The week in GRC: ISS urges disclosure of directors’ ethnicities, and Netflix creates co-CEO leadership
– The Wall Street Journal reported that senior Facebook officials including CEO Mark Zuckerberg and COO Sheryl Sandberg are due to meet early next week with civil rights groups that called for an advertising boycott of the company based on how it tackles hate speech and misinformation. One of the main requests from the groups is for Facebook to hire a C-suite executive with civil rights expertise.
‘If they have civil rights leadership, [someone who is] experienced in the C-suite, it will keep the company accountable on those issues,’ said Jonathan Greenblatt, CEO of the Anti-Defamation League, one of the organizers of the boycott.
‘We share the goal of these organizations; we don’t benefit from hate and we don’t want it on our platforms,’ a Facebook spokesperson said in a statement. ‘We look forward to hearing directly from these organizations and sharing an update on the investments we’ve made and the work we’re continuing to do.’
Advertisers that have paused spending on Facebook and Instagram include Unilever, Clorox, Starbucks, Ford Motor Co, Microsoft, Coca-Cola, Levi Strauss & Co and Verizon Communications. Not all of them are members of the boycott campaign, and may have different priorities.
– Most US companies in Hong Kong polled by the American Chamber of Commerce (AmCham) are concerned about the tough new national security law in the territory, with a third looking to move assets or business longer term, according to Reuters. The AmCham survey found that 36.6 percent of respondents were ‘somewhat’ concerned and 51 percent were ‘extremely concerned’ about the legislation. More than two thirds of the respondents were more concerned than a month ago, when full details of the law were unveiled.
The legislation punishes secession, subversion, terrorism and collusion with foreign forces with up to life in prison and sees a Chinese intelligence agency openly operating in the city for the first time. Sixty-five percent of respondents were concerned about the ‘ambiguity in [the law’s] scope and enforcement’ and roughly 61 percent were concerned about the independence of Hong Kong’s judicial system.
– CNBC reported that, according to a UBS Investor Watch study, almost two thirds of US millennials are highly interested – not just simply ‘interested’ – in sustainable investing. For years, so-called responsible investing has focused on how a company’s activities affect the physical world or how it treats its employees and handles diversity concerns, as well as other social issues. Now, racial and social justice are becoming an ever-more key part of thinking about investing.
– According to the WSJ, the Black Lives Matter movement is reinvigorating a campaign to pressure some of the UK’s oldest financial institutions to pay reparations to the descendants of slaves. UK financial institutions played an important role for centuries in organizing and funding the transatlantic slave trade, with directors of the companies earning fortunes.
‘Britain was the most efficient and profitable slave trader in terms of return on capital largely because of the role of the City of London in providing cheaper finance, better insurance rates, better reinsurance rates and, critically, funding the construction of the shipping industry,’ said Hilary Beckles, chair of a reparations commission representing Jamaica, Barbados and 10 other Caribbean nations.
The City of London Corp declined to comment on whether it would participate in a reparations summit, as did spokespeople for the Bank of England, Barclays, Lloyd’s of London, Royal Bank of Scotland Group, Lloyds Banking Group and law firms Freshfields Bruckhaus Deringer and Farrer & Co. They have all acknowledged historic links to slavery.
– Delta CEO Ed Bastian said he is ‘ashamed’ he has not paid more attention to increasing diversity within the airline’s executive leadership roles and will look at adding more black members to its board of directors ‘over the next couple of years,’ CNN reported. Delta has added two board members in the past year, both of whom are white men. ‘We do have two black members of 12 on Delta’s board – not enough,’ Bastian said. ‘We will be recruiting more black members undoubtedly over the next couple of years.’ There are no black men or women serving in Delta’s top 11 executive roles, and Bastian acknowledged that needs to change.
– The Financial Times said ISS has called for US companies to disclose the ethnicities of their directors and senior executives amid growing pressure to improve diversity. ISS has written to companies asking them to make the disclosures on a voluntary, aggregated and self-identified basis. It has sought to compile its own data on directors’ ethnicities in the past but the new approach suggests it is seeking more comprehensive disclosure.
Companies have faced intensified scrutiny on diversity at every level since the killing of George Floyd led to protests over racial inequality. According to ISS data, black directors accounted for just 4.1 percent of all board seats in the Russell 3000 index last year, while 13.4 percent of the US population is black.
Vanguard is among those to have called for greater diversity disclosure, telling the companies it invests in: ‘The business case is compelling... Diverse boards make better decisions, and better decisions lead to better results over the long term.’
– The SEC said it was making a $3.8 million award to a whistleblower who provided significant information that helped the agency disrupt a fraudulent scheme. The resulting enforcement action returned millions of dollars to harmed investors, it said.
The SEC has awarded roughly $505 million to 87 individuals since issuing its first award under the whistleblower program in 2012. This includes awards to 20 individuals in the last 10 months, totaling almost $119 million.
– Reuters reported that Thermo Fisher Scientific raised its bid for Qiagen by €900 million ($1 billion) but failed to win over a key investor, hedge fund firm Davidson Kempner, which is seeking a higher price for the German genetic test maker. The revised offer is backed by Qiagen’s board.
As part of the increased offer, Thermo Fisher also reduced the minimum acceptance threshold to 66.67 percent of outstanding ordinary share capital from 75 percent and the deadline to vote on the deal has been extended by two weeks until August 10.
Davidson Kempner said it would reject the new offer because it still ‘falls short of fair value.’
– CNN reported that thousands of companies may have to find new ways of transferring data from Europe to the US after a court ruled that the existing transatlantic agreement does not sufficiently protect European citizens’ data from US surveillance. Europe’s highest court struck down the privacy shield agreement between the EU and US, which roughly 5,000 companies rely on for transferring information across borders. The court retained other agreements that can be used between Europe and the rest of the world. Those standard contractual clauses are only valid if the country receiving the data has protections in place that are equivalent to those under EU law – something security experts say the US does not have.
‘I think this is the worst-case scenario for US companies,’ said Caitlin Fennessy, research director at the International Association of Privacy Professionals. ‘It’s difficult to understand what legal option companies have. But it will demand immediate action by EU and US policymakers... for guidance and reassurance.’
– According to Reuters, Facebook said it was looking at the implications of the European court ruling. ‘Like many businesses, we are carefully considering the findings and implications of the decision of the Court of Justice in relation to the use of privacy shield and we look forward to regulatory guidance in this regard,’ said Eva Nagle, associate general counsel at Facebook, in a statement. ‘We will ensure our advertisers, customers and partners can continue to enjoy Facebook services while keeping their data safe and secure.’
– The WSJ said Netflix’s decision to promote the company’s chief content officer Ted Sarandos to co-CEO with co-founder Reed Hastings creates a relatively rare management arrangement. In the S&P 500, few companies have co-CEO arrangements, and a number have recently abandoned the structure.
Human nature prevents many co-CEO set-ups from succeeding, corporate governance experts say. Dual bosses may leave employees confused about who holds ultimate decision-making authority, and competitive tensions can arise, says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
In naming Sarandos as co-CEO, Hastings said the company was formalizing how it already ran its business. Sarandos has been at the helm of content creation and runs Netflix’s Los Angeles headquarters. The move is also widely seen as putting Sarandos, who is joining the company’s board, in position to eventually succeed Hastings. Unlike some other co-CEO arrangements in the past, Sarandos and Hastings appear to have distinct domains.
– Reuters reported that the UK’s largest domestic bank Lloyds has set a target to increase the number of black staff in senior roles to at least 3 percent by 2025 from just 0.6 percent now. The bank said it was introducing a ‘Race Action Plan’ after listening to black employees across the business following Black Lives Matter protests. The bank also said it would publish an ethnicity pay gap report later this year and was setting up a new advisory board made up of black, Asian and minority ethnic staff to inform its diversity strategy.