The Corporate Governance Intelligence Council Blog

CEO/Chair Structure & Company Performance

The Corporate Governance Intelligence Council recently partnered with Simpson, Thacher & Bartlett to look at the correlation of CEO/Chair structure and company performance.

There has been commentary on this topic in recent years indicating that companies with a separate CEO and Chair have outperformed peers with combined roles.  Although there may be other motivations and rationale for separating the roles in the eyes of investors, this research proves that performance is not, as we suspected, impacted by this corporate governance structure.  There is, therefore, no compelling economic reason for a public company to adopt any particular CEO/Chair structure.

CEO/Chair Structure and Company Performance

 

Bank of England weighs in on climate risks to UK banks

The conversation around climate change continues to evolve with an increasingly broad pool of investors taking interest in CSR and the role it plays in corporate performance and valuation. In the latest move, the Bank of England, the central bank of the United Kingdom, has outlined what it sees as the risks facing the country’s banking system from climate change. Once considered to be primarily an issue for mining companies, oil & gas producers and heavy industry, climate change is now firmly in focus at banks, insurance companies and other financial institutions.

The BoE’s move is a significant shift from the traditional view of climate risk and corporate social responsibility. Historically the role of regulating environmental and social risk disclosures has fallen firmly in the remit of government but the BoE’s Quarterly Bulletin reflects a change in the market that has seen financial regulators, non-government agencies and major institutional investors taking on a more aggressive stance toward risk assessment and disclosures.

The Bank groups climate-related risk into two broad categories: the more obvious physical risks posed by climate and weather-related events; and the more esoteric risks posed by evolving business practices and market risk to the institutions themselves and their portfolio companies as they move toward a low-carbon operating environment. These risks can be significant but not easily calculable, hence the BoE’s call for more enhanced discussion and disclosure.

In another important step, the BoE gave some support to the December 2016 reporting framework put forward by the Task Force on Climate-related Financial Disclosures. The framework analysis encompasses four broad areas of a public company’s climate-related disclosures, one of which includes the governance of risks and opportunities to the financial and investment operations of the company.

This recent move is just further evidence of the rapidly evolving climate change and CSR reporting landscape and the pressure faced by public companies in effectively analyzing and communicating their activities.

ISS & Glass Lewis Peer Group Updates

The semi-annual ISS and Glass Lewis peer group update processes is open.  This process is designed to allow companies to inform them of any peer group changes that will be disclosed in the next proxy filings. This helps ensure the most up-to-date peer-group information is available for their pay-for-performance assessments.

For ISS, North American companies with annual meetings between September 16, 2017 and January 31, 2018 have until 8pm EDT on July 21, 2017 to submit their updated peer groups.  Please click on this link https://login.isscorporatesolutions.com under the My Company menu item to do so.

Russell 3000 and Canadian TSX companies that file proxies between June 15, 2017 and January 14, 2018 have until July 14, 2017 to submit their updated peer group through Equilar’s peer group portal for Glass Lewis analysis.

This action is purely voluntary, but a worthwhile process in the event of peer group amendments.

Swiss Re in Major ESG Initiative

Swiss Re, one of the biggest insurers in Europe, recently announced that is has begun the process of implementing a massive focus on ESG-conscious investment. The firm’s entire portfolio, worth around US$130 billion, will be moved into ethical indices with both internal and external asset managers instructed to use ESG indices from MSCI.

The insurer expects to have moved its entire portfolio by the end of the year.  Asset managers will have only limited discretion to deviate from the new ethics-based strategy.

Chief Investment Officer Guido Fürer said that the decision was “more than doing good — it makes economic sense.” ESG Indices, he said, offer lower levels of volatility in exchange for only slightly lower returns, creating a net benefit over more traditional indices.

Swiss Re Responsible Investing Initiative

 

 

Latest CGIC Study – Dodd-Frank Act Reform

The CGIC is pleased to announce the release of our latest study among institutional investors.

In March and April, 2017, due to heightened concerns and commentary on the impact on the Dodd-Frank Act and SEC by the new Administration, the CGIC conducted in-depth interviews with 75 of the most influential proxy voters in North America and Europe.

INSTITUTIONAL INVESTORS’ ATTITUDES TOWARD REGULATORY REFORM AND DODD-FRANK ACT DISCLOSURE MANDATES.

Institutional investors in North America and Europe, who vote the proxy, oppose major change in the U.S. governance regulatory framework.

PV5 Cp 1

 

There is, perhaps unsurprisingly, a clear and powerful message emanating from the investor community – they do not support any significant reduction in current disclosure rules. In fact, only 18% support a reduction in the Act’s related disclosure requirements. Of the same group, 54% believe that a watering down of the Act will result in worse governance outcomes at public companies.

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For more information on this report and the work of the Corporate Governance Intelligence Council please contact Dave Bobker.

If you are a Council member, the full report is available in the Governance Gateway.