Why Companies Should Refuse Trump’s Deregulation by Lucy P. Marcus – Project Syndicate

Lucy P. Marcus writes:

US President Donald Trump may seem like a dream come true for business. A businessman himself – as he so often reminds us – Trump is eager to please companies with extensive deregulation. But, if companies aren’t careful, they will come to regret what they wished for.

Just as Trump governs by id, he wants to allow business leaders to manage their companies the same way. It is certainly tempting for some. Indeed, companies are lining up to take advantage of rollbacks of data privacy, environmental rules, worker protections, banking regulations, consumer rights, and rules regarding conflict minerals. Many are keen to see how far they can push an administration that, so far, seems willing to agree to just about anything.

But, contrary to Trump’s rhetoric, this approach is not really pro-business. By pursuing radical deregulation, the Trump administration is practically begging businesses to harm consumers, the environment, and, in the long run, themselves. Indeed, as the consequences of companies’ actions are exposed, public trust in those businesses – not to mention in the government that was supposed to regulate them – will be decimated. Boards of directors’ risk committees should be sounding the alarm.

Source: Why Companies Should Refuse Trump’s Deregulation by Lucy P. Marcus – Project Syndicate

Responsible Business Summit: Europe June 7-8 in London

Candy Telani Anton invites participants to the 16th Responsible Business Summit:

The expectation on business to act responsibly, tackle social and environmental problems, and deliver positive societal impact is only increasing. It’s a tough ask. The sheer complexity of the sustainability issues business has to wrestle with is astounding. No single person or company can do this alone but, if you want to last, you can’t just sweep them under the carpet and walk away. So to make a real difference, we need to align the core business strategy [commercially and financially] to macro social needs and come together [internally and externally] to co-create alliances towards the same goal. If we are to deliver social purpose and impact, and gain trust we need to drive positive social transformation and improve company’s reputation. That’s what Ethical Corporation’s Responsible Business Summit will deliver on. We’re doing things differently and we really want to move your business towards the genuine impact you are looking for. Our agenda topics will help you to overcome obstacles and uncover the potential for responsible strategies and opportunities to drive social purpose, profit and change with quantified impact and empirical justification.

50/50 Climate Project Shows Conflicts Skew Proxy Voting Decisions

Ross Kerber reports at Reuters:

Several big fund firms supported challenges on executive pay or climate disclosures less frequently where they had business ties to energy companies and utilities, according to a new study released on Tuesday.

The scrutiny of firms including Vanguard Group and Invesco Ltd is the latest research to raise questions about how well they manage potential conflicts of interest when casting proxy votes at the same time they are trying to win work like running corporate retirement plans….For its study 50/50 reviewed how fund firms voted on 27 proxy questions last year at oil and gas companies and utilities, tracking how often they voted against management recommendations.

At Vanguard, for instance, 50/50 found the $4 trillion Pennsylvania index fund manager broke from management 22 percent of the time. But at four companies where Vanguard serviced retirement plans, its funds did not support any challenges….Another fund firm, Invesco, broke with management 12 percent of the time, and at none of seven companies where it had business ties.

Kerber’s article includes more information and responses from the managers included, denying that the votes are influenced by conflicts. The full report is on the 50/50 website.

[T]he 50/50 Climate Project found that the managers who tended to vote in favor of management received more in fees and stewarded more assets than all other managers combined, and that their voting practices were even more management friendly at companies with which they had business relationships.

Listen to Experts on Governance and Diversity

Patricia Lenkov and Elizabeth Aris are creating a new digital program, Board-Talk: Diversity & Corporate Governance, created in partnership with the National Association of Corporate Directors (NACD),.

The program will be live streamed on digital platform MOSH., as well as recorded as a video, each week from April 19. The format will be a host (Patricia Lenkov, specialist board exec recruiter) in conversation with leading global Corporate Directors, Investors, Governance and Diversity experts, as below.

April 19 Brenda Gaines – Corporate Director – Tenet Healthcare, Southern Company Gas, Former Corporate Director CNA Financial, Fannie Mae, Office Depot, AGL Resources, Nicor, former CEO Diners Club NA

April 26 Rakhi Kumar – Managing Director, Head of Corporate Governance, State Street (TBC)

May 3 Holly Gregory – Partner & Co-Head Global Corporate Governance & Executive Compensation Group – Sidley Austin LLP

May 10 Michelle Edkins – Managing Director Blackrock Global Investment Stewardship Team

May 17 Tim Smith – SVP ESG Engagement, Walden Asset Management

May 24 Rochelle Campbell – NACD Board Recruitment Practice

May 31 Sol Trujillo – Corporate Director – WPP, Western Union, Former Corporate Director Target, PepsiCo, Bank of America, EDS, Orange, Telstra, Gannett, former CEO US West, Orange, Telstra

June 7 Cari Dominguez – Corporate Director Manpower Group Inc, Triple-S Management Corporation, Calvert Funds, Former Chair US Equal Employment Opportunity Commission

June 14 Virginia Gambale – Corporate Director JetBlue Airways, First Derivatives, Dundee Corporation

Trump Wants to Do to the Fiduciary Rule What He’s Doing to the Climate

Donald Trump and the Department of Labor are delaying — and possibly killing — the fiduciary rule, which would have required investment managers to put their clients’ interests first instead of directing them to higher-fee options that benefit the money managers themselves. The White House’s Council of Economic Advisors found that the absence of this rule imposed as much as $17 billion in additional costs to retirees led to the Obama administration’s adoption of the rule over the massive efforts by the financial firms, including political contributions and lobbying. Money writes:

The Labor Department moved to delay the rule for two months, at the direct behest of President Donald Trump. President Trump signed a memorandum earlier this year in which he publicly came out against the rule and directed the Labor Department to review the impact of the regulation.

This setback comes at a time when the rule has a lot of support. Since the Labor Department proposed the delay a month ago and asked the public for comments, more than 178,000 letters poured into the Labor Department in support of the regulation, compared to just 15,000 letters in opposition. It required all financial advisors—including brokers with major firms like Merrill Lynch, Morgan Stanley and Wells Fargo—to act as fiduciaries, or in other words, in their clients’ best interest when advising people on their retirement savings.

While retirement plan beneficiaries say that they want their advisors to be fiduciaries and refrain from self-dealing, they do not want to pay for it, that is probably because they do not realize they are currently paying $17 billion for being sold products without full information about the fees. Whatever the fiduciary rule costs would be, they would be far less — and they would be disclosed.

Proponents of the rule have promised to challenge the delay in court. Stay tuned.

Peter Crow on Corporate Governance Developments in Europe and the UK

New Zealand corporate governance expert Peter Crow writes about corporate governance developments in continental Europe and the UK.

In Europe:

Whereas the focus in the past has been on ensuring management did its job well (an agency-based perspective), the boards and directors I spoke with indicated that they are starting to wrestle with the challenge of understanding the purpose of the company and how the value-creation mandate might be fulfilled. Several folk added that their usage of the term ‘corporate governance’ has changed, returning to the early usage: a descriptor for what boards (should) do when in session (i.e., in board meetings).

Related to the first point, boards in several European countries (well, in Belgium, Netherlands and Finland anyway) are starting to think more carefully about the longer-term implications of their decisions. This is in stark contrast to the short-termism that continues to pervade US and Canada boardroom and shareholder culture.

De Nederlandsche Bank (DNB, the Dutch Central Bank) is increasingly taking a formative view of supervision, expecting financial institutions to not only demonstrate compliance with established statutes and codes, but also to demonstrate how value is being added to the banking community and beyond in the future.Many people (both in public forums and private conversations) volunteered that diversity is important if boards are to make high quality decisions. However, the same people quickly added that their usage of the term meant diversity of thought, not gender or any other observable form of difference between group members. KPMG, IIA and people from several other Finnish agencies were very interested in the implications of the proposal that board involvement in strategy is good for both effective board practice and business performance. It seems that the findings from my doctoral research hit a spot, with both strong support and many questions about the mechanism-based model of corporate governance and the opportunity the model presents to help boards understand how influence can be exerted from the boardroom.

In the UK:

Director recruitment: The criticism levelled by many aspiring directors—that many board appointments are based primarily on prior relationships and not director competency or ‘fit’—remains rife in the UK. Despite a plethora of calls for more a robust process, the dominant question asked by many boards and nomination committees continues to be “Well, who do we know?”

Institutions: Directors’ and governance institutes (including the Institute of Directors and the ICSA: The Governance Institute) continue to promote themselves as champions of board performance and director professionalism, supported by a bevy of training courses, press releases and contributions to emergent practice. However, almost half of the directors that I spoke with (most of whom are members of at least one institution) have concerns over the direction and focus of directors’ institutes. They noted that institutions have become somewhat self-centred, losing sight of their stated purpose of serving the interests of members and promoting the profession. Remedial suggestions included holding directors accountable for performance and any acts of malfeasance (including de-badging miscreant members of their chartered status); moving the discourse away from populist topics to substantive matters; and, weaning boards off the notion that compliance with corporate governance codes is a valid measure of good performance.

Performance: The long-held understanding that the primary responsibility of the board of directors is to recruit the chief executive and to oversee management remains the dominant logic in the UK, especially in the publicly-listed company community. Whereas many commentators and directors (including me) promote a performance-based understanding (whereby the board commits to determining and pursuing a value-creation agenda) most boards remain comfortable limiting their contribution to monitoring and controlling the performance of their chief executive.

Board evaluations: Directors are increasingly aware of the emergent expectations of shareholders and other stakeholders; that a periodic assessment of board performance is appropriate. However, while directors’ institutes have for some time recommended that boards submit themselves to scrutiny, most directors that I spoke with indicated that they remain uncomfortable with formal external evaluations. Privately, they harbour concerns that the results may be used to expose poor practice and, potentially, be used to remove under-performing directors. Sadly, it seems that preservation (of income and status) remains the dominant logic for many directors.

Blueprint for Better Business: After spending a week-and-a-half delivering presentations, meeting with boards and fulfilling advisory engagements my last two days in the UK were spent at Murray Edwards College, Cambridge, at an immersion workshop run by the Blueprint for Better Business organisation. The motivation for attending was straightforward: to understand the organisation’s proposition more fully, especially to determine its applicability in practice. I came away convinced, to the extent that QuarryGroup will become a facilitator of the blueprint to businesses in Australia and New Zealand (at least) from 1 May onwards.

Source: Musings, the blog – Peter Crow

A Loophole Helps Johnson Controls Hide Millions in CEO Pay

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.

How Are Public Company Boards Transforming Themselves? : NACD Blog

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.

Source: How Are Public Company Boards Transforming Themselves? : NACD Blog

Supply Chain Risks in 2017 Include Immigration Policy

 Maplecroft Human Rights Outlook has identified the immigration policies of the Trump administration as a critical supply chain risk for 2017. 

Hardening immigration policy in the US, which is increasing the risk of modern slavery and labor abuses against undocumented workers, has emerged as one of the top drivers of human rights risks for business in 2017, according to a new report from global risk analysis company Verisk Maplecroft.

 The Human Rights Outlook 2017 draws on Verisk Maplecroft’s portfolio of global human rights data and its interactions with multinational companies to assess the top 10 human rights issues impacting business in the year ahead. A major theme of the report is that human rights risks are now surfacing closer to home for Western companies just as legislation strengthens and scrutiny of business practices increases.

 Verisk Maplecroft’s key risks to watch in 2017

•           Undocumented migrant laborers in the US will become more vulnerable to modern slavery and human rights abuses due to White House immigration policies that will push them ‘under the radar’

 •           With a focus on production and processing, companies are susceptible to modern slavery ‘blind spots’ in areas such as shipping, cleaning, catering and security

 •           Banks and funds financing land deals in emerging markets are running an increased risk of becoming implicated in ‘land grabs’ and forced evictions

 •           New mandatory reporting requirements on modern slavery and supply chain due diligence are significantly raising the compliance stakes for business

 

Changing policies in other countries will also impact corporate expenditures and revenues. “Expanding legislation across Western markets means mandatory human rights due diligence on supply chains could soon become the norm for multinational companies. Failure to get it right will now come with a hefty price tag in key jurisdictions since the passing of new laws in France and the Netherlands. More countries are set to follow suit, with legislation likely to emerge in Switzerland next.”