Corporate governance - Vigil

As boards move beyond crisis management, survey results suggest that specific risks and organizational issues are increasingly top of mind. Faced with a global crisis in 2020, board directors and executives reported a renewed focus on corporate resilience in our latest McKinsey Global Survey on the board. Now, as boards (and the rest of us) look toward a COVID-19 recovery, the survey responses suggest that in the pandemic’s wake, boards—especially those that were quickest to adapt to the crisis—are shifting their attention toward more specific risks and organizational and cultural issues. When respondents were asked about the topics on their 2020 agendas, corporate resilience made the biggest jump since 2019—perhaps unsurprisingly, in the midst of a global pandemic. In our research, we identified boards that made changes to their structures, processes, and interpersonal dynamics during the pandemic and were effective in their overall response to the crisis. These “most adaptable” boards,1 according to their directors, were more likely than their peers to have resilience on their agendas. But when asked about this year’s agenda, directors at the most adaptable boards suggest that they are moving away from overall resilience as a topic: the share citing it has dropped 20 percentage points. Boards that were quickest to adapt to the COVID-19 crisis are now focusing more on specific external risks than on corporate resilience overall.

Lightspeed president Jean Paul Chauvet remembers the time he encountered Shopify Inc. CEO Tobi Lutke and top lieutenant Harley Finkelstein a few years ago. The conversation was friendly, but the undertone was barbed. Both Canadian companies were in the commerce software business and on friendly terms. Ottawa-based Shopify was few years ahead of Lightspeed, already publicly traded and primarily focused on serving e-commerce merchants. Lightspeed, which went public in March, 2019, focused on providing point-of-sale cloud-based software to restaurants and physical retailers. Nobody really talked about them as competitors, though each was inching into the other’s territory. But “we’ve always known” the two companies would eventually become rivals, Mr. Chauvet said in an interview. “I remember saying to Tobi and Harley at the time, ‘I think this will end up in a Braveheart battlefield at some point.’ "

The number of ASX 300 companies with one or no female directors has halved since 2016, as the number of women on boards surged by 60%, a national report measuring five types of diversity has found.  The Board Diversity Index, released today by Watermark Search International and Governance Institute of Australia, put five types of diversity under the microscope, examining gender, cultural background, skills, age, and tenure and independence.  The national report examined 300 organisations and more than 2000 board seats.  As well as an almost 60% increase in the number of board seats occupied by women in the last five years (633 in 2021, up from 399 in 2016), the report also found the number of boards with at least 30% women has tripled, up to 161 in 2021 from 54 in 2016.   Boards with no women have decreased from 59 in 2016 to 14 in 2021. [...] “On this current trajectory there will be no ASX 300 companies without a female director by 2026, and gender parity achieved in the boardroom by 2030,” Ms Motto said. “These milestones, while well-overdue, will be truly momentous and we urge companies to ensure they keep up the positive action and strategies.” 

The prevailing view of the past 15 years has been the secular decline in public ownership. However, the recent special purpose acquisition company (SPAC) frenzy with nearly 300 listings in 2020, and record valuations of IPOs, have brought back the question of whether—as eclipses go—the eclipse of public corporations was just a temporary phenomenon. Importantly, it doesn’t really matter; the question of the domination of public or private models is in many ways outdated. The private equity and public ownership models are more similar today than ever, and they will continue converging. What ultimately separates the two models is not so much the governance or the managerial style, but the cost of capital and the operational agility of the private equity model that can be helpful at some point in the life of any public corporation.

WASHINGTON—The clock is ticking for Congress to reach a deal to raise the federal borrowing limit, or debt ceiling, before the government runs out of money to pay its bills some time over the coming months. The ceiling was suspended in 2019 and was reinstated automatically at the beginning of this month. Top Senate Republicans, who object to President Biden’s spending agenda, have said the GOP may line up against any effort to raise the limit this year. Here’s a guide to what that means, and how the issue may be resolved:

#1. What is the debt ceiling?
#2. Why is the debt limit in the news again?
#3. How much time do lawmakers have to act?

#4. How concerned are you about government debt? Join the conversation below.

#5. Does raising the debt ceiling approve new spending?
#6. Is this always a big partisan fight?
#7. What will happen this time?

Junior bankers at Goldman Sachs Group Inc. are getting a big raise. The Wall Street firm is increasing base pay for its entry-level employees—first-year analysts—to $110,000, a nearly 30% increase from the previous starting salary of $85,000, according to a person familiar with the matter. Second-year analysts are set to make $125,000, up from $95,000. Salaries for first-year associates will jump to $150,000 from $125,000. [...] Analysts and first-year associates perform much of the grunt work that allows banks to pump out deals and take advantage of busy trading periods. [...] In a small, self-conducted survey earlier this year, Goldman’s first-year analysts reported that they were working an average of 95 hours a week and said job stress had harmed their physical and mental health. Goldman, in response, said it would hire additional bankers and more strictly enforce boundaries around working hours.

Sustainability – both social and environmental – has quickly risen to the top of corporate agendas in recent years. This is in part because of the growing evidence that sustainable practices result in improved financial performance, and in part due to pressure from investors, employees, and the public for companies to articulate the role they play in addressing societal challenges. As one director recently told us, sustainability “has never been a higher priority for the board than it is today.” In 2020, Russell Reynolds Associates published a study in partnership with the United Nations Global Compact examining the attributes that make executive leaders effective at driving sustainability outcomes. In this paper, we study the issue from the board’s perspective, looking at how corporate directors engage with the challenges and opportunities related to sustainability, how they structure and operate the board to oversee related activities, and ultimately, how they enable sustainable in the enterprise.

After four days of heavy selling in Chinese stocks, regulators in Beijing decided it was time to offer some reassurance to Wall Street. But some investors have still been left figuring out whether to double down or flee. In a hastily arranged call on Wednesday evening, Chinese regulators told a dozen or so executives from global investors, heavy-hitting banks and Chinese financial groups not to fret about the shock overhaul of the country’s $100bn private tutoring industry. Investors should not worry about intervention to curtail profitmaking in other companies, they said. Rather, China remained committed to allowing companies to access capital markets. [...] The political risk factors of investing in China have grown exponentially in the past 18 months, [...] “People learned the hard way in Russia and they’re learning the hard way in China.”  [...] In response to Beijing’s restrictions on China-based companies raising capital offshore, on Friday the US Securities and Exchange Commission announced that China-based companies will have to disclose more about their structure and contacts with the Chinese government before listing in the US. “I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” SEC chair Gary Gensler said in a statement.

The oil and gas industry is stepping up lobbying efforts to dilute looming rules that mandate climate change disclosures, in a sign of the fierce corporate resistance to a tougher new US environmental regime. Lobbying reports show greater arm-twisting at the Securities and Exchange Commission, both by individual companies and industry groups as the regulator drafts mandatory climate-related financial disclosures. Some companies are coming to the SEC for the first time, according to Senate lobbying disclosures. Gary Gensler, SEC chair, this week said he wanted the agency to put forward its proposals for mandatory climate reporting — intended to provide investors with consistent and comparable information to evaluate companies’ climate risks — by the end of the year. “When it comes to climate risk disclosures, investors are raising their hands and asking regulators for more,” he said on Thursday. “I think we can bring greater clarity to climate risk disclosures.”

To Western investors, China’s regulatory crackdown on superstar companies such as Alibaba Group Holding Ltd. , Tencent Holdings Ltd. and Didi Global Inc. must seem suicidal. How better to undercut growth than to kneecap some of the world’s most successful technology companies? President Xi Jinping would beg to differ. In his estimation, technology comes in two varieties: nice to have, and need to have. Social media, e-commerce and other consumer internet companies are nice to have, but in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing. By contrast, Mr. Xi thinks the country needs to have state-of-the-art semiconductors, electric-car batteries, commercial aircraft and telecommunications equipment to retain China’s manufacturing prowess, avoid deindustrialization and achieve autonomy from foreign suppliers. So even as the Chinese Communist Party unleashes a multifront regulatory assault against consumer internet companies, it continues to shower subsidies, protection and “buy-Chinese” mandates on manufacturers.

• The Federal Trade Commission (FTC) said Tuesday it's struggling to keep up with a "tidal wave" of merger filings.
• It's now telling some businesses to merge at their own risk in cases where the agency hasn't yet finished reviewing their deals.
• The FTC preliminarily reported that it's seen more than 1,700 pre-merger filings in the first half of the year.

Nasdaq Inc. is on the verge of securing the SEC’s support to help get more women and minorities on the boards of companies trading on the stock exchange. The Securities and Exchange Commission is expected to give initial, and potentially binding, approval of a Nasdaq board diversity proposal by Aug. 8. The endorsement would be the SEC’s most substantial action to encourage diversity and inclusion since the agency made environmental, social, and governance matters a top priority under the Biden administration. Nasdaq’s plan would be the most significant diversity requirements in the U.S. since California passed laws in 2018 and 2020 that mandated diverse boards for companies headquartered in the state. The proposal directs its listed companies to pursue board diversity—by having at least one female board member and at least one who identifies as an underrepresented minority or LGBTQ—or explain why they don’t. There’s little doubt the SEC would permit Nasdaq to implement its proposal, as the agency is considering the need for its own regulations on board diversity, former agency Commissioner Annette Nazareth told Bloomberg Law.

THE RECENT expansion of the crypto-universe is a thing of wonder. Only a year ago there were about 6,000 currencies listed on CoinMarketCap, a website. Today there are 11,145. Their combined market capitalisation has exploded from $330bn to $1.6trn today—roughly equivalent to the nominal GDP of Canada. More than 100m unique digital wallets hold them, about three times the number in 2018. [...] This maturation, however, has failed to tame the wild gyrations that characterise crypto markets. Bitcoin sank from $64,000 in April to $30,000 in May. Today it hovers around $40,000, having dipped to $29,000 as recently as July 29th. Every downwards lurch raises the question of how bad the fallout might be. Too much seems at stake for the cryptocurrency to collapse—and not just for the die-hards who see bitcoin as the future of finance. Algorithmic traders now conduct a hefty share of transactions and have automatic “buy” orders when bitcoin falls below certain thresholds. Still, in order to grasp the growing links between the crypto-sphere and mainstream markets, imagine that the price of bitcoin crashes all the way to zero.

Many investment executives who back special-purpose acquisition companies are scoring big paydays as more deals get completed. Some of their clients are missing out. The divergence results from the varying methods SPAC creators use to share the lucrative incentives known as the “sponsor promote.” It typically consists of deeply discounted shares and other securities executives receive for risking capital to set up the SPAC and vet a company to take public. The promote typically allows creators to make tens of millions of dollars on paper on average—sometimes several times their initial investment—even if that company’s shares fall.   [...] Clients of investment firms whose principals create SPACs don’t always ask, or say they have limited means of pushing back against arrangements they don’t like. Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. “There’s a lot of experimentation with what the market will bear while managers search for a new normal,” said Daniel Forman, a capital markets partner at Proskauer Rose LLP.

Canadian securities regulators are establishing a new self-regulatory organization that will oversee the country’s investment industry, consolidating the functions of two existing organizations – the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers’ Association. The creation of the new regulator, announced Tuesday, is the result of more than 18 months of feedback and consultation from various industry participants, after the Canadian Securities Administrators (CSA) – an umbrella organization of Canada’s provincial and territorial securities commissions – announced in December, 2019, that it was considering an overhaul of the regulatory framework that governs IIROC and the MFDA. The CSA also announced that it would also combine two investor protection funds – the Canadian Investor Protection Fund and the MFDA Investor Protection Corporation – into a single fund that will be independent from the new organization. Some investors and industry participants have argued the existence of two separate investment industry self-regulatory organizations (SROs) has been unnecessary, given their overlapping areas of oversight.

As more companies provide required disclosure of their human capital management following a new SEC rule in 2020, we’re getting a more complete picture of disclosure trends and the topics that companies are providing details on.  It’s been less than a year since a new disclosure rule by the Securities and Exchange Commission (SEC) took effect, which required companies to provide additional detail in their 10-K reports around their human capital management (HCM). The issue is a hot topic for institutional investors and their advisors, particularly since the COVID-19 pandemic, and many of them supported the SEC rule. As an update to our previous article on the first 100 10-K disclosures, this post includes an analysis of 725 companies who have filed since then—providing a more complete picture of disclosure trends and hot topics in HCM.

Tencent has announced new restrictions on how long minors can play its online games after the Chinese internet group came under intense pressure from state media, which labelled gaming as “spiritual opium”. In a social media post, the company said it was introducing the measures after “relevant authorities” requested greater protection of minors in gaming and for companies to carry out their “societal responsibility”. Shares in Tencent, whose online games business generated Rmb39.1bn ($6bn) in the first quarter and accounted for 30 per cent of its total revenues, fell as much as 10.8 per cent in Hong Kong before paring losses to close down 6.6 per cent. That left the stock down almost a quarter in the past month. The company’s market value has shed $400bn from its January peak. The renewed volatility came after China’s tech stocks notched their worst month since the global financial crisis in July following an unprecedented regulatory campaign against tech sectors including education, ride-hailing and social media.

Square Inc, the payments firm of Twitter Inc co-founder Jack Dorsey, will purchase buy-now, pay-later pioneer Afterpay Ltd for $29-billion, creating a global transactions giant through its biggest-ever acquisition. The takeover, also the biggest buyout of an Australian firm, underscores the popularity of a business model that has upended consumer credit by charging merchants a fee to offer small point-of-sale loans which their shoppers repay in interest-free installments, bypassing credit checks. The pandemic has also fueled the boom in the “buy now, pay later” (BNPL) sector as tech-savvy consumers, stuck at home, spend money online to buy everything from coats to expensive phones. Over the past year, Melbourne-based Afterpay signed up millions of users in the United States, which is now among the fastest-growing markets for the sector.

Should senior executives be allowed to work as long as they want, no matter how old they are? As the U.S. population ages and medical advances allow people to stay healthier longer, that is a question Americans may increasingly ponder. In general, forced retirement based on age is illegal in the U.S. Some groups of workers are exempted from such protections, however, including certain high-level company executives, who can be asked to retire as soon as they turn 65. Supporters say mandatory retirement policies can protect shareholders from aged leaders who are underperforming. Opponents say C-suites don’t have an old-age problem, and chief executives face more board scrutiny than ever before. [...] Whatever the reasons, it is the board’s job to recognize the need for a forced leadership change and to promptly act on it. Succession planning enables directors to do just that. It should encompass a rigorous and periodic performance-assessment exercise and a set of protocols to execute a smooth transition, including in response to unanticipated events.