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German airline Lufthansa has said it will cut 22,000 jobs as it struggles to deal with the slump in air travel caused by the coronavirus pandemic.
Can silence solve problems that words cannot? The Securities and Exchange Commission (SEC) hopes so, because this premise underlies the confidential filing provision of the Jumpstart Our Businesses (JOBS) Act. But how firms benefit from confidential filings remains unclear, complicating efforts to assess the efficacy of this provision. In our study, we highlight a potentially unintended benefit of the confidential filing provision by showing that filing confidentially helps shield firms from non-shareholder litigation risk in advance of IPOs.
[...] There’s no accountability for mistakes made under the watch of the CEOs. Last year, former Equifax CEO Richard Smith, received roughly $19.6 million in stock bonuses and a $24 million pension. This was subsequent to the credit agency’s disastrous data breach. Similarly, back in 2014, Target paid ex-CEO Gregg Steinhafel over $30 million in the wake of a major hack of its customers’ data. When the stock options don't work to the benefit of CEOs and executives, the companies change the game. They then change their executives’ pay packages to make up for it. U.S. car dealership, Sonic Automotive, laid off and furloughed a third of its employees due to deteriorating business conditions.The company’s senior executives received new stock options to replace the prior performance-based share awards. Chief executive David Smith’s new awards are worth about $5.16 million. This is greater than four times the value of the performance-based stock awards. Sonic isn't the only company doing this. Reuters reported that an array of other companies have also changed—or plan to improve—their executives’ incentive compensation. It's fair to appropriately award CEOs when they add value to their companies. It's tone-deaf and inappropriate to reward executives who preside over companies that fail and seek bankruptcy protection due to mismanagement or layoff thousands of workers, while receiving lush compensation packages.
[...] In meat plants, transit terminals, post offices and other workplaces, many older workers have continued clocking in despite the heightened risk they face. In some cases, the strong work ethic of an older generation of workers kept them in harm’s way, family members said, while others kept working to pay bills even after federal health authorities warned in early March that older people faced greater risk. [...] Many companies have enhanced their efforts to protect workers since the country began to shut down. At the same time, the risk of exposure could persist as states allow more workplaces to open. Many federal and state reopening plans say older or otherwise vulnerable residents should stay home while others go back to work. [...] Around 80% of Covid-19 deaths in the U.S. are people 65 and older, according to the CDC. Nationwide, that age group represents 7% of the overall workforce, according to the Bureau of Labor Statistics, a share that has been growing steadily as older workers live longer, often with improved health and education, and as pensions have weakened.
[...] Based on the results of our study, we compiled recommendations for boards interested in improving gender, racial, and ethnic diversity to incorporate into their director recruiting process to help them identify demographically diverse directors who also help improve cognitive diversity and board performance. These recommendations include the following:
(A) Recruit demographically diverse director candidates who have strong business backgrounds. More than half of the directors we interviewed raised this point unprompted. As one director we interviewed stated, “A director must have the business background and experience to ask intelligent questions and hold management accountable … Without such experience, it is less likely that a new director will add significant value.”
(B) Focus on identifying demographically diverse director candidates who have experience in areas that are required on the board to meet the company’s current and anticipated needs. Utilize board and director-level assessments to determine what professional backgrounds, skills, and experiences are needed in the boardroom and whether such needs are being adequately met by the board’s current members.
(C) Recruit from new talent pools and venture beyond using board member networks and historical recruitment practices to help identify diverse director candidates who lack ties to incumbent directors and management and can share new views and perspectives and different approaches to problem solving.
(D) Carefully review a candidate’s background and life experiences and have in-depth discussions with the candidate and the candidate’s references to determine whether he or she is cognitively diverse from other members of the board. Ask questions to determine whether the candidate readily shares unique perspectives and new approaches to problem solving.
Involve multiple directors in the interview process and conduct interviews in a variety of settings to get an accurate read of the candidate.
The COVID-19 pandemic has led not only to the tragic loss of life and the long-term effects of disease but also to massive layoffs, furloughs, and civil unrest. [...] For more on flawed CEO compensation, see work by Lucian Bebchuck and Jesse Fried, “managers wield substantial influence over their own pay arrangements.” Ultimately, directors must go beyond merely asking the lawyers what is legal to asking themselves what is right. To restore confidence in the capitalist system, the board of directors of public firms have a key role to play in ensuring that the firm’s strategy embraces the fact that the company and its top management team operate as part of a dynamic system comprising all the stakeholders, including employees, customers, suppliers, communities, governments and regulatory regimes, and the planetary ecosystems. As shareholder primacy guru Michael C. Jensen concedes, “we cannot maximize the long-term value of an organization if we ignore or mistreat any important constituency.”
This unique open access book features a selection of Living Cases on Corporate Governance, which were developed and compiled by chairpersons, members of the board of directors, and CEOs in various countries, working in close collaboration with prominent researchers. Each Living Case addresses a current issue that a given company or institution needs to resolve. For every Case, the goal is formulated by the researcher, in consultation with the client. The participants of internal or external board seminars, or university students, then work in teams to analyze the problem, develop an innovative and feasible solution, and summarize the most important lessons learned.
Environmental, Social and Governance (ESG) Funds have demonstrated competitive financial performance in recent years, and were found by a recent Morningstar survey to be more resilient than their conventional counterparts to the financial impacts of the COVID-19 pandemic. As U.S. investors increasingly take ESG factors, and particularly climate change, into account, they should monitor and, where warranted, incorporate emerging EU guidelines. Adopted by the Council of the EU on April 15, 2020, with specific criteria being developed throughout 2020 and 2021, the “EU Taxonomy” aims to provide a unified classification system for “green” and “sustainable” economic activities under the EU’s sustainable finance regulations. Regardless of regulatory applicability, non-EU funds may face pressure by EU-based or other ESG-minded investors to disclose the percentage of investments that are aligned with the EU Taxonomy and ultimately may face pressure to allocate capital towards such investment activities. Accordingly, funds that are already invested in EU Taxonomy-aligned activities may want to consider adopting the framework quickly to benefit from the “first mover advantage.” Finally, funds in jurisdictions without clear guidelines may benefit from utilizing EU Taxonomy terminology to provide some clarity to investment professionals and protection against “greenwashing” claims.
My forthcoming article, “The Conundrum of Common Ownership,” examines the phenomenon of common ownership through a corporate governance lens. The common ownership debate has become one of the most contentious in corporate law. It is a by-product of major changes to capital-market ownership structure, which have triggered concerns about the rise of institutional investors, the growth of index investing, and the rapid concentration of ownership in major international financial markets. Common ownership theory focuses on concerns about the incentives of large financial institutions holding widely diversified portfolios of shares in competing companies within a particular economic sector. A number of scholars (“anti-common ownership scholars”) have argued that, even where institutional investors own relatively small ownership stakes, their collective holdings in competing companies produce anticompetitive effects. The basis for this claim is that, in such circumstances, the institutions are interested in the financial performance of their portfolios as a whole rather than the performance of individual companies in that sector.
New survey results show that most U.S. public company boards have stepped up their efforts in the initial phase of the COVID-19 pandemic, but shutting down businesses may have been the easy part. Boards face a growing list of urgent priorities in reopening their businesses; fixing vulnerabilities in crisis management and executive succession planning; and addressing the sharp divide in corporate America over the pandemic’s impact on corporate sustainability efforts. Smaller companies face the greatest challenges of all. [...] After ramping up their efforts in the “shutdown” phase, boards now need to expand and shift priorities.
59% of companies held special board meetings, 53% communicated with their board at least weekly, and 81% designated a director to serve as the key liaison with management, on COVID-19. The issues identified most frequently as the top three for the board’s attention at companies of all sizes and across industries were: liquidity, employees, and operations.
The issues mentioned least frequently among the top three: customers, cybersecurity, and corporate social responsibility.
GameStop Corp. shareholders vote this week to resolve a fight over the embattled videogame retailer’s board. But the company’s largest investors won’t cast much of a vote. The three biggest money managers in GameStop reported that their funds held some 40% of shares in the first quarter. When it was time to commit to voting, they controlled roughly 5% of ballots, according to count estimates reviewed by The Wall Street Journal. Each share of GameStop normally grants an investor one vote. The main reason for the disparity is that BlackRock Inc., Vanguard Group and Fidelity Investments chose to loan out substantial GameStop shares for the rich stream of fees their investors stood to gain, according to people with knowledge of the matter. Firms from Dimensional Fund Advisors to State Street Global Advisors made similar choices to give up their full voting power. These managers loan shares through brokers and intermediaries who act for clients unknown to the original lenders. Short sellers often borrow those shares to bet against companies, paying fees to funds that supply them with those shares. Those fees get passed back to fund investors. The catch is that if fund managers don’t recall the shares in time for votes, they can’t cast shareholder ballots.
Bombardier Inc. is facing the boot from Canada’s main index as it slides toward irrelevance for equity investors. The manufacturer’s share price has been below $1 since early March, potentially making it ineligible to stay in the S&P/TSX Composite Index and in turn the S&P/TSX 60 Index of large companies. To be included in the composite, a company must have a minimum volume-weighted average price of $1 over the previous three months, as well as over the last 10 trading days of the month prior to the index provider’s quarterly review, according to S&P Dow Jones index methodology. For Bombardier, that average price is now sitting at about 53 Canadian cents for the three months leading up to June. A departure from the index could hurt demand for Bombardier’s shares as exchange-traded funds drop the stock. Other managers must also decide whether to keep the shares. “A portfolio manager must determine how closely they want to track the index and make a call on number of shares,” said Bloomberg Intelligence analyst George Ferguson. Bombardier is aware of the guidelines for index inclusion but it won’t speculate on whether it will be removed in the upcoming review, Jessica McDonald, a company representative said.
SHANGHAI/HONGKONG - Chinese companies are putting off plans for U.S. listings as tensions between the world’s top two economies rise, lawyers, bankers, accountants and regulators involved in what has been a major capital-raising route told Reuters. The drop in interest, especially from those in the early stages of planning, is the result of a proposed U.S. legislation that would make it harder for some Chinese firms to debut in America and mounting scrutiny following an accounting scandal at Chinese Starbucks rival Luckin Coffee (LK.O). “We have seen clients putting their U.S. IPO plans on hold for now,” said Stephen Chan, a partner at law firm Dechert LLP in Hong Kong. “The underlying reason for the slowdown is the relationship between the U.S. and China,” he added. [...] Chinese firms accounted for about a third, or some $279 billion, of funds raised globally via IPOs in the past five years. About half of that was overseas, mostly through New York and Hong Kong floats. There are more than 550 Chinese firms listed on U.S. stock exchanges. Chinese firms often choose New York for floats given its prestige and international investor base, even as Beijing seeks to encourage them to list at home to share gains among local investors and limit foreign oversight. Chinese authorities have long resisted audit papers leaving China, making it hard for U.S. auditing regulators to check the quality of audits of Chinese companies.
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Unilever is to abandon its dual Anglo-Dutch corporate structure in favour of a single company based in London, reversing attempts two years ago to combine its businesses in the Netherlands.
It’s been an unprecedented year for everyone, compensation committees included. At the onset of COVID-19, the popular advice for adjusting annual bonus pay was to “wait and see.” Now several weeks in, some companies have begun restructuring bonuses. What actions are they taking?
Twitter is trying to stop people from sharing articles they have not read, in an experiment the company hopes will “promote informed discussion” on social media. In the test, pushed to some users on Android devices, the company is introducing a prompt asking people if they really want to retweet a link that they have not tapped on. “Sharing an article can spark conversation, so you may want to read it before you tweet it,” Twitter said in a statement. “To help promote informed discussion, we’re testing a new prompt on Android – when you retweet an article that you haven’t opened on Twitter, we may ask if you’d like to open it first.” The problem of users sharing links without reading them is not new. A 2016 study from computer scientists at Columbia University and Microsoft found that 59% of links posted on Twitter are never clicked. Less academically sound, but more telling, was another article posted that same year with the headline “Study: 70% of Facebook users only read the headline of science stories before commenting” – the fake news website the Science Post has racked up a healthy 127,000 shares for the article which is almost entirely lorem ipsum filler text.
Longtime hedge fund manager Paul Tudor Jones on Wednesday critiqued the long-held belief that companies should exist for the sole purpose of generating profits. Jones, whose remarks came during a JUST Capital event with CNBC’s Andrew Ross Sorkin, said it’s that philosophy that allows corporate boards to neglect issues of equity in the workplace and ultimately undermine the stability of broader U.S. society. “When you just look and say that the only thing that a company has to worry about is making a profit, it gives that company a pass not to pay attention to pay equity, not to pay attention to gender equity, not to pay attention to racial equality. Not to pay attention to a whole host of social factors that at the end of the day are the basis and the foundation of a strong, vibrant society,” Jones said. [...] At the event, Jones challenged the teachings of Milton Friedman, the U.S. economist who famously argued in 1970 that companies exist solely to maximize profits. The fund manager blasted that view as “very narrow, myopic and transactional” and blamed that idea for helping to undermine the social and civil rights changes sought throughout the 1960s.
We use individual-level data to shed light on the evolution of founder-CEO compensation in venture capital-backed startups. We document that having a tangible, marketable product is a fundamental milestone in CEOs’ compensation contracts,
marking the point at which liquid cash compensation begins to increase significantly – well before a liquidity event. [...] Although substantial increases in cash compensation for founder-CEOs in response to milestones improves the certainty equivalent of attempting entrepreneurship relative to flat pay, low cash
compensation in the very early years can still deter ntrepreneurship for potential entrants. We characterize the types of individuals most likely to be impacted by this constraint and hence those whose ideas are unlikely to be commercialized through VC-backed entrepreneurship.
[...] Dual-class structures are possible as a matter of English company law. For example, Cooley acted for Endava plc, an English public company, on its IPO on the New York Stock Exchange in 2018, which involved putting in place a dual-class structure. However, in the UK, a company with a dual-class structure would not be eligible for a listing on the premium segment of the Financial Conduct Authority's (FCA) Official List as that requires a "one-share one-vote" capital structure. A company with a dual-class structure could only seek a listing on the standard segment of the Official List. This is significantly less attractive to investors and does not allow for entry into the main FTSE indices (i.e., the FTSE 100 and the FTSE 250). The capital markets are increasingly global and UK companies have a choice of listing on a number of stock exchanges, including in particular the London Stock Exchange, New York Stock Exchange, Nasdaq Stock Market and the Hong Kong Stock Exchange. Dual-class structures are permitted and relatively common in the United States, especially for technology companies. High-profile examples include Facebook, Google, LinkedIn, Zynga and Snap.
Billionaire investor William Ackman’s hedge fund Pershing Square Capital Management has filed confidentially with U.S. regulators for an initial public offering (IPO) of a blank-check investment vehicle that could raise more than $1 billion and be the biggest of its kind, according to people familiar with the matter. Ackman, whose New York-based hedge fund has more than $10 billion in assets under management, is working with investment banks Jefferies, UBS Group and Citigroup on the IPO, referred to on Wall Street as a special purpose acquisition company (SPAC), the sources said. The sources requested anonymity because the IPO is still confidential. Pershing Square, UBS and Citi declined to comment. Jefferies did not immediately respond to requests for comment. Ackman’s new vehicle could eclipse dealmaker and former Citigroup executive Michael Klein’s Churchill Capital as the largest U.S. SPAC IPO ever. Churchill III raised $1.1 billion earlier this year. An SPAC uses proceeds from its IPO, together with borrowed funds, to acquire a company, typically within two years. Investors in the IPO do not know in advance which company a SPAC will buy, although many outline in advance the sectors they want to be active in. It is not clear which sector Ackman’s SPAC is will target.
Tested by the pandemic, many of the world’s leading institutional investors are demonstrating resilience and agility. The humanitarian, social, and fiscal challenges wrought by COVID-19—and those still to come—are historically severe. The economic harm to businesses and investors mounts daily. And it is difficult, within the eye of the storm, to ascertain the full extent of the damage. Yet an early perspective from leading institutional investors (IIs) suggests that as destructive as the pandemic has been to their portfolios, it could have been a lot worse. After a decade-long bull run across asset classes, many investors already considered a “correction of some sort” as inevitable and had positioned their portfolios defensively. The result is that, by and large, many pension funds, sovereign-wealth funds, endowments, and other IIs have found themselves better off than they were in the 2008–09 global financial crisis. Across the industry, there is less of a sense of panic, greater investment discipline, and more continuity than there was in 2008. We spoke with CEOs, CIOs, and other senior executives at 21 of the world’s leading investment institutions, including some of the most influential pension funds, sovereign-wealth funds, and endowments. These institutions, which manage $3.7 trillion in assets across Asia, Europe, the Middle East, and North America, include some of the world’s more sophisticated public investment funds. We asked them for their reflections on the pandemic, how their crisis playbooks are holding up, and what this discontinuity may mean for long-term strategy.
One of the most serious corruption cases ever investigated in Israel is “Case 3000,” also known as “The Submarines Scandal.” It concerned suspicions that senior Israeli officers and public servants received bribes for over a decade in order to “fix” tenders related to the purchase of submarines and corvette ships from the German conglomerate ThyssenKrupp. As is common practice, ThyssenKrupp sought to conduct an internal investigation into the suspicions, with the goal of cooperating with Israeli investigative authorities. To ThyssenKrupp’s surprise, its attempt at cooperation with the Israeli authorities received a cold shoulder. In an interview with the press, ThyssenKrupp’s spokesman, Tim Proll-Gerwe, noted that “We offered them full cooperation through Israeli lawyers – documents and conversations – but no one came to meet with us or ask for documents.”[*] ThyssenKrupp was also warned that if as part of its internal investigation it contacted any of its Israeli representatives involved in the affair, it would be suspected of obstruction of justice. As a result, the internal investigation conducted by ThyssenKrupp was very limited in scope.
[...] Companies face a major challenge in trying to predict how individual investors will vote on proxy proposals and other issues on the ballot. Retail shareholders are less likely to vote in corporate elections, a fact that numerous market participants have acknowledged for many years. Companies are often reluctant to devote the time and expense needed to reach out to individuals with relatively small positions, when it is far more efficient to focus on securing the votes of large institutional holders. Here’s the problem with that approach: If a company fails to engage with its new retail ownership base, it may be exposed to various risks, especially as these shareholders make up a larger percentage of their ownership. In the extreme case, the company may be unable to achieve a quorum for its annual meeting, leading to a costly and time-consuming adjournment. Also problematic, if management cannot motivate individual investors to overcome their traditional apathy toward proxy voting, their institutional holders – who do vote – could have a greater proportionate influence on the outcome of proxy proposals. This influence could lead to the approval of proposals by activist or dissident shareholders, or result in the failure of compensation plans that individual investors might have viewed more kindly.
Unethical pro-organisational behaviour (UPB) is an ongoing concern, prompting the need for more nuanced understanding of the workplace environment most likely to inhibit it. This study considers the role of risk climate, sometimes referred to as risk culture, as well as ethical climate, for reducing UPB. The study investigates whether four risk climate factors (avoidance, valued, proactive and manager) can, by focusing on the long-term consequences of UPB to the organisation, and providing guidance on behavioural norms, reduce UPB misconduct. Surveying employees in three financial institutions we found that only one of the risk climate factors, avoidance, is consistently associated with UPB. On the other hand, a self-interested, (un)ethical climate significantly increases UPB in all samples. In multi-climate analysis, we found that risk climate factors interacted with ethical climate to predict UPB. That is, when employees perceive that the workplace ethos is not self-interested, three factors of risk climate—avoidance, proactive and manager—significantly predict UPB. UPB is least likely when self-interest is low, avoidance risk climate is low, proactive risk climate is high and manager risk climate is high. Implications for leaders are discussed.
When the Defense Department launched Project Maven, an effort to remake American military technology through artificial intelligence, it leaned on a team of about a dozen engineers working at Google. Many of them, according to two people familiar with the arrangement, were Chinese citizens. The Pentagon was fine with that, they said, even amid rising tensions between Washington and Beijing. Classified data was not involved, the Pentagon reasoned, and the American military needed the most qualified minds for the job. The Trump administration is now moving to limit Chinese access to advanced American research, as relations between the United States and China reach their worst point in decades. That worries many of the companies and scientists in the heady realm of cutting-edge A.I., because much of the groundbreaking work coming out of the United States has been powered by Chinese brains. A new study from MacroPolo — a think tank run by the Paulson Institute, which promotes constructive ties between the United States and China — estimated that Chinese-educated researchers comprised nearly one-third of the authors of the papers accepted and promoted at a prestigious A.I. conference last year, more than from any other country. But it also found that most of them lived in the United States and worked for American companies and universities.
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