Corporate governance - Vigil

Backlash to the ice-cream maker’s decision to distinguish between Israel and the territories it occupies has shown that, for many Israelis, the distinction no longer exists. No company does progressive politics quite like Ben & Jerry’s. The Vermont-based ice-cream maker has a reputation for corporate activism, owing to its support for a wide array of left-wing causes, including marriage equality, Occupy Wall Street, and Black Lives Matter. But when the company announced this week that it will no longer sell its products in the Israeli-occupied Palestinian territories, it faced an outcome that every ice-cream maker fears most: a meltdown.

The push for two big infrastructure bills—one bipartisan, the other a much bigger one pushed by Democrats alone—is getting all the attention in Washington right now, and for good reason. Trillions of dollars hang in the balance, as does much of President Biden’s agenda and the question of whether Washington can do anything big in a bipartisan fashion any more. But most people are ignoring a third infrastructure initiative that, while smaller, is freighted with just as much long-term economic and strategic importance. It’s a relatively modest initiative to supercharge America’s at-home production of the semiconductors that now are vital in everyday life. That measure is sitting on a shelf in Washington, awaiting action, while the U.S.’s computer-chip vulnerability grows. [...] The U.S. share of global semiconductor manufacturing capacity has dropped to 12% today from 37% in 1990, according to a study by the Boston Consulting Group. America’s position has receded while China’s has advanced. Worse, about 40% of the new chip-production capacity projected to be added in the next decade will be in China, which would make it the largest semiconductor manufacturing location in the world.

During a recent compensation committee meeting, the CEO expressed some level of frustration with the public discourse on including EESG (Employee, Environment, Social, and Governance) goals — specifically, DEI (Diversity, Equity, and Inclusion) — into executive incentive plans. “Our culture is all about equity, diversity, and inclusion,” she exclaimed. “Why should we be bonusing our culture?” The impetus for the CEO’s cultural pushback was a compensation committee member’s suggestion that next year’s annual incentive plan include a 10-15% weighted factor with threshold, target, and maximum goals tied to the number of underrepresented employees in management and executive groupings by year end. The compensation committee member had heard that “everyone” was adding an EESG or DEI bonus factor to their incentive plans, so their company needed to do so, too.  As a recap of the questions to be asked…

#1. Is EESG/DEI a strategic pillar?
#2. Have specific EESG/DEI metrics been in place for a while?
#3. Can actionable goals be set and measured?
#4. Are specific EESG/DEI metrics so critical that they require incentive plan backup?
#5. How should the selection and weighting of other goals be adjusted if EESG/DEI metrics are included?
#6. Can we deal with disclosure issues if we miss?

Aon and Willis Towers Watson have abandoned a $30bn tie-up that would have created the world’s biggest insurance broker after the US government sued to block the combination. Aon’s chief executive Greg Case said on Monday that the companies had reached an “impasse” with the US Department of Justice, which had taken a position that “overlooks that our complementary businesses operate across broad, competitive areas of the economy”. The all-share deal, which was first struck in March 2020 as the coronavirus pandemic swept across the globe, was the latest in the long-running consolidation of the insurance broking industry. However, in a lawsuit filed last month to block the transaction, the DoJ offered a scathing critique. The deal would create a “Big Two” in insurance broking and would “eliminate substantial head-to-head competition and likely lead to higher prices and less innovation, harming American businesses and their customers, employees and retirees”, the suit said. As a result of the decision to drop the merger, Aon will pay a $1bn break fee to Willis. [...] The surprise announcement came as Aon, Willis and the DoJ prepared for a showdown in the US courts.

America’s weak population growth, already held back by a decadelong fertility slump, is dropping closer to zero because of the Covid-19 pandemic. In half of all states last year, more people died than were born, up from five states in 2019. Early estimates show the total U.S. population grew 0.35% for the year ended July 1, 2020, the lowest ever documented, and growth is expected to remain near flat this year. Some demographers cite an outside chance the population could shrink for the first time on record. Population growth is an important influence on the size of the labor market and a country’s fiscal and economic strength. One bad year doesn’t automatically spell trouble for future U.S. demographic health. What concerns demographers is that in the past, when a weak economy drove down births, it was often a temporary phenomenon that reversed once the economy bounced back.

The architect of the UK’s governance standards for private businesses has criticised the government’s plans to extend some of the most stringent regulations for larger listed companies to their unlisted counterparts, claiming the changes would have a “significant negative impact”. Sir James Wates, chair of the Wates Group, one of the UK’s largest family-owned construction companies, said proposals to expand the definition of “public interest entities” (PIEs) to include large private companies would increase costs and discourage growth and innovation. The proposed reforms follow a public backlash over corporate collapses at outsourcer Carillion, café chain Patisserie Valerie and privately owned retailer BHS. Wates, who also chairs the Institute for Family Business, said the proposals amounted to a “sledgehammer” and questioned the need for expanding the PIE regime, which currently applies only to large listed companies and finance groups.

Major institutional investors have committed US$7-billion to Brookfield Asset Management’s Global Transition Fund, making it the largest pool of private money aimed at accelerating the shift to a net-zero carbon economy. The majority of the fund’s initial investment comes from two sources: the Ontario Teachers’ Pension Plan Board and Temasek, the Singaporean sovereign wealth fund. The Global Transition Fund is co-managed by Connor Teskey, chief executive officer of Brookfield Renewables, and Mark Carney, who served as governor of the Bank of Canada and then as governor of the Bank of England before his term in the latter role ended last year. The fund will seek out investments in enterprises whose work promises to reduce greenhouse-gas emissions, decrease energy consumption or boost low-carbon energy capacity. [...] Fundraising for the Global Transition Fund is not yet complete. Brookfield has established a hard cap of US$12.5-billion, with the remaining $5.5-billion to come from the asset manager’s current roster of institutional investors later this year, it said.

The CEO of Philip Morris International, the tobacco giant that makes and sells Marlboro cigarettes for customers outside the US, said in an interview over the weekend that the company plans to stop selling cigarettes in the UK within the next 10 years. "The sooner it happens, the better it is for everyone," Jacek Olczak told The Mail on Sunday. While this might, at first, seem like a self-sabotaging business move, it's not. The company is responding to a consumer shift away from smoking tobacco products — and preparing for bans on cigarettes by switching to alternatives. The UK government plans to make the country go smoke-free by 2030. A spokesperson for PMI told Insider that its "smoke-free products" accounted for nearly 30% of its sales in the second quarter of the year. By 2025, it plans to bring this up to 50% of sales. These products include various types of e-cigarettes, which do not burn tobacco. They either don't use tobacco at all or heat tobacco to create nicotine vapor.

Time will tell whether the recent success of investment startup Engine No. 1 in gaining three board seats at Exxon Mobil Corp. will prompt imitators. [...] The campaign not only represented a David vs. Goliath victory—with Engine No. 1, a 0.02% stockholder, challenging a company of Exxon’s size—but it also constituted the first major shareholder activism campaign with climate and environmental issues playing a critical role, spurring hope that big corporations may be held more accountable for the actions (or lack thereof) they take with regard to ESG issues. While it remains to be seen whether Engine No. 1 vs. Exxon will drive a flurry of similar efforts in the future, its promising outcome offers several major takeaways that can be applied successfully in environmental campaigns moving forward.

Lesson 1: Have a Proactive, Comprehensive Strategy

Lesson 2: Reputation, Circumstance, and Narrative Matter

Lesson 3: Institutions Remain the Key to Success

Lesson 4: Expect Last-Minute Curve Balls

The SEC, under former Chairman Jay Clayton, issued a rule that improved the proxy advisory services market by promoting transparency and holding proxy firms more accountable for inaccuracies. Rather than implementing the necessary improvements to these reforms, Chairman Gary Gensler intends to roll-back the progress already made. Proxy advisory firms exist because the SEC requires institutional investors to vote on all matters put forth in proxy statements, or the measures voted on during shareholder meetings. For most institutional investors keeping up with all the issues raised during shareholder meetings is overwhelming, so they turn to proxy advisory firms for help. Two proxy advisory firms – ISS (an arm of Genstar, a private equity firm) and Glass Lewis (an arm of the Ontario Teacher’s Pension Plan Board and the Alberta Investment Management Corporation) – control 97 percent of the market. Given the sheer volume and importance of proxy statements every year, the influence of these two firms is large and growing.

Double materiality is the best method yet devised for integrating ESG into a business’ core strategy and corporate reporting, writes Luke Heilbuth In 1981, Kodak, the historic camera maker, enjoyed $10 bn in sales. In 2004, Blockbuster boasted of its 9,000-strong video store footprint. Today, these one-time giants have all but disappeared. The moral of their downfall usually focuses on a failure to predict the competition. But that’s the wrong lesson to draw. When Kodak filed for bankruptcy in 2012, it wasn’t because management didn’t foresee an alternative to film photography: the digital camera was invented by a Kodak engineer in 1975. [...] This is where a materiality assessment can help. The process attempts to reveal the big picture by scanning the horizon for the big ESG risks and opportunities ahead, before linking these issues to an organization’s core value proposition. Both science and art, a good materiality assessment is rigorous in researching, recording and prioritizing any topic that might be relevant (ie, material), but imaginative enough to explain how those issues could affect the sector and company in question.

A key gauge in the $30 trillion sustainable investment market provides a murky picture of corporate social responsibility. Research by Anywhere Sikochi and George Serafeim probes the underlying factors. Receiving more information can clarify the complex, but not when it comes to environmental, social, and governance (ESG) scores. A recent study shows that the more information a company discloses about its ESG practices, the more rating agencies disagree on how well that company is performing along these dimensions. According to the research, a 10 percent increase in corporate disclosure is associated with a 1.3 to 2 percent increase in ESG score variation among major ratings providers, which all interpret and process disclosures differently. With more than $30 trillion in sustainable investment capital on the line, the stakes are high for companies and investors. Institutions, such as asset managers, pension funds, and endowments, often rely on ESG ratings to make investment decisions. Divergent scores hurt firms, investors, and markets, the research findings suggest, and these effects appear to be worsening over time.

Chief financial officers who work part-time for several companies are in high demand as venture-capital firms pour more money into early-stage startups, creating a gig economy for CFOs. On-demand finance chiefs, also known as fractional CFOs, work across industries but fill a particular need at startups after early funding rounds. Many firms at that stage don’t have a full-time CFO managing their finances because they mostly have basic accounting needs, but they increasingly need someone to fill the gap when more complex financial questions arise, investors and company leaders say. Such part-time CFOs help establish processes and make operational decisions, for example how to create financial forecasts or whether to expand to new markets. [...] The recent deal-making craze is also fueling the demand for fractional finance services, investors and executives said.

Investors around the globe are pouring money into U.S. financial assets, a sign of confidence that the world’s largest economy remains poised to pull through the Covid-19 pandemic better than many others. Investors world-wide have funneled more than $900 billion into U.S.-domiciled mutual and exchange-traded funds, on a net basis, during the first half of the year, according to data compiled by Refinitiv Lipper. That is a record in data going back to 1992 and is more than investors have put into funds elsewhere around the world combined during the first two quarters of 2021.