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It has often been said that crisis reveals character, a truism for organizations as well as individuals. Crises compel organizations to rethink how they work, and often become the source of lasting change and growth. [...] Few would argue that the COVID-19 pandemic is more devastating than these events. It is a humanitarian crisis of the likes we have not experienced in recent times. The work organizations face to safeguard their employees’ lives and livelihoods is formidable. As companies work to regain their footing from the vast human and economic toll, artificial intelligence (AI) is poised to play a pivotal role. The pressure for organizations to adopt AI was already mounting before the crisis as the technology delivered returns to early adopters. The COVID-19 crisis has only elevated the technology’s prominence, with many companies using AI to quickly triage the vast challenges they face and set a new course for their employees, customers, and investors in an uncertain, rapidly evolving landscape.
When Kelly Loeffler accepted an appointment to be a United States senator from Georgia, she left behind a high-paying job as a senior executive at the parent company of the New York Stock Exchange. But on her way to Washington, her old employer gave her a lucrative parting gift. [...] Corporate governance experts generally frown upon companies handing such parting gifts to senior executives because they do not serve a clear business purpose and, in cases where the executive is taking a government job, they risk creating the appearance that the company is trying to curry political favor. [...] “From a corporate governance perspective, large payments to executives are appropriate only if they serve an adequate corporate purpose,” said Lucian A. Bebchuk, the director of the Program on Corporate Governance at Harvard Law School. He added that shareholders in Intercontinental Exchange “should not view this arrangement to have been on the up-and-up.”
NEW YORK — Apple Inc. on Monday capitalized on the Federal Reserve’s emergency measures in response to the coronavirus outbreak to issue its cheapest bonds in years, making it the latest blue-chip company to do so to fund stock buybacks and dividends. Apple’s offering illustrates how companies with the best credit ratings are boosting shareholder returns by tapping cheap debt made available through the Fed’s backstopping of the credit markets. Apple shares are virtually flat year-to-date, compared with a 12 per cent drop in the S&P 500 Index.
COVID-19 has caused a dramatic shortage in the supply of face masks*, which is mainly explained by a surge in demand. Since no country can meet the increase in the demand for masksalone, trade is essential. Export bans are harmful for countries without production capacity, but can also backfire on the country imposing them when they need to import inputs, additional masks or other essential goods. Tariffs or export licenses can delay trade, in addition to increasing prices. The smooth operation of transportation infrastructure and logistics, especially air cargo, is critical to support the face masks value chain during the crisis. More attention should also be given to the supply of key inputs.
As significant economic sectors grind to a halt around the world due to coronavirus-related lockdowns and travel restrictions, many portfolio companies will face liquidity crunches, raising concerns for private equity fund managers and their investors. Uncertainty around the duration and extent of coronavirus-related business interruptions presents a further challenge for sponsors trying to manage financing needs across their portfolio. In this hazardous environment, many sponsors are considering how to preserve financial flexibility for present and future needs, including:
amending limitations on follow-on investments in the fund’s governing documents;
amending recycling provisions in the fund’s governing documents to permit additional re-investment;
entering into or expanding NAV facilities;
conducting strip sales of portfolio companies to secondary buyers (which can be done synthetically) and reinvesting proceeds into the portfolio; and
issuing a preferred equity interest in the fund’s portfolio (or some of it) to secondary buyers and reinvesting proceeds into the portfolio and/or distributing the proceeds to investors.
Kevin Lynch, the former top federal bureaucrat who lobbied the government on behalf of SNC-Lavalin Group Inc., is stepping down as the company’s chairman and will leave its board later this year. Mr. Lynch, who joined the board in 2017, had been slated to continue in the chairman’s role and is standing for re-election at the company’s annual meeting on Thursday. The firm’s circular to shareholders, published March 16, made no mention of his potential departure. Now, he says, he will step down from the chairman’s role and from the board once a successor is named, which he says he hopes will be done by September. Mr. Lynch said the company has completed its first stage of “renewal,” with a new chief executive and four new board members, along with the settlement of legal charges against the firm in December.
With the reopening of the economy, the pandemic “blame game” has begun. If fingers begin pointing at corporate directors, the famous risk observations of Donald Rumsfeld may offer a valuable resource. News headlines suggest ominous signs of a wave of litigation aimed at holding companies—and their boards—accountable for COVID-19 inflicted breakdowns and failures. You missed it! You weren’t prepared! All types of companies (and their boards) are potential corporate targets, whether they are for-profit or nonprofit, public companies or small businesses. Exercising oversight of enterprise risk management goes to the heart of a director’s fiduciary obligations. It’s an obligation which the National Association of Corporate Directors (NACD) has long emphasized, and one that will become especially important in a post-pandemic world when questions of preparedness will be prominently raised.
Why did Berkshire Hathaway sell its airline holdings entirely?
WB: We were not disappointed at all with the way the managements ran the businesses at American Airlines, Delta Airlines, Southwest Airlines, and United Continental. We like them but the world has changed for the airlines. I may be wrong and I hope I am wrong, but I think it has changed in a very major way, and the four companies are each going to borrow perhaps an average of at least $10 billion-12 billion each. [...] Berkshire’s cash position has not gone down, why are you not comfortable buying now? WB: When I look at worst case possibilities, I would say that there are things that I think are quite improbable and I hope they don’t happen, but that doesn’t mean they won’t happen. I mean, for example, in our insurance business, we could have the country’s number one hurricane that it’s ever had, but that doesn’t preclude the fact that could have the biggest earthquake a month later.
Adam Neumann just declared war on SoftBank. The WeWork cofounder and former CEO filed suit against the conglomerate founded by Masayoshi Son, once his most powerful cheerleader, in the Delaware Court of Chancery on Monday night. The move adds Neumann to a legal scrum that began when a special board committee filed a similar lawsuit on behalf of The We Company last month. Neumann’s suit includes a motion to consolidate the two. The complaint is the first public glimpse of Neumann’s intentions since he was pushed out as CEO in September after the company’s failed public offering. The suit, unthinkable just six months ago, is the latest twist in an unraveling drama that has engulfed the company.
A study in Sweden looked at the health records of 25,000 CEOs to explore the role of mental and physical well-being on tenure, governance and policies. Mental health is frequently in the news, mostly in the context of efforts to help those who find themselves suffering. In corporates, however, researchers have found that some effort is also expended on disposing of chief executives who may find themselves with mental health issues. [...] The researchers, based at institutions in Sweden, Norway and Finland, concluded that even if poor health goes undetected at the time a new chief executive is hired, if they become unwell while in post they confront a bigger risk of parting company with the orgnisations they run. “Albeit boards seem to screen the potential CEO candidates well, some CEOs will inevitably develop health problems during their tenure at a firm,” wrote the researchers. “Other things being equal, we would expect boards to be more inclined to dispose of CEOs who are mentally or physically less fit to run the firm.
Demand is volatile right now, creating a variety of pricing challenges. Companies that focus on long-term value rather than short-term gain are best positioned to meet them. [...] The crisis is also exerting sudden and unprecedented pressures—sometimes up, but more often down—on demand and pricing. In many sectors, from air travel to durable goods, sharp drops in demand, excess capacity, and heightened price sensitivity are converging to drive down prices and destroy value. Many customers are asking for discounts and contract renegotiations, while some competitors are making aggressive pricing decisions. In other sectors, from shipping and groceries to medical supplies, demand has risen to levels no one could have anticipated in early 2020, putting upward pressure on prices.
BRUSSELS — Australia has called for an inquiry into the origin of the virus. Germany and Britain are hesitating anew about inviting in the Chinese tech giant Huawei. President Trump has blamed China for the contagion and is seeking to punish it. Some governments want to sue Beijing for damages and reparations. Across the globe a backlash is building against China for its initial mishandling of the crisis that helped loose the coronavirus on the world, creating a deeply polarizing battle of narratives and setting back China’s ambition to fill the leadership vacuum left by the United States. China, never receptive to outside criticism and wary of damage to its domestic control and long economic reach, has responded aggressively, combining medical aid to other countries with harsh nationalist rhetoric, and mixing demands for gratitude with economic threats.
Companies making use of the Canada Emergency Wage Subsidy program should be weighing not only the long-term viability of their business and wellbeing of their employees, but also the impact on their reputations and stakeholder trust if they choose to not top up staff wages, according to corporate governance experts. The federal program covers up to 75 per cent of employee wages for eligible companies of all sizes. However, topping up the remaining 25 per cent of the wage is not a requirement and the Ministry of Finance merely stipulates it’s an “expectation” employers make their best effort to bring employees’ pay to 100 per cent of pre-crisis levels. “If you want to retain the trust of your employee base, which is absolutely critical; if you want to retain trust and reputation with your customers and your shareholders, it’s important to think about the long-term implications of not topping it up,” said Rahul Bhardwaj, chief executive officer of the Institute of Corporate Directors, in a phone interview.
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[...] We do not foresee this trend changing in the future. This is why we called the “corporate governance team” or “stewardship team” within a large institutional investor a “lip-service” organization. Index funds charge extremely low fees because they do not research individual companies. But the imposition of compulsory voting made it necessary for them to show that they were fulfilling this unwanted obligation. These “teams,” limited in staffing but responsible for the huge number of companies in their portfolios, can fulfill their obligations only by applying general metrics. Nor are the capabilities of proxy-advisory firms such as Institutional Shareholder Service (ISS) very different from those of corporate governance teams. And de facto delegation of proxy voting to ISS by many institutional investors ended up giving illegitimate power to proxy-advisory firms in corporate boardrooms.
Since the coronavirus pandemic began, Caterpillar has suspended operations at two plants and a foundry, Levi Strauss has closed stores and toolmaker Stanley Black & Decker is planning layoffs and furloughs. Steelcase, the office furniture manufacturer, and World Wrestling Entertainment have shed employees. While thousands of their workers are filing for unemployment benefits, companies are rewarding their shareholders with millions of dollars in cash dividends. [...] William Lazonick, emeritus economics professor at University of Massachusetts at Lowell, has been one of the leading critics of companies that distribute cash to shareholders through stock buybacks and dividends rather than reinvesting the profits into employees, innovation and production. For companies continuing to issue buybacks and dividends during the crisis, he said, it is business as usual.
Bank of Montreal anticipates that as much as 80 per cent of its staff — or about 36,000 employees — may adopt new flexible arrangements that blend working from home with going into the office even after the COVID-19 pandemic subsides. The virus prompted the bank to make a sweeping reappraisal of workplace policies, according to Mona Malone, chief human resources officer. She said the lender expects that 30 per cent to 80 per cent of employees may continue to work from home at least some of the time. The Toronto-based bank employed about 45,000 people as of Jan. 31. [...] “We thought it was critical that we were in the office to make something happen, and what we’ve proven through this is that’s actually not the case.”
As governments in Europe announce plans to end the lockdown, a new phase in the COVID-19 pandemic is upon us. It is a time for hope but also for caution. The end of the lockdown will not spell a return to the old “normal”, nor will it be universal. The opening will take different shapes, with different countries, different regions, and different business sectors opening up in different ways and at differing speeds. The virus still lurks and the ability to contain its spread will dictate what happens next; any resurgence will likely bring about renewed restrictions. Large-scale testing and tracing, the broad availability of masks, and sufficient intensive-care capacity in hospitals will determine the pace of recovery.
Over the last 3 decades, the FAMGA tech giants — Facebook, Amazon, Microsoft, Google, and Apple — have collectively made 770 acquisitions. Even amid the Covid-19 pandemic, some have continued to write checks, with Apple being the most active acquirer in 2020 to date among them. This cohort of acquirers has deep pockets. Some of their biggest checks have been written for high-profile companies such as career platform LinkedIn (acquired by Microsoft for $26.2B), chat app WhatsApp (Facebook, $22B), and video-sharing platform YouTube (Google, $1.7B). However, not all of these acquisitions have been unqualified successes. Microsoft ultimately wrote off its $7.2B Nokia deal, while Google paid $12.5B for Motorola Mobility (its largest acquisition to date) — only to sell the unit off for a quarter of its acquisition price 2 years later. Using CB Insights M&A data, we made a visual timeline showing every $1B+ acquisition made by a FAMGA company.
Shareholder meetings by public companies are fraught by problems the Council of Institutional Investors (CII) is contending. A major problem is often not enough of those who would like to view and participate them can, the nation’s largest pension fund trade group says in a letter to the Securities and Exchange Commission Investor Advisory Committee released today. “Public company shareholder meetings are public events and involve public disclosure, and prospective shareholders and other market participants should be able to listen…We do not see good reason to limit the ability to hear (or view) virtual meetings live to public company shareholders exclusively,” CII asserts.
Jim Rogers shares the frustrations of millions of people under lockdown. The veteran investor, who spent three years with his wife on a world road trip across 116 countries in a customized Mercedes-Benz, feels particularly aggrieved by travel restrictions. “I hate it,” the 77-year old says with gusto from his Singapore home. “There are many places I want to go to for personal and professional reasons but airports are closed.” After making his fortune at the highly successful Quantum hedge fund, which he co-founded with George Soros, Rogers first “retired” at the age of 37 in 1980 to “seek adventure.” That led to his first round-the-world trip on a BMW motorbike, a journey that inspired his first book Investment Biker, which prompted Time magazine to describe him as the Indiana Jones of finance.
SAN FRANCISCO — The modern corporate office is renowned for open, collaborative work spaces, in-house coffee bars and standing desks with room for two giant computer monitors. Soon, there may be a new must-have perk: the sneeze guard. This plexiglass barrier that can be mounted on a desk is one of many ideas being mulled by employers as they contemplate a return to the workplace after coronavirus lockdowns. Their post-pandemic makeovers may include hand sanitizers built into desks that are positioned at 90-degree angles or that are enclosed by translucent plastic partitions; air filters that push air down and not up; outdoor gathering space to allow collaboration without viral transmission; and windows that actually open, for freer air flow.
Many directors are struggling with decision-making when the data changes daily. Boards should take a “roughly right” approach to keep moving forwards. Even before Covid-19 we were living in a period of high uncertainty and volatility. Every sector of our economy was, arguably, being disrupted by technological change and/or by cross-border competition. Political uncertainty was already evident in the US, not to mention Brexit closer to home. [...] However, not all boards are yet comfortable with pivoting strategies and/or have the nimble approval process needed to cope with the pace of current change. [...] So, what do you do if your board of directors is struggling to cope with making decisions when the data changes daily?
These are exceptional times, and policymakers are taking exceptional measures in public health, public finance, monetary policy, and public law. Among the latter, of great relevance to corporate governance are the rules broadening governments’ powers to authorize large share block purchases (e.g., in Germany and Italy). Even stronger proposals are being aired, and in some cases adopted, to inject public funds into companies in exchange for equity (Germany), if not to nationalize businesses altogether (France). But some incursions into private law have also been made.
The plan to sell Victoria’s Secret to a private equity firm was mutually terminated on Monday after the buyer, Sycamore Partners, tried to back out of the deal because it said it did not agree with steps the lingerie brand took in response to the coronavirus pandemic. L Brands, which also owns Bath & Body Works, had agreed in February to sell a majority of Victoria’s Secret to Sycamore Partners for about $525 million. [....] In a statement on Monday, Sarah Nash, a director at L Brands and the company’s incoming chairwoman, cited the “extremely challenging business environment” for retailers as part of its decision to put an end to the deal.
[...] The government is engaged in an unprecedented effort to save such companies as pandemic-related shutdowns stretch into the spring. But Washington’s policies are too complicated, too small, and too slow for many firms: Across the United States, millions of small businesses are struggling, and millions are failing. The great small-business die-off is here, and it will change the landscape of American commerce, auguring slower growth and less innovation in the future. Small businesses went into this recession more fragile than their larger cousins: Before the crisis hit, half of them had less than two weeks’ worth of cash on hand, making it impossible to cover rent, insurance, utilities, and payroll through any kind of sustained downturn. And the coronavirus downturn has indeed been shocking and sustained: Data from credit-card processors suggest that roughly 30 percent of small businesses have shut down during the pandemic. Transaction volumes, a decent-enough proxy for sales, show even bigger dips: Travel agencies are down 98 percent, photography studios 88 percent, day-care centers 75 percent, and advertising agencies 60 percent.
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