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The independent body will examine issues such as artificial intelligence, stakeholder governance and sustainability, as well as post-pandemic recovery. The UK will this week become home to a new centre studying corporate governance, aimed in part at resolving issues thrown up by the Covid-19 pandemic. Established by the Institute of Directors, though structured as an independent body, the IoD Centre for Corporate Governance will prioritise an examination of the impact of artificial intelligence, stakeholder governance and sustainability on governance. [...] The centre’s creation comes at a time when there is much debate surrounding the future of corporate governance. While any current discussion of governance also involves examination of sustainability, recent debate has centred on the need for corporates to become “purposeful” companies—especially in the wake of Covid-19, which has shone an intense spotlight on the relationship between corporates, government and society. [...] The IoD published its own manifesto for corporate governance reform with a focus on introducing greater accountability and competence for company directors, and building sustainability into heart of business management. The document called for a new code of conduct for directors, a new independent governance commission, minimum training requirement for directors and a more consistent approach to climate-related corporate disclosures.
Under mounting pressure from advertisers, Facebook Inc. said it would start labeling political speech that violates its rules and take other measures to prevent voter suppression and protect minorities from abuse. The new policies were announced Friday shortly after The Wall Street Journal reported that consumer-goods giant Unilever is halting U.S. advertising on Facebook and Twitter Inc. for at least the remainder of the year, citing hate speech and divisive content on the platforms. Unilever’s move marked a significant escalation in advertisers’ efforts to force changes by the tech companies. In a live stream announcing the changes, Facebook Chief Executive Mark Zuckerberg didn’t mention Unilever or the ad boycott, but said he was “optimistic that we can make progress on public health and racial justice while maintaining our democratic traditions around free expression and voting.” Facebook has said it doesn’t make policy decisions in response to revenue pressure, and a spokesman said the changes were a follow-up to Mr. Zuckerberg’s previous commitment to prepare for coming elections. Some of the measures described on Friday were clarifications of clarified existing policies, and civil-rights leaders who have been in discussions with the company on these issues said the moves were insufficient. Facebook shares fell more than 8% on Friday and Twitter shares dropped more than 7%.
Each day board members face an increasingly volatile, uncertain, complex and ambiguous world. To successfully navigate sometimes dramatic economic changes and crises, boards must remain resilient and forward-looking. This white paper, presented by the Swiss Board Institute and Deloitte, provides a set of guiding principles for boards, focusing on the role of the future-oriented board, the chairman and the CEO, and also includes a view on the auditor of the future and auditing’s relevance for the board. In a crisis the chairman, board and the CEO face role-specific challenges. Navigating crises successfully depends on collaboration and clearly defined roles and responsibilities and other key factors. Written by Prof. Gilbert Probst and Prof. Achim Schmitt:
(1) Defining a trusted relationship between the chairman and the board
(2) Keeping the firm’s main purpose in focus
(3) Actively expressing sympathy, empathy, and understanding within the board and to the chairman and CEO
(4) Setting the tone of the organisation’s response, and ensuring management’s actions and communications are effective
(5) Integrating the lessons learned from the crisis to ensure the review of a future contingency plan
Comme le Centre du commerce mondial plus tôt cette année, des propriétés majeures de l’État québécois, telles que la Place Ville-Marie, le Centre Eaton et Place Ste-Foy, pourraient être mises en vente. Une semaine après avoir remercié douze vice-présidents, celle qui dirige Ivanhoé Cambridge, le bras immobilier de la Caisse de dépôt et placement du Québec (CDPQ), ne s’en cache pas : tout est sur la table et aucun actif ne sera épargné pour maintenir la santé financière de son organisation. « On n’a pas de tabous », affirme à ce propos sa présidente, Nathalie Palladitcheff, résolue à tirer le meilleur parti qui soit de chacun des 65 milliards d’actifs immobiliers que détient Ivanhoé, ici et ailleurs sur la planète. Des décisions qui seront prises froidement, insiste-t-elle, après analyse des risques, rendements et potentiels de chaque propriété. Un tel détachement est, selon elle, de la plus haute importance. « Lorsque vous détenez des actifs comme s’il s’agissait d’une collection, c’est à ce moment-là que vous commencez à faire des erreurs de gestion. Vous cessez de prendre des décisions sur une base rationnelle. » Plus que toute autre, la filiale immobilière de la Caisse a été frappée de plein fouet par le tsunami mondial de la COVID-19 et les transformations profondes que cette pandémie imposera à un ensemble de sphères d’activités. [...] « Nous sommes dans un monde où beaucoup de choses ont changé. Il faut avoir le courage de questionner ce qu’on a fait, et sans complaisance », dit-elle. C’est notre responsabilité de nous demander comment nous pourrions nous positionner le mieux possible. Il faut être très, très pragmatique. Et le pragmatisme est pour moi un mot très important. »
Corporate directors have a legal obligation to address the risks and opportunities that climate change poses to the companies on whose board they serve, a corporate governance expert says in a new study. “Directors should recognize that the courts, regulators and investors accept that climate change poses real risks,” veteran lawyer Carol Hansell wrote in a 25-page legal opinion released on June 25. “They expect that management teams and boards are alert to those risks and opportunities, and are reflecting their assessment of that risk in their strategic thinking and risk management practices.” Hansell is one of Canada’s top experts on corporate governance. In addition to her distinguished legal career, she has served on corporate boards, and as fellow with the Institute of Corporate Directors and adviser to the Corporate Laws Committee of the American Bar Association. In her analysis, she states unequivocally that corporate directors have a duty to assess the degree to which climate change will impact a company over the long-term, not just its short-term profits or business plans. They must also ensure that, where risks and opportunities are material to the firm’s business, management must come up with strategies to address them. Hansell prepared the legal opinion for the Canadian Climate Law Initiative, which is housed at University of British Columbia Allard School of Law and York University’s Osgoode Hall Law School. It is the first in-depth legal analysis of directors’ duties in a corporate governance context by a senior Canadian lawyer.
Systemic risks have the potential to destabilize capital markets and lead to serious negative consequences for financial institutions and the broader economy. Under this definition, climate change, like the current COVID-19 crisis, is indisputably a systemic risk. Its wide-ranging physical impacts, combined with expected transitions to a net-zero carbon economy and other socio-economic ripples, are likely to manifest in both cumulative and unexpected ways and present clear systemic risks to U.S. financial markets—and the broader economy. Left unmanaged, these risks could have significant, disruptive consequences on asset valuations, global financial markets and global economic stability. This post, “Addressing Climate as a Systemic Risk: A call to action for U.S. financial regulators,” outlines how and why U.S. financial regulators, who are responsible for protecting the stability and competitiveness of the U.S. economy, need to recognize and act on climate change as a systemic risk. It provides more than 50 recommendations for key financial regulators to adopt, including the Federal Reserve Bank (the Fed), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CTFC), state and federal insurance regulators, the Federal Housing Finance Agency (FHFA), and the Financial Stability Oversight Council (FSOC). Given the ongoing response to the COVID-19 pandemic, the role of financial regulators is more prominent than ever. While financial regulators are taking critical actions to support the U.S. economy in response to this immediate crisis, it is imperative that their efforts do not inadvertently worsen the impacts of climate change.
CEOs of the 50 largest US companies saw their compensation cut from $4.73bn to $2.24bn in 2019, with Covid-19 adding further pressure this year. Chief executives among the top 50 US firms have been shouldering some of the financial pain of the pandemic with large cuts to their pay. A report from governance data provider GC Analytics shows that CEOs of the 50 largest companies saw their aggregate total granted compensation (TGC) reduced by 53% from $4.73bn to $2.24bn in 2019. The study also looked at pay arrangements emerging in the 2020 proxy season, and reveals a tale of decreased pay that reflects not only the impact of Covid-19, but also long campaigns by investors to persuade boards to moderate pay awards. CGAnalytics said: “CEO pay is again in the spotlight of the 2020 AGM proxy season. With the Covid-19 pandemic affecting many aspects of the business, a large portion of companies have proceeded with executive compensation adjustments as a response.” The researchers note that two executives at financial services tech company Fiserv—chair and CEO Jeffrey Yabuki and president and chief operating officer Frank Bisignano—agreed to forgo 100% of their base salary. Walt Disney revealed that its executives would receive temporary salary reductions. The highest paid chief executive is Sundar Pichai of Alphabet, parent company to Google, whose $276.9m total granted pay represents around 13% of the CEO aggregate.
Research reveals many watchdogs and regulators around the world are not considering the role of corporate culture when formulating governance codes. While companies grapple with the impact Covid-19 on business, research reveals that the importance of company culture has mostly been ignored by corporate governance codes around the world. Academics led by Muel Kaptein, a professor at the University of Rotterdam, scored 88 governance codes for their inclusion of corporate culture and found only five reached the highest standard. And of the 88, only those judged to be “advanced” had included employees—perhaps one of the single biggest issues for companies during the Covid-19 crisis—in references to culture. The results shine a light on governance codes overlooking the importance of culture and the role it plays in corporate life. “We found it surprising that most studies on the content of codes still focus on its non-cultural elements,” said Kaptein. “We wondered whether national codes worldwide incorporate corporate culture. “Despite the fact that corporate culture is an important factor for corporate governance, the incorporation of corporate culture in codes of conduct is not very common.” The national codes that scored highest for their inclusion of culture were the UK, New Zealand, The Netherlands, Brazil and Jordan.
Amid the pandemic, many CFOs are struggling to stabilize cash flows. A quick reset of capital spending—which can usually be achieved in about four weeks—can help them reach their goals. The COVID-19 pandemic will have an enormous impact on people’s lives and livelihoods—that much is clear. The path to recovery is far less so, though it is evident that the crisis has significantly impeded many organizations’ ability to execute capital projects, and may continue to do so for some time. The availability of labor and materials has decreased worldwide, while more and more balance sheets and cashflows are becoming capital-distressed. Physical distancing and travel restrictions have made it difficult for sectors and countries to get workers safely into plants and construction sites, and vital supplies into global production networks. Government-enforced public-health measures, for example, have disrupted the operations of fabrication yards and construction sites across Asia and Europe.
The rapid global spread of COVID-19 in the first half of 2020 has had serious repercussions for governments, corporations, and institutional investors. Government responses have largely been fragmented, with each nation prioritizing its own interests and following the science of its own advisers. The result has been a wide range of strategies to contain the virus and protect domestic economies and citizens and subsequently to unwind lockdowns and stimulate post-COVID economies. The coronavirus pandemic has also exposed the fragility of global supply chains and forced corporations to quickly adapt to a rapidly evolving new normal. Institutional investors, meanwhile, have seen large fluctuations in the value of their investments and faced liquidity pressures due to outflows from funds. All these developments have highlighted the importance of institutional investors’ stewardship responsibilities, and the stewardship codes that underlie those responsibilities, in helping corporations navigate and emerge from this health and economic crisis. In a new paper, I and my co-author, Mathias Siems, examine the extent to which, in the absence of a global regulator, the adoption of stewardship codes has prompted “diffusion” of stewardship norms throughout the world. Those codes have ostensibly been modelled on the 2012 version of the UK Stewardship Code (UK Code 2012). Diffusion is a term that is widely used in social sciences and denotes a one-way transfer from one country to another.
As coronavirus-related lockdown restrictions ease across the U.S. and businesses begin to reopen, additional data will become available that will provide a better sense of the true impacts of the virus on companies’ financial condition and performance. In evaluating the data for potential impacts on key accounting and financial reporting areas, public company management and boards should keep in mind the guidance and warnings issued by the SEC, FASB, AICPA, and other regulators, which make clear that the potential accounting and reporting implications of the pandemic for public companies are extensive, affecting areas including disclosures, non-GAAP financial metrics, impairments, revenue recognition, and internal controls over financial reporting. These areas are ripe for future SEC investigations, as SEC Enforcement Co-Director Steven Peikin recently suggested, emphasizing in a keynote address that “pre-existing accounting or disclosure improprieties” are often exposed under the stress of an economic downturn. Throughout the pandemic, the SEC has emphasized the need for registrants to provide transparent disclosures regarding Covid-19’s impact on their ongoing financial and operating conditions. When evaluating how to address disclosure obligations arising from the pandemic, companies and boards should consider the following areas:
(A) Management’s Discussion and Analysis
(B) Risk Factors
(C) Forward-Looking Statements
[...] Dual or multi-class voting structures are not currently permitted for a premium listing or on AIM, and while they may be technically possible on other UK markets (e.g., a standard listing on the main market), they are not typically seen. A key eligibility requirement for the main market is that not less than 25% of the issuer’s shares must be “in public hands” at the time of listing and post-IPO – owners of stakes of greater than 5% and directors, amongst others, will not be considered as in public hands. In addition, for a premium listing the company must be able to demonstrate that it carries on an independent business as its main activity. If the company will have a 30%+ shareholder following the IPO, a premium listed company will need to enter into a relationship agreement, which is required to ensure that the company can operate independently from the shareholder and comply with its ongoing obligations, and to include certain provisions in their constitution regarding the election and re-election of independent directors. While relationship agreements are not required for an IPO on AIM, they are typically entered into.
Companies that orient themselves around a long-term time horizon while also delivering against short-term objectives have been shown to outperform their peers on several key business measures, including revenue, earnings, economic profit, market capitalization and job creation. These companies were hit hard during the last major economic downturn—as were most businesses—but saw a higher-than-average rebound after markets recovered. According to one economic analysis, had short-term-oriented companies behaved more like long-term-oriented ones, the global economy would have created an additional $1.5 trillion in returns on invested capital in the years following the Great Recession. [...] What Is “Long-Termism”? It is how boards and executives think and act in regard to the practice of applying a long-term approach to business and investment decision-making, including focusing on key elements of performance such as competitive advantage, long-term objectives and a strategic plan matched with clear capital allocation priorities. It stands in contrast to short-termism, or a continued focus on quarterly or other near-term performance issues, and is increasingly in demand from stakeholders who want a fundamental rethink around how companies operate and create value. [...] While the benefit of long-termism is clear, the path to getting there is not. By all accounts, and for a variety of reasons, taking a long-term orientation in business can be difficult, especially for executives. But if the board of directors is committed to taking the long-view, there are a number of specific steps to they can take to get there, beginning with asking a key set of three questions:
(A) As a board, are we satisfied with our company’s performance?
(B) Is the company being fully valued in the market?
(C) Is the board playing an appropriate role in creating shareholder value?
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One of the most important developments in Delaware corporate law recently has been the expansion of shareholder rights to company information. Shareholders can now use their general right to inspect a company’s “books and records” (Section 220 of the Delaware General Corporation Law) to obtain internal communications among directors and between them and their third-party advisers, including occasionally private emails or LinkedIn messages. Shareholders can then use the internal documents to show disclosure deficiencies and conflicts of interests, thereby overcoming what once seemed insuperable hurdles to pleading in litigation. Section 220 has thus turned into a powerful shareholder protection tool, with important implications for deal negotiations and oversight duties. My new article, “Corporate Law, Retooled: How Books and Records Revamped Judicial Oversight,” explains how Section 220 rose to prominence and assesses the desirability of a new version of corporate litigation where much of the action occurs pre-filing.
Wirecard’s dramatic fall from grace has thrust corporate governance and industry regulation in Germany firmly in the spotlight. The Munich-based payments processor filed for insolvency on Thursday, reportedly owing creditors 3.5 billion euros ($3.9 billion). [...] The Wirecard saga and its broader implications raises many questions, with some experts describing the scandal as the “Enron of Germany.” Under German corporate law, companies are required to have both a supervisory board and a management board. The supervisory board is responsible for overseeing management. [...] Dehnen is calling for reforms to Germany’s corporate governance rules. Though the German corporate governance code was updated only recently, Dehnen thinks there’s a need for something “new” and “dialogue-driven” that makes companies communicate with all their stakeholders — not just shareholders. “This is modern corporate governance,” he said. “With the rules presently in place, I feel we’re still back in the last century. And for that we need a drastic change.”
The mountain of cash held by private-equity firms is turning out to be a mirage for companies they own that are struggling due to the coronavirus pandemic. The buyout industry has spent years building up its dry powder, or money that investors have committed to private-equity funds that hasn’t yet been spent. That pile was at a record $1.45 trillion globally as of June, excluding venture-capital funds, according to data provider Preqin Ltd. Yet all this dry powder has done little to soften the pandemic’s blow to companies owned by buyout firms. From retailers to restaurants and rental companies, businesses owned by private equity have toppled into bankruptcy since coronavirus lockdowns began in the U.S. in March. Thirty-four U.S. private-equity-backed companies filed for bankruptcy from March 1 through June 14, according to data provider PitchBook Inc., including well-known names such as Hertz Global Holdings Inc., Neiman Marcus Group Inc. and J.Crew Group Inc. The private-equity owners of some bankrupt companies had no shortage of cash to spend. Ares Management Corp., which bought Neiman Marcus in 2013 alongside the Canada Pension Plan Investment Board, was sitting on more than $33 billion of dry powder shortly before the luxury retailer filed for bankruptcy last month. Ares declined to comment, and the CPPIB didn’t respond to a request for comment.
En exprimant son refus complet de négocier l’échange de personnes détenues à l’étranger, le premier ministre Trudeau a mis fin au débat sur l’arrêt des procédures d’extradition de Meng Wanzhou. Ce principe fort honorable ne doit pas nous faire oublier l’importance de l’enjeu économique dans ce dossier. Le Canada veut-il s’attirer les foudres de son principal partenaire commercial, qui achète 71 % de ses exportations pour plus de 400 milliards de dollars ? Des représailles américaines feraient mal à l’économie canadienne, comme l’a montré récemment le dossier de l’aluminium et de l’acier. L’intervention des anciens ministres de la Justice, de parlementaires et de juristes nous rappelle que notre système politique repose sur l’indépendance des pouvoirs, mais que l’élu doit d’abord travailler à la défense de l’intérêt national. Pour le grand politicologue français Raymond Aron, l’unique motivation d’un État dans ses agissements sur la scène internationale est la défense de l’intérêt national. L’univers des relations internationales demeure un domaine anarchique sans réelle autorité supérieure où le droit cède souvent la place à la force. [...] Stopper la procédure d’extradition est une voie que M. Trudeau ne veut pas considérer au nom de l’indépendance du système judiciaire. Mais dans plusieurs cas, la loi donne à l’élu le droit de faire valoir l’intérêt national. C’est ce que M. Trudeau a fait, un peu maladroitement, mais avec raison, dans ses discussions avec Jody Wilson Rebould dans les poursuites contre SNC–Lavalin. Finalement, le gouvernement a eu raison de négocier un règlement plutôt que de s’en remettre au simple jugement d’un fonctionnaire sur la pertinence d’entamer des procédures.
In early 2019, we wrote a paper highlighting that the focus on Environmental, Social & Governance or ‘ESG’ issues in the capital markets had firmly shifted from the margin to the mainstream. This shift was reflected in the scale of capital being invested in ESG oriented investment funds alongside a generally greater societal awareness (and acceptance) of an urgency to step up efforts to address environmental issues and climate change. As we continued to engage with companies and investors during the course of 2019—and we assessed the corporate reputation challenges being encountered by many companies—it became increasingly clear that factors which fall within the ‘S’ of ESG are as common as (and for some companies more so than) those within ‘E’ and ‘G’ in contributing to business risk and, in turn, causing lasting damage to a company’s reputation. Factors which fall within the ‘S’—frequently customer or product quality issues, data security, industrial relations or supply-chain issues—commonly impact businesses and ‘destroy value’. This prompted us to reconsider if ‘social’ was the correct word for the ‘S’ in ESG and whether ‘Stakeholder’ might be more appropriate. Indeed, the use of the term ‘social’ may have contributed to a failure to conceptualise the ‘S’ in ESG, leading to an absence of focus and measurement from the market. [...] In looking at examples of ‘S’ practices among businesses, it was also evident that these practices are a barometer for corporate culture. Where companies have a strong and shared culture across the organisation, ‘S’ practices tend to be strong. Where a culture is poor, or considered ‘toxic’, ‘S’ tends to follow the same pattern.
Voting on shareholder proposals allows investors to exercise their ownership rights by holding the board accountable and steering companies in the right direction. In many markets, an increasing number of proposals focus on the environmental and social aspects of companies’ activities. Emerging academic research indicates that some of these proposals may have positive financial implications for the target company, if adopted. However, the increasing number of proposals can also present challenges for investors. These proposals address many complex and distinctive issues, and filers may pursue objectives beyond the best interests of the company. Faced with this situation, asset managers need efficient solutions that enable them to vote in favour of relevant, value-adding initiatives, and vote against proposals that are misaligned with shareholder value. Shareholder proposals can be instrumental in driving adoption of more responsible business practices at companies. We emphasise the importance of making considered voting decisions and recommend an analytical approach focused on materiality, limited prescriptiveness and consideration of company context. We call on filers to utilise the proposal mechanism to raise material sustainability risks that a company is managing inadequately, and not as a tool for micro-managing company operations or drawing attention to tangential issues. A shareholder proposal, also referred to as a resolution, is a recommendation that a shareholder submits to a public company, requesting a specific course of action. If the proposal is included as an item at the company’s annual general meeting (AGM), shareholders will be able to vote for or against its adoption. The level of support needed for the proposal to be submitted and to pass, and the extent to which implementation is binding, vary across jurisdictions. The past decade has seen a substantial increase in shareholder proposals submitted at company meetings across many markets. Many of these focus on environmental and social (E&S) implications of companies’ activities and call for improved disclosure and accountability on these sustainability-related issues.
While investors are split on the issue of adopting targets, support is growing for taking proactive steps to promote greater board gender diversity. A majority of the world’s institutional investors believe gender diversity on corporate boards is important. But far fewer believe prescriptive targets are the right means for achieving that diversity. That was a key finding of the RBC Global Asset Management Responsible Investment Survey in each of the past two years. More than three-quarters of investors in the US, Canada, Europe and Asia said in 2018 that gender diversity on corporate boards was “important to their organisation”. The question changed in 2019, when we asked: “Should gender diversity targets be adopted?” A slim majority (52%) of the approximately 800 institutional investors surveyed said no to that question. Responses varied by region: 55% of respondents in the US did not favour targets; it was a 50/50 split in Canada; and in Europe 44% of investors surveyed did not support gender diversity targets. While investors are split on the issue of adopting targets, support is growing for taking proactive steps to promote greater board gender diversity. Some European governments have been more aggressive than the US and Canada in mandating gender diversity on boards. Countries including Norway, France, Italy, Germany and Belgium have established legal quotas. In Norway, for example, a law passed in 2007 mandates that at least 40% of directors on publicly listed corporate boards be female. France passed a bill in 2011 that also requires 40% female representation by the end of 2016. [...] In May 2018 Canada passed a new law that will require any company that is a “distributing corporation” under the Canada Business Corporations Act (CBCA) to provide shareholders with information on its policies for diversity on the board and in senior management, including women and minority groups. This applies to the more than 700 distributing or publicly held corporations of the 235,000 companies incorporated under the CBCA.
S’il n’en tenait qu’à certains dirigeants, les investisseurs devraient désormais placer leur actif ou leur épargne à l’aveuglette, sur la base des rendements passés plutôt que sur le potentiel des entreprises. Au début du mois de juin, le président d’Expedia et IAC, Barry Diller, a lancé un appel à toutes les entreprises inscrites en Bourse, afin qu’elles cessent de manière permanente de fournir aux intervenants sur le marché des prévisions concernant leurs résultats financiers à venir. Selon Diller, les entreprises « gaspillent » du temps pour élaborer ces estimations. « Utilisez votre temps pour déterminer où vous devriez investir votre argent, comment vous devriez gérer votre entreprise », leur a-t-il plutôt suggéré. À son avis, fournir des prévisions trimestrielles et annuelles a déjà été utile, mais plus maintenant. Diller aurait dû aussi ajouter à ces questionnements comment attirer de l’argent à investir et à gérer quand une haute direction décide de refuser de rendre des comptes aux acteurs sur le marché du placement, dont les petits investisseurs et actionnaires, et de refuser que sa performance soit comparée aux attentes du marché. Dans une réplique à Diller, le président du cabinet-conseil Ellipsis en relations avec les investisseurs lui rappelle que la valeur des actions des entreprises repose sur les attentes de performance future des entreprises, et que ce sont les entreprises elles-mêmes qui détiennent le plus d’informations au sujet de leur propre futur.
Zero-based design allows even mature companies in asset-heavy industries to cut costs and complexity without compromising safety, quality, or customer trust. Across virtually every industry, startups are gaining ground, if not disrupting the status quo, with new operating models that allow them to design, test, and scale better products and services, faster than ever. This ability has raised customer expectations, putting added pressure on incumbent businesses. Of course, startups have an innate advantage: a clean slate from which to design operations and processes. Incumbents, on the other hand, contend with rigid and ingrained processes and systems, and a well-worn, usually siloed, organizational structure that slows decision making. Other constraints, such as a legacy infrastructure or the lack of the right talent, skills, and capabilities, make change slow and difficult at a time when rapid response is needed more than ever. And in this environment, operational-excellence efforts tend to emphasize the continuous improvement of current-state work, rather than the kind of radical, step-change reimagination that has become a business imperative in the digital era.
Wirecard AG collapsed on Thursday, owing creditors almost US$4-billion after disclosing a gaping hole in its books that its auditor EY said was the result of a sophisticated global fraud. The payments company filed for insolvency at a Munich court saying that, with €1.3-billion ($1.9-billion) of loans due within a week, its survival as a going concern was “not assured.” Wirecard’s implosion came just seven days after EY, its auditor for more than a decade, refused to sign off on the 2019 accounts, forcing out chief executive Markus Braun and leading it to admit that US$2.1-billion of its cash probably didn’t exist. “There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world,” EY said in a statement. EY said while it was completing the 2019 audit, it was provided with false confirmations with regard to escrow accounts and reported them to the relevant authorities. [...] “The money’s gone,” said one banker. “We may recoup a few euros in a couple of years but will write off the loan now.” [...] Wirecard shares, which were suspended ahead of an earlier announcement that it would seek creditor protection, crashed 80 per cent when trading resumed. They have lost 98 per cent since auditor EY questioned its accounts last Thursday. EY, one of the world’s “Big Four” accountancy and consulting firms, faces a wave of litigation in a debacle that has drawn comparisons with Arthur Andersen’s disastrous oversight of U.S. energy company Enron.
The first tenant for one of Frank Woodworth’s underground bunkers wasn’t a human, it was a seed. “A couple of hippies called me up and asked me to build them a vault for their heirloom seeds,” he said. A reserved man with Downeast stoicism, Mr. Woodworth is the owner of Northeast Bunkers, a company in Pittsfield, Maine, that specializes in the design and construction of underground bunkers. It was 18 years ago that Mr. Woodworth outfitted that first steel vault while working as a general contractor, and he has since changed direction, pivoting his business model to focus solely on designing, installing and updating underground shelters. He stresses that these are not “luxury bunkers” for the top 1 percent, and only a small part of the calls are coming from Doomsday preppers or Cold War-era holdovers. Rather, about two-thirds of his business comes from consumers who pay approximately $25,000 for an underground livable dwelling. Since the outbreak of the coronavirus pandemic, Mr. Woodworth said he has been unable to keep up with the demand. Buyers of these kinds of underground dwellings say that they simply want to protect their families from an increasingly turbulent world. For many, the decision to build a bunker was made before the coronavirus pandemic surfaced, but they say that they now feel prepared for the next local or global crisis. [...] n the 1950s and 60s, the threat of nuclear war and Cold War tensions sparked demand in home fallout shelters, with endorsements from both the Eisenhower and Kennedy administrations, a proliferation of pamphlets (and coupons) for such structures scattered across America, as well as a vote in 1961 in Congress for $169 million with a big push to mark, locate and stock fallout shelters in existing public and private buildings. [...] “I’m just a businessman who deals with paranoid people,” he said, “and it seems like the parameters of paranoia are changing every day.”
The Federal Reserve on Thursday said a prolonged economic downturn could saddle the nation’s biggest banks with up to $700 billion in losses on soured loans and ordered them to cap dividends and suspend share buybacks to conserve funds. In a worst-case scenario, where unemployment remains high and the economy doesn’t bounce back for a few quarters, the 33 largest U.S. banks would suffer heavy loan losses that would erode the capital buffers meant to keep them on stable financial footing, the Fed said when it announced the results of its annual stress tests. Designed to gauge the health of the nation’s banking system, the stress tests were expanded this year to study the effect of the downturn brought on by the coronavirus pandemic. The Fed said U.S. banks are strong enough to withstand the crisis and restricted dividend payouts and buybacks to make sure they stay that way. [...] The Fed also barred them from buying back shares in the third quarter. Most of the largest banks had previously agreed to halt buybacks during the second quarter. Buybacks are the main way U.S. banks return capital to shareholders. In a sign of the uncertainty facing the industry, the Fed required banks to resubmit updated capital plans later this year to reflect current stresses.
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