Corporate Governance

Norway’s Sovereign Wealth Arm Takes Aim at Ocean Sustainability

Norges Bank Inv. Mgmt., Norway’s sovereign wealth fund, has announced its interest in curbing the pollution of oceans through its investment decisions. Addressing an issue near and dear to Norway’s Prime Minister and historical economy, the $676 B fund is alerting portfolio companies, primarily in ocean-based industries (shipping, offshore oil and gas, offshore wind, wild-catch fisheries, aquaculture and marine tourism among others) to follow stricter guidelines on polluting the ocean (acknowledging the UN Convention on the Law of the Sea) and incorporating sustainability efforts into their businesses (cue the UN Sustainable Development Goal #14: Life Below Water). Therein, the asset manager seeks to engage with the boards of relevant companies to usher in integration of strategic policies, goals and enhanced disclosure surrounding ocean sustainability.

Bill Requiring Female Representation Passes through California Assembly

California’s board gender quota bill, SB 826, requiring publicly traded companies to have a minimum of one woman on the board by the end of 2019, was amended in assembly last week. Changes were made on the penalties issued on non-compliant companies: $100,000 fine for those that miss the deadline for California Secretary of State’s board member gender information with the pursuant to future-adopted regulations, and a $300,000 fine for a second or subsequent violation. That board diversity threshold would increase from 2022, to two women for boards with five or fewer directors, or three women for boards of six or more. California’s proposition would become the first regulatory mandate in the US. Abroad, countries in the EU have implemented these board quotas.

Major catalysts of this movement include large US pension funds and institutional investors, like CalPERS/CalSTRS and SSGA (who’ve traditionally advocated for increasing female representation on boards), academic research from MSCI and Credit Suisse showing correlation between greater board gender diversity and financial performance, and the realizations of financial impacts stemming from reputational risks and social forces, such as the #MeToo campaign and recent high-profile gender pay discrimination litigation at Alphabet and Oracle.

In a recent Rivel Corporate Governance Council study, North American and, even more so, European investors opined that exhibiting sufficient board diversity aids board effectiveness and helps shape strategic flexibility.


Trump Proposes Cutting Back Disclosure Rules

President Donald Trump’s proposal explores the idea of replacing public company quarterly reporting requirements with half-year ones.

Business leaders, notably PepsiCo’s chief executive Indra Nooyi, have urged Trump that such a move would lower costs to businesses, increase their flexibility, and combat investor “short-termism” by creating room for companies to elongate their business agenda horizons. Critics point to the case that quarterly disclosures are essential for providing investment information.

Vanguard Publishes 2018 Investment Stewardship Annual Report

Highlighting their active engagement with 721 companies during the past proxy season (down from the 954 engagements in the prior year), Vanguard’s primary focus was placed on companies’ boards composition – specifically director independence, diversity of skills and tenure (discussed in half of conversations with companies). The alignment of executives’ pay with performance and the magnitude of total compensation received a similar amount of consideration. Aside from these two, other emerging topics included  the annual elections for directors (discussed in approximately one-quarter of meetings) and conversations regarding risk oversight and strategy.

Vanguard has identified the significance of certain Environmental and Social matters and how they affect a companies’ long-term financial value. Citing the need for greater transparency, disclosure and dual management and board oversight surrounding these topics, Vanguard increasingly engaged with carbon intensive companies.

The passive investor acknowledges the rise in activism in recent years – and importantly, that certain activists can raise legitimate concerns about a company which can usher in necessary changes. While historically cautious to support an activist, Vanguard has shown a willingness to listen, having supported them in five out of 13 US proxy contests last year.

The full report can be found on Rivel’s Gateway in the Governance Library Reading Room.

ISS Annual Policy Survey

Last week, Institutional Shareholder Services Inc. (ISS) announced the launch of its Annual Policy Survey. The survey aims to solicit responses from investors, companies, corporate directors and other constituents to help shape the proxy voting guidelines for the year ahead. The survey consists of two parts: the “high-level ISS Governance Principles Survey,” and the “ISS Policy Application Survey.” The ISS Governance Principles Survey looks to cover a number of global high-profile governance topics, including board accountability, gender diversity and auditors. ISS also plans on examining the “one-share, one-vote” principle.

The second part of the survey will be a more detailed set of questions, broken down by region. By focusing on questions linked to specific geographic regions, ISS hopes to gain a greater understanding of voting issues on a granular level. After collecting data from these surveys, ISS will consider changes to its voting policies for the 2019 proxy season.

The high-level ISS Governance Principles Survey closes on August 24th, and the ISS Policy Application Survey will remain open until September 21st.