Lawsuit Challenges Failure to Report Climate Change Risk

A fascinating case brought against the Commonwealth Bank of Australia charges that failure to include climate change risk assessment is a material omission.

a. CBA knew, or ought to have known, that CBA’s Climate Change Business Risks might have a material or major impact on the operations, financial position, and prospects for future financial years of CBA’s business and CBA’s Customers;
b. CBA had, or ought to have had, one or more business strategies to manage CBA’s Climate Change Business Risks; and
c. CBA’s Members would reasonably require, in order to make an informed
assessment of the operations, financial position, business strategies, and prospects for future financial years, of CBA: a summary of CBA’s Climate Change Business Risks and of the business strategies employed by CBA to manage those risks (including whether it had any strategy or strategies to manage those risks)

With ‘Zombie’ Directors, It’s the Board of the Living Dead – Bloomberg

VEA Vice Chair Nell Minow is quoted in this story about directors who continue to serve even though a majority of shareholders have voted against them.

Nell Minow, an expert on corporate governance, calls them the zombie directors. They’re board members who’ve failed to get a majority of shareholder votes in elections but continue to serve. From 2012 to 2016 there were a total of 225 instances where directors of public companies got less than half the votes cast, but only 44 directors, or 20 percent, left within the next election cycle, according to a Bloomberg analysis of data from ISS Corporate Solutions Inc. The directors who stayed included 30 who were snubbed by shareholders more than once.

“You either participate in capitalism or you don’t,” says Minow, vice chair at ValueEdge Advisors, which works with institutional investors on governance issues. She says too many companies “pretend there is this right to replace the board when they don’t represent the interest of the shareholders” but don’t follow through.

Source: With ‘Zombie’ Directors, It’s the Board of the Living Dead – Bloomberg

Who Is Winning With the Fiduciary Rule? Wall Street – WSJ

Surprised?

The brokerage business fiercely fought the new retirement advice rule. But so far for Wall Street, it has been a gift.The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability.

But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.

Source: Who Is Winning With the Fiduciary Rule? Wall Street – WSJ

Benchmark is suing former Uber CEO Travis Kalanick for mismanagement.

Don’t say we didn’t warn you, part 2. If the CEO needs to be replaced, he needs to leave the board and the independent directors need to evaluate themselves to make sure they are not overly beholden to him, especially when he’s the founder.

Barely two months after losing his post amid the sexual-harassment and gender-discrimination scandals engulfing his company, Kalanick is being sued by one of Uber’s largest early investors, Benchmark Capital. The lawsuit accuses Kalanick of conniving to “entrench himself on Uber’s Board of Directors and increase his power over Uber for his own selfish ends.”“Kalanick’s overarching objective is to pack Uber’s Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO—all to the detriment of Uber’s stockholders, employees, driver-partners, and customers,” the lawsuit continues.

Source: Benchmark is suing former Uber CEO Travis Kalanick for mismanagement.

Snap’s Earnings Call Can’t Stop Its Nose Dive, Shares Hit New All-Time Lows

Don’t say we didn’t warn you. Do not invest in non-voting stock. We’re not saying that if this stock had a vote it would not be losing value. We are saying that if the stock had a vote, shareholders could do something about it.

Snap Inc. execs did their best to spin the company’s second straight lifeless quarter on its Thursday earnings call, but shares of the Snapchat parent continue to jackknife in after hours trading.Shares quickly darted down about 13 percent after Snap posted underwhelming revenue and slowing user growth in its second quarter. And as CEO Evan Spiegel and Snap’s braintrust took to the mic, it did little to curb investors’ concerns, with Snap falling another 3 percent to new all-time lows of $11.55 a share.

Source: Snap’s Earnings Call Can’t Stop Its Nose Dive, Shares Hit New All-Time Lows

Recommendations of the Task Force on Climate-related Financial Disclosures

The Financial Stability Board’s industry-led “Task Force on Climate-Related Financial Disclosures” has issued its final report with standards and guidance for voluntary climate-related financial risk disclosures in SEC filings.  The most significant aspects are the imprimatur of the G20 and the credibility and support it lends to investor initiatives calling for portfolio companies to adopt its recommendations. The report notes:

As you know, warming of the planet caused by greenhouse gas emissions poses serious risks to the global economy and will have an impact across many economic sectors. It is difficult for investors to know which companies are most at risk from climate change, which are best prepared, and which are taking action.

The Task Force’s report establishes recommendations for disclosing clear, comparable and consistent information about the risks and opportunities presented by climate change. Their widespread adoption will ensure that the effects of climate change become routinely considered in business and investment decisions. Adoption of these recommendations will also help companies better demonstrate responsibility and foresight in their consideration of climate issues. That will lead to smarter, more efficient allocation of capital, and help smooth the transition to a more sustainable, low-carbon economy.

The industry Task Force spent 18 months consulting with a wide range of business and financial leaders to hone its recommendations and consider how to help companies better communicate key climate-related information. The feedback we received in response to the Task Force’s draft report confirmed broad support from industry and others, and involved productive dialogue among companies and banks, insurers, and investors. This was and remains a collaborative process, and as these recommendations are implemented, we hope that this dialogue and feedback continues.

Since the Task Force began its work, we have also seen a significant increase in demand from investors for improved climate-related financial disclosures. This comes amid unprecedented support among companies for action to tackle climate change.

Investors fear use of clever accounting to trip bonuses

Large investors fear FTSE 100 companies are using clever accounting techniques to trigger high executive bonuses and mask poor financial performance.The concerns come as research shows the difference between stated and adjusted operating profits for the UK’s top-100 quoted companies is at 51 per cent — the widest gap in a decade. In 2007 the split was just 15 per cent.

Russ Mould, investment director at AJ Bell, the investment company that carried out the research, said the figures suggested equity markets were nearing “the top of a cycle”.

“As growth gets harder to generate, there is a temptation to employ different financial tactics to generate it, either to appease return-hungry shareholders or hit bonus triggers,” he said.

“If a share price suddenly turns and the economic cycle turns with it, investors [will be left] wondering why something that looked like a sound investment on paper is now a terrible one in reality.”

The growing use of revised profit figures have made shareholders and analysts increasingly wary of these numbers, according to Andrew Millington, head of UK equities at Standard Life Investments, one of Britain’s largest fund companies….

David McCann, an analyst at brokerage Numis, said more companies were reporting adjusted profit figures as “it is becoming harder to deliver growth in a low return environment”.“Companies are looking for ways of showing optical growth so they don’t have to report declining results. Manager pay is increasingly being linked to earnings-based measures, so there is increasing motivation to boost those measures,” he said.

Source: Investors fear use of clever accounting to trip bonuses

On The ESG Horizon — Achieving A Global Standard

ESG integration was once a topic left to the public relations department of the average organization. Now that institutional investors are seeing how responsible integration positively affects a company’s valuation, talks of mandatory government regulation around the world are increasing.

“The pace and scope of regulation as it relates to ESG has risen exponentially since 2005,” says Michael Lewis, a Managing Director who leads the ESG Thematic Research team at Deutsche Asset Management. “Regulation has typically been voluntary, and grouped into four broad themes.”

Those themes, according to Lewis, are:

• Corporate and investor disclosure such as the EU non-financial reporting directive;

ADVERTISING• Stewardship codes and laws which encourage asset managers to engage with investees;

• Regulations aimed specifically at asset owners to incorporate sustainability into their investment decision making;

• Regulations to shift capital to green and sustainable assets.

However, the days of the voluntary regulation practices are coming to a close. Mandated regulation will, before long, be the new global standard in relation to ESG integration.

Source: On The ESG Horizon — Achieving A Global Standard

Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal – Cooley PubCo

We think the word they are searching for is “motivated.”

You may have thought that, after the series of staff no-action positions allowing exclusion of so-called “fix-it” proposals during the last proxy season, we had seen the last of them. If so, you would be forgetting how persistent (or relentless, depending on your point of view) these proponents are.  And this time, the staff has rejected the no-action request of H&R Block—once again the unfortunate trailblazer— which had sought exclusion of another proxy access fix-it proposal—this time to eliminate the cap on shareholder aggregation to achieve the 3% eligibility threshold—from the prolific John Chevedden et al. Given the result, you can expect to see more of this form of fix-it proposal next proxy season. 

Source: Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal – Cooley PubCo

Shareholder Proposal Reform Rebutted – Corporate Governance

We strongly recommend James McRitchie’s point-by-point rebuttal to the Chamber of Commerce’s “fake news” plea to “protect” corporate executives from non-binding shareholder proposals. It is well worth reading in its entirety, but we particularly note his response to the Chamber’s claim that “social” proposals are not relevant and have no merit. That is a matter for shareholders to decide. The strong support from the broad range of the shareholder community for these proposals proves that they are relevant and the response by companies to that support shows that they can be effective. Indeed, that is the reason the Chamber wants to get rid of them. McRitchie says:

Rule 14-8 is not broken, many of the Chamber’s attestations are alternative facts and its recommendations are more likely to hurt our economy than help it.

Source: Shareholder Proposal Reform Rebutted – Corporate Governance