Corporate governance - Vigil

[...] The tale is a cautionary one, given the high fashion for reverse listings these days. In the US, special purpose acquisition companies, or Spacs, last year accounted for a quarter of all IPOs. [...] Spac fans said it is a natural time for the sector to boom: many private companies are struggling following the coronavirus pandemic, and the lockdowns that accompanied it, and are seeking easy access to finance. Stock markets are booming, giving Spacs a straightforward route to market. But there is nervousness among investors towards more complicated corporate IPOs. Spacs, backed by big-name sponsors, provide investors with the comfort of a trusted intermediary. There are structural advantages too. In volatile times like these, it is attractive if a company can fix a price and execute a deal quickly, and avoid the delays and hassle inherent in filing an IPO prospectus and being scrutinised by regulators, before being able to list. Investment banks’ IPO fees, particularly hefty in the US, can also be mitigated. The downsides are obvious. In some jurisdictions at least, the level of information that investors get of a company that reverse-lists is scant, though US Spacs stress that the disclosures in their merger prospectuses are just as fulsome as a mainstream IPO would demand. Another negative is the dilution effect for company owners and investors, effected via complex warrant structures attached to the vehicles’ listed equity. And there is an inherent conflict of interest in the value of payback for sponsors being tied to the price paid for a merger. Deals also tend to be magnets for a “Spac mafia” of arbitrage hedge funds which buy up the warrants to exploit short-term pricing anomalies.

European Commission study finds shareholder pay-outs increased fourfold from 1992–2018, with a fall in the ratio of capex and R&D investment to revenues. If there is one theme that characterises debate about corporate governance over the past decade it is the conflict between short-term and long-term strategy and decision-making. The European Commission has now weighed in with a study that concludes that far too many company directors across the EU continue to think short term instead of acting in the long-term interests of their stakeholders. The commission concludes action is needed to shift decision-making. “An EU policy intervention is required to lengthen the time horizon in corporate decision-making and promote a corporate governance that is more conducive to sustainability,” the study says. Researchers worry that without new policies “shareholder primacy and short-term pressures from the finance markets will likely continue to influence corporate decision-making”. The conclusion comes despite evidence that a few high-profile fund managers have attempted to shift board and corporate thinking towards long-term aims and strategies—even during the Covid-19 crisis. In some quarters campaigners claim to have found evidence that the crisis has accelerated a shift to “stakeholderism”. [...] The study’s evidence seems to prove the point. Looking at data from 1992 to 2018, researchers found shareholder pay-outs increased fourfold from less than 1% of revenues to almost 4%. They also say the ratio of capex and R&D investment to revenues has been declining.

Over the last few years, misbehavior of corporate executives like Harvey Weinstein, Steve Wynn, Leslie Moonves, and Elon Musk has outraged many people around the world.  The misconduct has ranged from the inadvisable to the unethical to the criminal.  Almost all of it – when made public – has damaged the executives’ public reputations, diminished the value of their companies’ stock, and raised some serious legal and policy issues. My recent article, Executive Private Misconduct, in The George Washington Law Review examines this convergence of private lives and public consequences of executive misbehavior.  The article puts the legal issues arising from this convergence into the context of greater intolerance for executive private misconduct, as prompted by the unfolding #MeToo movement, shifting social understandings of public and private, and changing corporate social expectations.  It also analyzes the core legal tensions in corporate and securities law that have made these issues so difficult to resolve and offers pragmatic proposals for policymakers and executives.

The Hurun Research Institute, in association with Suzhou New District from East China, today released the Hurun Global Unicorn Index 2020, a ranking of the world’s start-ups founded in the 2000s, worth at least a billion dollars and not yet listed on a public exchange.  This is the second year of the list and follows on from six quarterly Hurun China Unicorn Indices. This report includes the Hurun Best Unicorn Investors in the World 2020, a ranking of the 100 most successful unicorn investors. Valuations are a snapshot of 31 March 2020. Hurun Research found 586 unicorns in the world, based in 29 countries and 145 cities. On average, they were set up nine years ago, with 80% selling software and services and 60% consumer-facing.  5% were in traditional sectors, with the majority disrupting financial services, retail, entertainment, business management solutions, healthcare, logistics and automobile. The total value of all known unicorns in the world is US$1.9tn, equivalent to the GDP of Italy. 89 unicorns saw their valuations rise, 23 saw their valuations drop.  There were 142 ‘new faces’ and 50 drop-offs.  Of the drop-offs, 30 were because they went public or were acquired and 20 saw their valuation drop below US$1bn. Hurun Report Chairman and Chief Researcher Rupert Hoogewerf said: “We have found 586 unicorns in the world. These young companies, only nine years old on average, are the world’s most exciting start-ups, leading new generation of disruptive technology and attracting the world’s top young talent. Just look at Elon Musk’s SpaceX – valued at US$36bn and fifth on the Hurun Global Unicorn Index 2020 – which caught the imagination of the world by delivering two astronauts to the International Space Station on 31 May. Others that have made headlines recently include Beijing-based ByteDance, which is seeing its massively popular short video app TikTok come under threat from both the US and Indian governments, as well as China fintech Ant Financial, which is reportedly looking at a whopping US$200bn IPO in Shanghai and HK.”

A strong year for the largest five US stocks despite the worst recession the country has faced in decades has further expanded their influence on equity markets. Apple, Microsoft, Amazon, Alphabet and Facebook now represent more than a fifth of the S&P 500. Not since the 1980s have the biggest five companies had such a large share of the index, according to S&P Dow Jones Indices. This concentration was further strengthened on Friday when Apple, Amazon and Alphabet, Google’s parent company, continued their steady march towards recent stock market highs, following bumper earnings on Thursday. The strong share price performance came in the same week that top executives from these and other tech giants were pressed by US lawmakers about the darker practices that have helped them to dominate their industries. One such critique has been their aggressive acquisition strategy of buying up smaller rivals. In a 2012 email, Facebook chief executive Mark Zuckerberg acknowledged that he planned to acquire the photo app Instagram in order to “neutralise” it. Elizabeth Warren, the US senator from Massachusetts and former Democratic presidential hopeful, said “Big Tech thinks they’re too big to be held accountable — and with gutless antitrust enforcement, they are”, in a Twitter post.

The United Arab Emirates announced Saturday the successful start-up of its Barakah nuclear energy plant, the first in the Arab world and a significant step towards the country’s goal of emissions-free electricity. With the announcement, the UAE becomes the newest member of an exclusive club of 31 countries running nuclear power operations. It’s also the first new country to launch a nuclear power plant in three decades, the last being China in 1990. The Barakah plant’s Unit 1 is the first of the country’s planned four reactors, which when complete are expected to meet 25% of the country’s electricity needs with zero carbon emissions. “Today is a truly historic moment for the UAE,” Mohamed Ibrahim Al Hammadi, CEO of Emirates Nuclear Energy Company (ENEC), said in a statement over the weekend. “We are now another step closer to achieving our goal of supplying up to a quarter of our Nation’s electricity needs and powering its future growth with safe, reliable, and emissions-free electricity.” 

Microsoft said on Sunday that it would continue discussions to acquire popular short-video app TikTok from Chinese internet giant ByteDance, and that it was aiming to conclude the negotiations by Sept. 15. The company made the statement following a conversation between its CEO Satya Nadella and U.S. President Donald Trump. It said it would ensure that all private data of TikTok's American users is transferred to and remains in the United States. Microsoft said there was no certainty a deal — which would also see the company own and operate the app in Canada, Australia, and New Zealand — would be reached. "Microsoft fully appreciates the importance of addressing the President's concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury," Microsoft said in a statement. ByteDance and the White House did not immediately respond to requests for comment. The announcement came after Trump had said on Friday that he would soon ban TikTok in the United States.

To get a good look at Google, climb a barren hill in front of the online giant’s Silicon Valley headquarters—or rather, both of them. To the right lies the old hq, a clump of low-slung office buildings ringed by dozens of similar boxes. To the left a brand-new corporate centre is rising. From outside it resembles an oversized circus tent, but the inside is still undetermined: pillars, wooden panelling and hardly any walls. The bare-bones structure is meant to provide architectural flexibility. This will come in handy in a post-pandemic world in which offices will look quite different. “We’ll get a chance to reimagine it,” says Sundar Pichai, the boss of both Google and its parent company, Alphabet. And just as the bricks-and-mortar structure is changing, the organisation is in transition, too. When Mr Pichai took over as chief executive of Google in August 2015, after it became the core of the newly formed Alphabet, the online-search-and-advertising business had annual revenues of $66bn and net income of $14bn. By the time Sergey Brin and Larry Page, Google’s founders, handed him the reins of Google’s parent company last December his division was raking in profits of $34bn on sales of $161bn—and Alphabet was worth almost twice as much as four years earlier.

SoftBank Group Corp. said it plans to buy back as much as 12.3% of its shares for 1 trillion yen ($9.6 billion), adding to a repurchase program that has helped lift its shares this year. The Tokyo-based company said the latest buyback program would run through July 2021. The company has said it plans to sell 4.5 trillion yen in assets to fund repurchases and other activities. SoftBank founder Masayoshi Son turned to asset sales and repurchases after his shares tumbled with the coronavirus pandemic and business missteps earlier this year. The strategy has helped lift his company’s stock more than 150% from its low in March. SoftBank said that due to the uncertainty in market trends, repurchases under the 4.5 trillion yen asset program may not be completed until April 2021 or later. SoftBank Group shares have climbed about 45% this year before today.

Corporate America is finding it hard to kick the share buyback habit, even after the US slipped into its worst recession in decades. Total buybacks are expected to drop this year as the downturn caused by coronavirus saps corporate profits, prompting many US blue-chips to suspend or cut back share repurchases. Yet companies in the S&P 500 that have reported second-quarter earnings so far have reduced the number of their outstanding shares by an average of 0.3 per cent from the previous quarter, according to calculations from Credit Suisse. Updates showed that some of the largest US multinationals continued to buy back their own stock or even accelerated stock repurchases. [...] David Lebovitz, global market strategist for JPMorgan Asset Management, noted that the buybacks were “not happening everywhere”, but were “driven by specific sectors and stocks”. He added that financial and materials companies were potentially more willing to engage in buybacks through the downturn, because their stocks have not advanced as much as companies in other sectors since the lows in March.

There have been many positive stories during the pandemic of people and organisations supporting the cause, from frontline health and key workers to Captain Sir Tom Moore’s fundraising heroics, to firms pivoting their business to producing ventilator machines, alcohol sanitiser and personal protective equipment. Unfortunately, the economic reality of the pandemic is starting to show its ugly face, with businesses starting to fail and people being made redundant at an alarming rate. Sadly, this is only the start of the economic difficulties as the UK’s furlough scheme draws to a close at the end of October. As the school and summer holidays start, many people will take a much-needed break, although spare a thought for those key workers who continue to provide us with core services and those working in certain sectors such as tourism and hospitality where they will be working at breakneck speed to catch up on lost revenue. [...] While there is the temptation to explain professional misconduct as a function of a bad apple or a rogue employee, this is too simplistic an explanation. Our research suggests that professional misconduct could occur to any of us, particularly when there is a toxic combination of the following three factors:
(1) At the individual level, often people make decisions that are too far removed from the people who are affected by their behaviours, leading to them sleepwalking into professional misconduct.
(2) At the organisational level, cultures that are excessively target focused breed perverse behaviours where ethical decisions are subsumed under business transactions.
(3) At the regulatory level, paradoxically while increased regulation aims to reduce malpractice, excessive regulation within tight timeframes can lead to people and organisations increasing their efforts to circumvent rules.

Bank of Montreal has signed a deal with Google to offer digital chequing accounts in the U.S. through Google Pay, the technology giant’s mobile payment app, as banks increasingly cozy up to Silicon Valley to head off the threat of digital disruption. Toronto-based BMO is one of six banks and two credit unions to join an initiative that Google, a subsidiary of Alphabet Inc., launched last November, when it offered accounts with Citigroup Inc. and Stanford Federal Credit Union. The digital chequing accounts, designed to be managed from a smartphone, will rely on BMO’s banking infrastructure and qualify for deposit insurance. BMO has already launched its own digital chequing accounts across the U.S., which helped it boost its U.S. deposits by 9 per cent last year. But the bank is turning to Google, with its massive reach, to improve its rate of growth. [...] The user interface for the accounts will be made by Google, and a BMO news release suggests it intends to offer customers financial insights and budgeting tools through Google Pay. The partnership allows Google to lean on banks’ reputation for stability and reliability and could give the technology giant greater access to a trove of financial data generated by bank customers.

Companies that rank highly on corporate social responsibility measures are more likely to be the target of hedge fund activism, academic research has found. This is because some activist investors view CSR as a sign that a company is wasting money rather than focusing on shareholder returns, according to research conducted by Pennsylvania State University’s Mark DesJardine, Erasmus University’s Emilio Marti and HEC Paris business school’s Rodolphe Durand. That is particularly the case if such hedge funds activists, which tend to target and call for a shake-up at inefficient companies, view a company’s efforts to do good as little more than superficial greenwashing. The research looked at 506 US-based activist campaigns between 2000 and 2016 and found that companies whose CSR ratings were above the industry average had a 5 per cent chance of being subject to hedge fund activism. That compares with a 3 per cent likelihood for the industry average.

State Street Global Advisors, the world’s third-largest asset manager, has lambasted a proposed US rule on the use of environmental, social and governance investing across pension portfolios, arguing it could jeopardise the retirement incomes of millions of people. In June, the Department of Labor set out plans for a rule that would require private pension administrators to prove that they were not sacrificing financial returns by putting money in ESG-focused investments. But the $3tn asset manager said it did not support the change, joining a growing chorus of organisations and investors calling for the DoL to roll back its proposals. “Addressing material ESG issues is good business practice and essential to a company’s long-term financial performance — a matter of value, not values,” wrote SSGA’s Lori Heinel, deputy global chief investment officer, and general counsel Katherine McKinley in a letter to the DoL. “We seek to capture these drivers of long-term shareholder value for our clients.”

There has been a surge in activist interventions at companies around the world, and there has also been a broadening of focus—activism is no longer the sole province of hedge funds and other specialized investors; activism is now not just seeking to unlock value, but also to intervene in governance and performance areas. [...] It is apt to say that the hunger for value creation and accretion has not died down. We have seen that the numbers of campaigns so far in half year 2020 is 89% of all campaigns recorded in 2019 and, as mentioned earlier, this is largely driven by factors such as corporate governance, M&A and strategy. We have seen that majority of the boards within the sample companies have members that will age within the next five years thus will be calling for board refreshment to diversify their age brackets. In terms of expertise brought to the boards we also saw that majority of the boards lack sufficient numbers of directors with technology and governance expertise.

CBC has obtained the full 273-page report prepared by an independent consultant looking into harassment claims by the former head of the English Montreal School Board, Angela Mancini. The report highlights shouting matches, swearing, flinging of papers, and perhaps most bizarrely, allegations of passive-aggressive humming of a song from The Lion King. The report, prepared by independent consultant Steven Droz, reveals the two subjects of Mancini's harassment claims were the vice-chair of the EMSB, Joe Ortona, and the board's director-general, Anne-Marie Matheson. Those two weren't named in a seven-page executive summary of the report CBC obtained last month, in which Droz concluded that Mancini herself was largely to blame. Mancini resigned as board chair earlier this month.

(Reuters) - Eastman Kodak Co (KODK.N) CEO Jim Continenza added $79 million to his net worth on Wednesday when his options in the imaging company turned from worthless to lucrative thanks to a U.S. government loan for a pharmaceutical ingredients supply deal that super-charged the value of his shares. Kodak’s stock increased 1,167% in value in two days, after the administration of President Donald Trump agreed to provide a $765 million loan for the company to produce pharmaceutical ingredients to help fight the coronavirus pandemic. Trump announced the deal at a news conference on Tuesday evening. Continenza’s stock options, granted to him when he became Kodak’s CEO and executive chairman in 2019, had no value on Monday, but were worth $59 million on Wednesday following the rally in the stock, according to an analysis by compensation consultant Farient Advisors. Continenza also owned 650,000 Kodak shares as of June 23, which went up in value on the news by $20 million.