Corporate governance - Vigil

The U.S. intelligence community hasn’t seen evidence that foreign powers are attempting to sabotage voting by mail in the presidential election, a senior official said in remarks at odds with a claim advanced by President Trump. Asked at a media briefing Wednesday about the risk of foreign countries printing mail-in ballots, a senior official with the Office of the Director of National Intelligence said: “We have no information or intelligence that any nation-state threat actor is engaging in any kind of activity to undermine any part of the mail-in vote” or ballots. A historically large number of Americans are expected to vote by mail in the coming general election amid the coronavirus pandemic. Mr. Trump has raised concerns that widespread mail-in voting could allow foreign governments to interfere in the election with counterfeit mail ballots—a claim widely disputed by election officials and independent experts. “The Dems talk of foreign influence in voting, but they know that Mail-In Voting is an easy way for foreign countries to enter the race,” Mr. Trump said in a tweet on July 30. Mr. Trump has said he is OK with a system in which a voter must request a by-mail ballot in advance of the election, though he has objected to states mailing out ballots to all voters in response to the pandemic, saying that is susceptible to fraud. The White House didn’t immediately respond to a request for comment for this article.

The U.S. Securities and Exchange Commission is asking blue-chip companies about a popular financing arrangement that frees up cash but potentially hides risks from investors. The agency sent letters in June to Coca-Cola Co. and Boeing Co. requesting more information about how they use supply-chain finance, essentially a form of short-term borrowing to pay for goods and services, according to securities filings. The funding, often provided by banks, pays a company’s suppliers earlier than they would normally be paid, at a slight discount. It then collects the balance from the company down the road, generally later than the company would have paid their supplier directly. While similar to loans, supply-chain financing is often not clearly called out on a company’s financial statements. Companies typically record the transactions as accounts payable, leading some to say they portray overly optimistic financial health, especially if banks pulled the financing suddenly. A typical supply-chain finance transaction known as reverse factoring.  An SEC spokesperson declined to comment. The agency has increased scrutiny of the practice over the past year and a half. In June, the agency gave guidance on supply-chain and other types of short-term financing in light of coronavirus disruptions. It said companies should “provide robust and transparent disclosures.” “There is almost no information about it” in financial statements, said Ben Lourie, an assistant professor at University of California, Irvine’s Paul Merage School of Business. He worries that people don’t have the right information when building valuation and risk models about companies.

Regulators have approved a proposal from the New York Stock Exchange to let companies raise capital through direct listings, a decision that creates a less-expensive alternative to the traditional initial public offering. In an order posted online Wednesday, the Securities and Exchange Commission approved the plan for the NYSE to create a new type of direct listing, in which companies can issue new shares. Previously, companies had only been permitted to use the process for existing investors to sell shares. In a direct listing, a company floats its shares on a stock exchange, but without hiring banks to underwrite the transaction as in an IPO. In addition to saving on bank fees, the process allows companies to avoid some customary restrictions of IPOs, such as lockup periods that prevent insiders from selling their stock for a set period. [...] The primary benefit of the previous format was to let a startup’s founders and early investors cash out of their stakes, but companies couldn’t use the process to raise capital. Effectively, that made direct listings viable for only a small number of cash-rich startups, since most companies go public with the goal of raising fresh capital. Wednesday’s decision by the SEC could make direct listings a more popular alternative to the traditional IPO. With the NYSE’s new type of direct listing, a company will be able to issue new shares and sell them to public investors in a single, large transaction on the first day of trading, much like the first trade in an IPO. Potentially, a company could do both the old and new kind of direct listing together, allowing existing investors to sell their shares while also selling newly issued shares to the public.

A long-time BlackBerry Ltd. minority shareholder has asked regulators to require shareholder approval of a debt refinancing that he says could allow Prem Watsa’s Fairfax Financial Holdings Ltd. to gain a controlling stake of the company. The Waterloo, Ont., data-security company said in a press release on July 22 that it planned to refinance US$605-million of convertible 3.75-per-cent debentures by Sept. 1, ahead of their November maturity date. Fairfax would exchange US$500-million worth of these for new three-year-term 1.75-per-cent notes, while another unnamed institutional investor would fund US$35-million of the new notes. Dorsey Gardner, a veteran securities analyst from Florida who says he owns about five million BlackBerry shares, is warning that the terms of the new notes would make it more enticing for Fairfax to convert its new notes to equity – adding an additional nearly 13 per cent to its stake, potentially giving it a controlling share of more than 20 per cent. Earlier this summer, Mr. Gardner approached the Ontario Securities Commission, the New York Stock Exchange and Toronto Stock Exchange operator TMX Group Ltd. to force BlackBerry to seek approval from disinterested shareholders in order to proceed. [...] “Why is BlackBerry fighting so hard not to provide shareholder approval?” Mr. Seifred said. “If this is such a good financing deal for the company, and it’s the best they could find, why are they loath to provide the opportunity for disinterested shareholders to have their say on the transaction?”

Valuing billionaire Jack Ma’s Ant Group, which filed its prospectus for a mega initial public offering Tuesday, will be more art than science. It looks like a financial-services company but sells itself as a technology firm. Is it a MasterCard or a PayPal? On a number of counts, Ant is more like the former. First, the company has made a lot of progress diversifying its business operations over the past year. Online loans to consumers and small businesses have overtaken mobile payments – the segment Ant is best known for — as the group’s largest revenue generator, accounting for 39.4% of the 72 billion yuan ($10.4 billion) business in the first half. As of June, its lending platforms had a 2.2 trillion yuan credit balance. Then consider the company's loan offerings. There’s Huabei, a revolving credit product that gives consumers interest-free loans for up to 40 days. And for cash loans on larger consumption transactions with no strings attached, borrowers can go to Jiebei. Most interest rates at these two platforms are capped at 0.04% daily, or 15.6% on an annualized basis. Both are unsecured. The way Ant handles credit risk looks a lot like a credit-card company, too. The prospectus repeatedly reminds readers that Ant doesn’t use its own balance sheet or provide guarantees. As of June, about 98% of its credit balances were underwritten by partners, such as banks or trust companies, or packaged and sold off as asset-backed securities. Ant, in turn, earns service fees from its partners. [...] With the information available, putting a fair valuation on Ant will be difficult. The company breaks down its revenue by segments, but not at the cost or profit levels. We can only speculate that its newer digital-finance business, from online loans to wealth management, is highly lucrative, because Ant’s gross and operating profit have risen.

The U.S. Securities and Exchange Commission is easing restrictions that prevent most people from investing in hedge funds and hot startups. olders of professional certifications -- like Series 7 licenses that authorize individuals to sell securities -- will be eligible to invest in riskier assets under rule changes the regulator announced Wednesday. The revamp is focused on allowing those with financial expertise to put their money in private investments that don’t trade on public exchanges even if they fail to meet existing net worth and income restrictions. The SEC said in a statement that the changes are meant to make it easier for firms to raise capital and “more effectively identify institutional and individual investors that have the knowledge and expertise to participate” in those offerings. “Today’s amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition,” SEC Chairman Jay Clayton said in a statement. “For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication.” The changes, which were first proposed in December, adjust the SEC’s “accredited investor” standard. The policy has generally kept investors out of hedge funds, fast-growing technology companies that haven’t gone public and private equity funds unless they have a net worth of $1 million or higher and annual salaries of at least $200,000. The SEC’s two Democratic commissioners voted against the revamp, arguing that by failing to update the net worth and compensation requirements for inflation, the regulator missed an opportunity to protect many unsophisticated investors from putting their money in potentially dangerous assets. Commissioners Allison Lee and Caroline Crenshaw, in a joint statement, said the 38-year-old thresholds hardly mean the same thing in today’s dollars.

Republished to mark AIM’s 25th anniversary, this article explores how AIM boards might look to maximise the benefits of the relationship with their auditors and accountants. Written soon after the 2008 financial crisis, the piece may give rise to a sense of déjà vu. Referring to “the number of corporate collapses and governance failures” and a hint that a more prescriptive US style Sarbanes-Oxley regime might be on its way, it could have been written yesterday. In the wake of such failures as Conviviality and Patisserie Valerie it might seem odd to argue for a constructive relationship between auditors and boards, but in particular audit committee non-executives. The audit profession clearly has a lot of work to do to improve the quality and consistency of its offering but all directors, led by the executives, have the primary responsibility for preparing financial statements before putting them to the auditors for their opinion. [...] AIM boards should seek to develop a strong, open and trusting relationship with their advisers. The relationship with the auditors should be no different in character. Here's an audit checklist: 
#1. Directors need to understand their responsibilities
#2. Choose auditors who are appropriate to the size and needs of the AIM company
#3. Be prepared to review the auditors periodically and consider inviting tender proposals
#4. Develop an open and fully transparent relationship with the company’s auditors
#5. Brief auditors on key business changes and plans
#6. Thoroughly plan the preparation of financial statements and audit process interface
#7. Seek early warning on new accounting/disclosure standards, practices and approach
#8. A properly constituted audit committee will add value for directors and auditors
#9. Use the annual report as a means of communicating corporate ethic and values

Former central banker Mark Carney is taking his crusade for sustainable investing to one of the world’s largest money managers, joining Brookfield Asset Management Inc. with a mandate to create funds focused on both generating profit and saving the planet. Brookfield appointed the high-profile former Bank of England and Bank of Canada governor as its vice chair and head of ESG (environmental, social and governance) and impact fund investing. The Toronto-based company oversees more than US$500-billion of assets, including a global collection of renewable power plants. While at Brookfield, Mr. Carney will continue to serve as the United Nations special envoy for climate action and finance, a volunteer position he accepted last year. In an interview, the 55-year-old financier said he would also remain an informal adviser to political leaders, including Canadian Prime Minister Justin Trudeau and the U.K.’s Boris Johnson, but downplayed any personal political ambitions. [...] At Brookfield, Mr. Carney is joining a company known for paying its executives relatively low base salaries, with the majority of compensation coming in the form of shares. Mr. Flatt, for example, earned $750,000 in salary last year, but owns approximately $2.7-billion of Brookfield shares. [...] Born in Fort Smith, Northwest Territories, Mr. Carney earned an undergraduate degree at Harvard – he was the goalie on the university’s hockey team – then a doctorate in economics at Oxford. He joined the Bank of Canada in 2003 as deputy governor, became governor in 2008, and moved to the Bank of England in 2013.

The Phillips curve, the logic of which guides central banks today, has become oddly flat. [...] The Phillips curve, as it became known, has been described as “probably the single most important macroeconomic relationship”. It has also been called the “least solid piece of work” he ever did. The Phillips curve’s solidity and shape has been called into question more than once in the past 60 years, including in the period since the global financial crisis of 2007-09. But the logic of the curve still guides central banks today. When business is brisk and unemployment low, central bankers worry that workers will demand pay raises over and above inflation and any improvement in their productivity. If firms pass these higher wages on to customers by increasing prices, inflation will rise. If central bankers wish to prevent this, they will raise the interest rate they charge for the money they lend, slowing the economy and curbing the wage pressure. The opposite happens at the other end of the curve. High unemployment flattens wages and spending, putting downward pressure on inflation. To counteract this, policymakers typically cut interest rates. Central bankers hope to find themselves somewhere in the middle: with inflation where they want it to be and unemployment neither high nor low enough to dislodge it. In these happy circumstances, they aim to set a “neutral” interest rate that will leave inflation where it is. Most central banks in the rich world target an inflation rate of about 2%. At such modest levels, inflation does not greatly complicate financial planning or erode confidence in the currency. But it allows wages to fall modestly, relative to prices, without anyone suffering a thinner pay packet. That cheapening of labour may, in turn, help preserve jobs in a downturn.

Chief executive officers are getting the benefit of luck as they struggle with their boards for power, according to new research from the University of North Carolina at Chapel Hill. Luck — or exogenous shocks to performance such as markets conditions that are beyond the control of CEOs — should be filtered out by boards under standard economic theory, Turk Al Sabah, a researcher with UNC at Chapel Hill said in a preliminary draft of a paper this month. But contrary to the theory’s prediction that company heads should be assessed for their skillful performance, “we find that CEOs are rewarded power for luck.”   Chief executives seeking to entrench their power following strong market performance are more likely to succeed at companies with weaker governance, according to the paper. Moreover, CEOs aren’t punished for bad luck to the same extent that they are rewarded for good luck, the study found. “Power for luck is primarily driven by firms with weaker governance in terms of board structure and institutional ownership,” Al Sabah said. “CEOs have some insulation from bad luck, while reaping the full benefits of good luck.” [...] There’s another possible explanation for the power-for-luck relationship, even if it’s not the strongest argument based on Al Sabah’s research. “Boards may just be unable to distinguish between luck and firm-specific performance,” he said.

This desert kingdom is pushing ahead with multibillion-dollar plans to build a spate of new cities despite the coronavirus pandemic and depressed oil prices, betting that projects closely associated with the crown prince will kick-start its economic recovery. The developments include a futuristic city-state called Neom in the country’s remote northwest Tabuk province, a sports and entertainment city outside Riyadh, luxury tourism resorts spread across an archipelago of pristine Red Sea islands and an ancient Arabian trading post turned wildlife reserve called al-Ula. They are all part of Crown Prince Mohammed bin Salman’s plan to diversify the economy away from oil by attracting foreign investment and boosting domestic consumption. The giant projects are designed to spawn industries such as tourism and entertainment that haven’t existed before in cloistered Saudi Arabia, even as those sectors suffer globally under social-distancing guidelines imposed to curb the spread of the virus. “It seems like that will be a real uphill battle,” said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute think tank in Washington, D.C. So far, he said, “The broader aim of attracting global multinational companies…hasn’t panned out.” After introducing tourist visas last September for the first time, the kingdom issued about half a million before the pandemic hit and it closed its borders, including to its most vital source of tourism income: religious visitors. Despite the downturn, the authorities say they remain committed to attracting 100 million visits a year by 2030, up from about 40 million last year.

What could be the biggest initial public offering in history is bypassing the U.S. stock market—but still relies heavily on American banks. When China’s Ant Group Co., the financial-technology behemoth controlled by billionaire Jack Ma, lists in Hong Kong and Shanghai later this year, it will be a major payday for Citigroup Inc., JPMorgan Chase JPM & Co. and Morgan Stanley, MS  despite escalating U.S.-China tensions. Ant could raise as much as $30 billion, according to a person familiar with the matter, which means it could top the record recently set by Saudi Aramco. The Middle Eastern oil major raised a total $29.4 billion on its home stock exchange including a so-called overallotment option. IPO filings by Ant on Tuesday show the trio of U.S. banks is sponsoring the deal’s Hong Kong tranche, alongside state-owned China International Capital Corp. “You’re selling the Ant story to the globe, and the best people to do that are the U.S. banks,” said Benjamin Quinlan, chief executive of strategy consulting firm Quinlan & Associates in Hong Kong. “Having a big name bookrunner or underwriter obviously adds a certain level of gravitas to the deal,” he said. [...] Ant, which operates the popular payment and digital-finance app Alipay, never considered a U.S. listing, according to people familiar with the company. A Hong Kong and Shanghai dual-listing would solidify the company’s position as a national champion, just as geopolitical tensions have helped encourage a string of U.S.-listed Chinese technology companies to seek Hong Kong secondary listings. CICC and state-owned China Securities Co. Ltd. are leading the Shanghai tranche of Ant’s share sale. All of the three U.S. banks underwriting the Hong Kong IPO also advised on a $14 billion fundraising in 2018 that elevated Ant to the world’s most valuable startup at a $150 billion valuation. Ant is seeking a more-than $200 billion valuation in the IPO, The Wall Street Journal previously reported.

Want to choose a hedge fund that will outperform? Stay away from the most in-demand strategies, according to a new study. Academic researchers found that in the five years after hedge funds launch, the strategies that were unpopular when the funds were raised outperformed the hottest strategies by 3 percent annually on a risk-adjusted basis. This is because it’s harder to convince allocators to invest in strategies that they don’t see as attractive, according to researchers Charles Cao at Pennsylvania State University, Grant Farnsworth at Texas Christian University, and Hong Zhang at Tsinghua University’s PBC School of Finance.   To make up for choosing strategies that are out of favor, unpopular hedge funds must demonstrate more skill — and better returns — before they can successfully lure investors, the trio argued. The researchers used monthly hedge fund and return data from Lipper TASS, Hedge Fund Research, and Barclay Hedge to analyze a total of 31,402 live and defunct funds over the period between 1994 and 2016.  To determine whether a strategy was popular, or hot versus cold, the researchers used two measures: the 36-month flows and the returns of a given strategy prior to the inception of a new fund. The group ranked 10 different strategies using these variables on a monthly basis. Any of the top three strategies in a given month were considered “hot,” while the bottom three were considered “cold.”

Thousands of office employees at Ford Motor Co. F -2.09% have come back to work in recent weeks to retrieve their things. All of their things. With its white-collar employees working remotely at least until January because of the coronavirus pandemic, Ford is taking advantage of its empty buildings to reconfigure the workplace for a new era in which employees will have more options to do their jobs remotely, a company real-estate director said in an interview this week. Most of the roughly 30,000 employees who work at or near Ford’s Dearborn, Mich., headquarters have returned to the office this summer to clean out their desks and workspaces, all while donning face masks. Ford has emphasized to workers the collect-and-clear exercise that began in July has nothing to do with layoffs. Rather, the No. 2 U.S. auto maker is trying to prep for a future in which many, if not most, employees won’t come into the office every day, said Jackie Shuk, a global director at Ford’s real-estate arm. Plexiglass dividers and floor decals might not be permanent, but the pandemic will bring lasting change to offices. Many office workers are visiting the office for the first time since March, when Ford closed its corporate campuses because of pandemic-related lockdowns. [...]
The reshuffling at Ford is among the more-assertive moves being taken by companies rethinking office life longer-term, as the pandemic has shown remote work to be more productive and feasible than initially thought. [...] A survey of 30,000 North American employees this summer found about 70% of workers weren’t interested in returning to the office soon. Most others preferred a schedule that would allow them flexibility to come into the office on some days and work remotely others.

If one image has driven home the financial crisis facing the US Postal Service, it has been the sight of postal workers removing scores of characteristic blue collection boxes just months before an election in which postal voting will play a central role. For Democrats, the pictures of boxes and sorting machines being removed in recent weeks is evidence that the Trump administration wants to hobble the USPS so it is unable to process millions of mailed-in ballots later this year. But experts say the crisis has been nearly two decades in the making, and will not be solved without sweeping changes to the institution, even if Congress enacts a $25bn bailout package as a short-term fix. “The postal service has been trying to cut every cost it can without making lay-offs. It has been removing blue post boxes for the last 10 years,” said Rick Geddes, an infrastructure policy expert at the free-market American Enterprise Institute. “The truth is however that, even with a bailout, it will not be long before it runs out of money again unless there is more fundamental change.” Louis DeJoy, the postmaster-general selected by President Donald Trump, insisted during lengthy congressional testimony on Monday that service cuts had been going on for years. However, he vowed to put new cuts on hold until after the election. Both supporters and critics of the USPS agree that its problems predate Mr DeJoy’s appointment.

The decision by Ontario Teachers’ Pension Plan to move more heavily into bonds in 2019 helped blunt the effects of the COVID-19 market downturn, as the pension plan reported a 0.4-per-cent loss in the first half of the year. Now, the plan’s leaders say, they’ve cashed out much of that bond portfolio and are planning on redeploying assets as part of their long-term plans under new chief executive officer Jo Taylor. In its increasingly global approach, Teachers will open a new office in Singapore and have a new executive based in London, not Toronto. Ziad Hindo, the pension plan’s chief investment officer, said the $200-billion plan’s fixed-income assets generated $7.9-billion of return in the first six months of 2020 – more than offsetting a loss of $4.7-billion in its real assets segment, which includes real estate and infrastructure. Teachers is a big owner of airports – its properties include Bristol, Birmingham and London City in Britain, as well as Copenhagen and Brussels. [...] Teachers is one of two major Canadian pensions to release midyear results. Caisse de dépôt et placement du Québec (CDPQ) reported a negative return of 2.3 per cent for the first half of the year, hit largely by its exposure to shopping centres. Canada Pension Plan Investment Board, which reports four times a year, posted a loss of 3.7 per cent in the first calendar quarter and a gain of 5.6 per cent in the three months ended June 30.