CEO of The Investment Integration Project (TIIP), writes about his report on ESG factors in investment risk:
Integration of [environmental, financial, and social] systems-level considerations can help investors manage long-term risks and rewards while seeking competitive portfolio-level returns.The primary questions addressed in this post are:
What are the characteristics of environmental, societal and financial systems-level issues that make them relevant to long-term investors for integration into investment processes?
What are examples of these systems-level issues that rise to the level of significance for such consideration and how in practice can that level of significance be determined?
Four guidelines that can help long-term investors determine the relevance of systems under consideration are proposed:
Breadth of consensus as to the importance of the system under consideration
Potential of the feedback loops from the system to impact the investor’s portfolios positively or negatively
Potential for the investor’s policies and practices to impact the system positively or negatively
Degree of uncertainty about the potential outcomes that would ensue from fundamental disruptions at the systems level
The post examines six examples of systems-level issues that share these characteristics.Within broad environmental systems, the paper looks at the issues of:
Access to fresh water
Within broad societal systems, it looks at the issues of:Well-being: poverty alleviation and access to healthcare
Dignity: human and labor rights
Within broad financial systems, it looks at the issues of:
Stability and credibility
Transparency of sustainability data
Through its ethics survey, Ethisphere evaluates firms on five criteria, which roll up into a single Ethics Quotient (EQ) score. The first and most important topic is a company’s ethics and compliance program, which accounts for 35% of the EQ. Firms must answer questions like whether they track gifts received by employees and what resources they offer employees for reporting misconduct.
Ethisphere observed an interesting trend in the data in 2016: more companies disclosed information about misconduct to their own employees, telling them how many complaints were filed and what was done about it. Previously, firms tended to keep such matters confidential, says Michael Byrne, Ethisphere’s general counsel. “Essential to an effective compliance program is people feeling comfortable expressing a concern … One of the best ways to [do that] is to shine a light on it.”
The second factor in the ethical list scoring, accounting for 20% of the EQ, gauges whether ethics are embedded into a company’s culture from top to bottom. The third element, corporate citizenship and responsibility, includes questions about what methods companies use to measure their environmental impact.
Corporate governance is the fourth criterion. Ethisphere’s survey asks whether a company’s CEO and board-chair roles are held by separate people. This year, Ethisphere also placed an increased focus on diversity in board and leadership positions.
The final element is leadership, innovation and reputation. Ethisphere asks if companies have been named to top business lists, such as Forbes’ own Most Trustworthy Companies, and whether its executives have spoken at high-profile conferences like the World Economic Forum in Davos, Switzerland.
Of the 124 firms on this year’s list, 13 have made the cut every single year, including: Aflac, Deere & Company, Ecolab, Fluor, GE, International Paper, Kao Corporation, Milliken and Company, PepsiCo, Starbucks, Texas Instruments, UPS and Xerox.