Corporate governance - Vigil

The S&P 500 hovered near record highs on Monday as bets on an economic revival due to prolonged central bank support put the index on course for its best August in decades.

Some 170 Covid-19 vaccines are in development around the world, according to the World Health Organization, each one promising to protect people from the deadly coronavirus and allow them to go back to work and school.

The World Trade Organization’s director-general Roberto Azevedo steps down on Monday, leaving the already-damaged global watchdog leaderless as it faces the biggest crisis in its 25-year history.

The scale and pace of change unleashed by the Covid-19 pandemic has no precedent in modern history. How well companies perform depends in part, at least, on their board of directors, the highest decision-making body in the corporate hierarchy. To get a glimpse of how boards have adapted to the new reality, we surveyed 266 chairs, directors and CEOs in 23 countries, mostly in Europe, between May and June. We also conducted follow-up interviews with 23 respondents.

California moved closer Saturday to a first-in-the-nation law requiring corporate boards to include racial or sexual minorities, expanding on a new law that sets a similar requirement for including women directors.

Yes, according to a new report, as long as you don’t get caught. Many big companies may be struggling with depressed sales, but these are busy times for bribery-busters. Mexico is abuzz over allegations by an ex-boss of Pemex, the state oil giant, that several senior politicians received bungs from companies including Odebrecht, a Brazilian construction firm. The scandal is the latest in a string of graft cases to make headlines this year, starting with Airbus’s record $4bn settlement in January over accusations of corruption for making illegal payments in various countries. Corporate bribery is hardly new. In surveys, between a third and a half of companies typically claim to have lost business to rivals who won contracts by paying kickbacks. But such perceptions-based research has obvious limitations. A new study takes a more rigorous approach, and draws some striking conclusions. Raghavendra Rau of Judge Business School at the University of Cambridge, Yan-Leung Cheung of the Education University of Hong Kong and Aris Stouraitis of Hong Kong Baptist University examined nearly 200 prominent bribery cases in 60 countries between 1975 and 2015. For the firms doing the bribing, they found, the short-term gains were juicy: every dollar of bribe translated into a $6-9 increase in excess returns, relative to the overall stockmarket. That, however, does not take account of the chances of getting caught. 

Toronto private equity firm Catalyst Capital Group Inc. scooped up Cirque du Soleil’s debt this past spring at barely half its face value. Now, it’s betting it can restore the famed circus troupe to its past glory by imposing greater financial discipline and bringing its live entertainment to your screens at home. A Quebec Superior Court on Thursday confirmed that an offer by Catalyst and a group of roughly 15 other senior creditors is the designated bid for the sale of the company and its emergence from bankruptcy protection after no other bids materialized. The lenders are buying Cirque in a transaction valued at about US$1.2-billion, including a US$375-million injection of new money available when the deal closes and the elimination of about US$900-million of debt. In exchange, the lenders will receive 100 per cent of the equity of Cirque. At first glance, it’s an anti-climactic end to a saga that Cirque founder Guy Laliberté predicted would be a “battle royale” for control of the entertainment giant. But a drama did play out behind the scenes – one Catalyst says tested the creditors’ resolve as Cirque’s former owners manoeuvred against them to try to keep control of the company. “We’re pretty excited about the future,” Catalyst managing director and partner Gabriel de Alba said in an interview with The Globe and Mail, in which he discussed the sale dynamics and how Cirque’s owners are thinking about the potential for their investment. “What we bring is … a fresh set of eyes to challenge the historical thinking and come up with more optimal ways to run the business while still protecting the creative core from Quebec.”

Norway’s $1.2 trillion wealth fund will publish all voting intentions ahead of shareholder meetings from 2021, which is at least one year earlier than previously indicated. The world’s biggest sovereign investor says it wants to be more transparent in how it exercises its ownership, in a bid to promote good corporate governance and similar goals, including environmental standards. The fund has already started explaining its reasoning when it votes against company boards. “Our intention is to provide more information to the market and to be fully transparent about how we use our voting rights,” Norges Bank Investment Management, said in a report on Friday, as part of a review of its work on responsible investment over the past 20 years. The fund also said it was “concerned that a lack of information makes the market for voting advice not fully efficient.” Norway’s wealth fund, which was built from the proceeds of the country’s oil and gas production and now owns about 1.5% of stocks worldwide, invests according to a broad set of ethical principles. These include a ban on some weapons, tobacco and most coal investments, in addition to rules on human rights and greenhouse gas emissions. [...] The fund has been cleared to venture into renewable energy infrastructure under these mandates, but has yet to make its first investment. The effort will be led by outgoing Chief Executive Officer Yngve Slyngstad, who is set to move to London after Nicolai Tangen succeeds him next week. “Over time, we expect our renewable investments to diversify the fund and generate higher returns than the assets we sell to finance their purchase,” the fund said.

Companies will have to tell investors about how they manage their workforces under new SEC rules that Democratic commissioners say don’t go far enough. A divided Securities and Exchange Commission adopted the disclosure changes to Regulation S-K on a 3-2 vote Wednesday, with Democrats saying the plan doesn’t require specific reporting in areas such as workplace turnover and diversity. Regulation S-K focuses on companies’ non-financial reporting requirements. Companies now will need to disclose human capital objectives and measures they concentrate on when managing their businesses, among other updates to Regulation S-K. The commission previously only directed companies to report how many workers they have. “I do not remember engaging with a high-quality, lasting company that did not focus on attracting, developing, and enhancing its people,” SEC Chairman Jay Clayton said before voting in favor of the changes at an open meeting. “To the extent these efforts have a material impact on their performance, I believe investors benefit” from knowing what drives that performance. Democratic Commissioners Allison Lee and Caroline Crenshaw opposed the changes. The Regulation S-K rulemaking should have required more specific reporting about company workforces, as well as disclosures about climate change risk, they said. The agency could have used the new rules to mandate disclosures related to part-time and full-time workers, workforce expenses, turnover, and diversity, Lee said.

Japanese Prime Minister Shinzo Abe said he would resign Friday because of worsening health, ending the career of a politician who hailed from a long line of leaders but became almost a dynasty of one, serving two stints in office that reshaped modern Japan. Why does Shinzo Abe’s career stand out? Mr. Abe parlayed nationalist themes and promises of an economic revival into the longest term in office for a Japanese prime minister. His second stint in the job, which began in 2012, was the longest consecutive reign since Japan created a European-style government led by a prime minister in the 1800s. Combined with the time he occupied the office from 2006 to 2007, Mr. Abe holds the record for most total days in office. [...] Did Abenomics work? It met with mixed results before being hammered by the Covid-19 pandemic. The most significant part of the plan was a “bazooka” of monetary easing led by Mr. Abe’s handpicked central bank governor, Haruhiko Kuroda, who launched annual purchases of hundreds of billions of dollars in government bonds and large purchases of funds consisting of shares in companies listed on the Tokyo Stock Exchange. In 2016, Mr. Kuroda added negative interest rates to his policy mix. [...] The policies lifted the stock and real-estate markets and helped secure full employment. But strong growth and 2% inflation proved elusive. Wages rose slowly, and Japan maintained a reputation as a place with hardy corporate survivors but few innovative newcomers. The number of new births fell faster than ever, as economic uncertainty stymied Mr. Abe’s push to improve Japan’s dire demographic picture. [...] But there were changes to the economy? Mr. Abe’s government pushed through changes in corporate governance, encouraging companies to be more open to foreign input and introduce outside directors, and millions of women joined the workforce.

Chairman Jerome Powell says central bank has changed how it views trade-off between lower unemployment and higher inflation. The Federal Reserve unanimously approved on Thursday a new strategy that will effectively set aside a practice it has followed for more than three decades to pre-emptively lift interest rates to head off higher inflation. Fed Chairman Jerome Powell unveiled the updates in a speech set for delivery at a virtual symposium on Thursday, the most ambitious revamp of the Fed policy-setting framework since it was first approved in 2012. The practical effect is that it may be a very long time before the Fed considers raising interest rates. Mr. Powell said the changes reflected lessons the central bank officials had learned in recent years about how inflation didn’t rise as anticipated when unemployment fell to historically low levels. “It reflects our view that a robust job market can be sustained without causing an outbreak of inflation,” said Mr. Powell. The Fed had been moving in this direction over the last 18 months, a point made clear in early 2019 when officials abruptly abandoned plans to continue lifting interest rates. Mr. Powell initiated a policy-setting strategy review in late 2018, motivated by the sobering probability that central banks around the world will face greater difficulty than in the past to spur growth due to low levels of interest rates. The coronavirus pandemic-induced recession brought those challenges into stark relief. [...] The new statement approved Thursday said decisions to raise interest rates would be guided by shortfalls of employment from its maximum level, rather than saying they would be guided by deviations. In other words, the Fed signaled that it wouldn’t raise interest rates simply on the basis of a forecast that inflation will rise, but instead would wait to see evidence that inflation was at the central bank’s 2% target.

Warren Buffett’s Berkshire Hathaway Inc. took stakes of slightly more than 5% in five of Japan’s most venerable corporate names with big investments in energy.

The coronavirus pandemic demonstrates in the clearest terms why central banks must take a bigger role in fighting climate change even if the issue at first appears unrelated to monetary policy, European Central Bank board member Isabel Schnabel said.

Berkshire Hathaway Inc said it has acquired slightly more than 5% of the shares in five large Japanese companies, marking a departure for Chairman Warren Buffett as he looks outside the United States to bolster his conglomerate.

For first time since Bank of Canada's inflation target was adopted, there are cracks in the consensus

Nursing homes and other care facilities in the United States have been devastated by COVID-19, accounting for nearly half of all U.S. deaths from the pandemic. Infections have spread despite a ban on visitors to the facilities imposed by the Centers for Medicare and Medicaid Services (CMS) in March. 

Zhang Yiming was having breakfast at home in Beijing in July when a message popped on his computer screen. A friend sent a link featuring President Trump, in which he said the coronavirus came from China and, as part of a U.S. response, he might ban TikTok, the hit video app Mr. Zhang founded. Mr. Zhang was astonished. “China virus?” he told people around him later. What did the coronavirus have to do with TikTok? From that initial shock, things quickly got worse. First, Mr. Trump upped the stakes by ordering that TikTok’s parent company sell the app’s American operation or face a U.S. ban, on grounds it threatens national security through the data it gathers. Next, as Chinese nationalists lashed out at Mr. Zhang on social media for not fighting the Trump order, Mr. Zhang’s heavy-hitting Western investors were applying pressure on him to do the opposite—heed the order and sell. Mr. Zhang fired back at Mr. Trump on Monday with a lawsuit filed in federal court in California to stop the White House order. Then, he suddenly lost the high-profile lieutenant he had hired to extend TikTok’s globalization. Kevin Mayer, brought in barely three months ago from Walt Disney Co., announced Thursday he was quitting as TikTok CEO because the political circumstances had changed his role so much. Thus has the Chinese founder of an app for teens, filled with goofy dancing and lip-synching videos, been dragged into the tense U.S.-China geopolitical relationship. Mr. Zhang, a 37-year-old admirer of Silicon Valley, always wanted the company he created to be seen as global. But not this way.

Personal marriages end in divorce about 50% of the time, and involve money, pain, and suffering. Business divorces relating to stockholders, investors and partners of closely-held corporations, LLCs and partnerships take place at an even greater rate, and also involve money, pain, and suffering. Knowing how to help your clients minimize their risk of a business divorce starts with knowing the factors that typically lead a partnership to dissolve.
So, what are the main issues that can lead to a business divorce? They are often caused by one or more of the following factors:
#1. When cashflow drops, blood pressure increases. When there are one or more outside stressors on the financial and/or operational success of the business. This can be caused by a shift in the market for a business’ products or services, a general downturn in the economy, or, as we are seeing in 2020, a rather specific economic spasm caused by a worldwide pandemic.
#2. Goals of the partners diverge. When one individual or faction wants to “go in another direction”—whether it is a significant change of the company’s main product line, parties wanting a different split of the profits, illness or disability, moving to a new city, “slowing down” or retirement, plans for succession, taking care of family matters, or wanting to have a different role in the business. In 2020, Covid-19 and fear of the virus are a source of personal matters taking precedence over business, sometimes to the unhappiness of other partners.
#3. Self-serving actions of a party. When one party (i) uses company funds for personal benefits (purchasing an automobile via the company for use by one of the partners, e.g.), or hires his or her own family members or businesses, (ii) performs services for or buys into a competing business, or (iii) takes a corporate opportunity that belongs to all, these self-serving actions may not only be violations of agreements and common law, they will really upset other stockholders, investors and/or partners.
#4. Investor unhappiness. An investor either needs or wants liquidity or better performance; or business owners would like to buy-out or otherwise get away from one or more of their investors.

A major global credit rating agency is issuing a new warning about federal debt that it says may become more difficult to tackle once the pandemic passes. Fitch Ratings downgraded Canada’s triple-A credit rating in June, dropping the country to an “AA+” rating over what it called “the deterioration of Canada’s public finances” due to COVID-19. The decision came out before the Liberals released an updated outlook in early July for federal spending, which projected a deficit of $343.2 billion and a debt of over $1.2 trillion. Those figures were before the Liberals promised last week to spend $37 billion to revamp income support programs for hard-hit workers. Fitch says in a note that gross government debt will be 120 per cent of economic output, which is “significantly higher” than the median for a double-A rating. The ratings agency says it expects government spending to drop sharply starting in 2021, but the current growing deficit will make reining in spending and the debt more challenging over the medium-term.