#ICGN16 Part 5 – Diversity, ESG & Audits

Accelerating Board Diversity Panel #ICGN16

#ICGN16: Accelerating Board Diversity Panel

#ICGN16, the annual meeting of the International Corporate Governance Network, was held in San Francisco, June 27-29. #ICGN16 was the hashtag for tweeting at the meeting, so check Twitter for additional posts to #ICGN16. This post is a continuation of a few rough notes from the conference. Read Part 1Part 2Part 3 and Part 4 of #ICGN16.

#ICGN16: Accelerating board diversity in a US context

Dr Akosua Barthwell-Evans

Dr Akosua Barthwell-Evans

How do we coordinate efforts to improve progress to achieving gender balance in US boardrooms? What regulatory or marked-led initiatives would best inspire traction? What role should investors play to accelerate change? How actively do nomination committees consider the representation of women in director selection, board evaluation and succession planning? What are the lessons to be learned from other markets such as the UK and Australia in working towards targets? The numbers of women and minorities is even more dismal than the raw numbers would indicate, when you consider minorities and women more likely to serve on multiple boards. Sustainability – has to become part of the DNA, business as usual. Integrating into the culture.

Anita Skipper

Anita Skipper

Session chaired by: Dr Akosua Barthwell-Evans, Founder & Chief Executive Officer, The Barthwell Group.

Anita Skipper, Corporate Governance Advisor, Aviva Investors — UK essentially has term limits by defining long-serving directors as no longer independent. That helps yield double the turnover rate of the US. Additionally, search firms have code of best practices (30% of candidates in long list should be women). UK has targets not quotas. 30% Club increasingly has an international mission. Would like to see a proper framework with targets and getting organizations to make it happen. Talk, but not enough real action. UK has about 26% women on its boards.

Karin Halliday

Karin Halliday

Karin Halliday, Senior Manager, Corporate Governance, AMP Capital – Australia – mandatory quotas? We each have biases. 5 years ago women made up 10% of directors in Australia; 60% had no women. In 5 years we have doubled the percentage to 21.5% and 2/3 of companies have at least one woman on the board. Australia has concentrated on disclosure of gender, skills, etc. Disclosure and measurable objectives has led to progress. Engagement – meet with 50-60 companies each year. Involving men in discussion is also critical. “Male champions of change” – disrupting the status quo. It is fundamentally an issue of culture. Academic research has shown the benefits of cognitive diversity. Unconscious bias plays key role Focus on each of us taking part in this debate. Some excuses she has heard: Don’t want to spoil the harmony of the board. We only appoint on merit. I don’t think of Ann as a woman; she’s really smart.

Carol Drake

Carol Drake

Carol Drake, Chief External Affairs Officer, Ohio Public Employees Retirement System, USA Busy updating ICGN policies. Primary tool is quiet diplomacy. GAO report said at current rate 40 years. Don’t just looks at CEOs ad retired CEOs. Recognize positive economic returns. CII helped discuss cos without diversity. Vote for or against Nominating committees. Withhold votes.

Liz Widerman

Liz Widerman

Liz Wideman – Comcast in-house counsel. Shareholder outreach program helped inform the company. For example, Comcast present a director skills matrix in part because of prompting from a shareholder. Companies should promote the business case. Diversity makes business sense. Comcast is publishing a diversity report within a broader ESG type report. “Promoting, coaching, developing candidates is how we got to 45% diverse.”

As I have written many times, I favor the mandatory quota model of Norway. Of course, context was important. Since 1981 Norway has required that public sector boards, councils, working groups and delegations must have 40% or more of each gender. In 1993, parental leave was extended to 42 weeks and in 2004 paternal leave was increased from four to ten weeks. Maybe we need to institute these other measures first, as mandatory measures, while still seeking a voluntary approach to corporate boards. What I especially like about the Norwegian example is that there was not need to discuss the economic reasons for women on boards. The 40% quota was meant to address societal needs for justice, democracy, participation, equality and human rights. See Review: Getting Women on to Corporate Boards.

Chris Winiarz

Chris Winiarz

#ICGN16: Putting the G into ESG – impactful engagement and voting 

Georgina Marshall

Georgina Marshall

Where do E&S and G intersect in practical terms for investors? How can good stewardship, engagement and voting, power effective communication and maximise the impact of investor views? The panel will discuss the hottest ESG issues in 2016, including climate change, unequal voting rights and how investors are finding ways to turn good words into action.

Chris Winiarz, Investment Officer, University of California – No dedicated governance office at UC system. Joined with Bill Gates on energy initiative. The University of California was the first U.S. pension plan and endowment fund to sign the Japan Stewardship Code, which aims to promote responsible and sustainable economic growth by more actively involving shareholders in investment decisions. 95% invested through external partners who are better at understanding the leverage points by company. UC framework relies on beliefs, external advisors, and managers.

David Shammai

David Shammai

Chaired by: Georgina Marshall, Head of Global Research, Institutional Shareholder Services

David Shammai, Senior Corporate Governance Specialist, APG – diversity and tax issues important to the Dutch. At APG, they carefully review the proxy for how it explains performance, looking for long-term story and how it fits overall portfolio. APG tries to take its values to other countries through a collaborative approach, rather than simply trying to impose them.

Deborah Gilshan

Deborah Gilshan

Deborah Gilshan, Head of Sustainable Ownership, Railpen Investments – the G of ESG gets the most attention. Exec pay is a big issue. Railpen spends as much time and judgement in holding its portfolio (through monitoring and activism) as it does buying and selling. They are not just critical of management but are also supportive and signaling and influencing efforts. When they do not support the company’s position, they try to explain why. Meeting with policy makers might be more important than meeting with each individual company.

At least one of the panelists asks their PMs to provide a governance report for their top 10 holdings, addressing opportunities as well as downside risks. They also try to assess the culture of companies. What is the quality of management? What are the material issues? Are their gaps in human capital? Business ethics certainly a top concern.

Sorry folks. I was eating lunch. I’m not sure I agree with just moving forward with a panel while the audience clanks their flatware and chews away. I suppose with such a packed program, #ICGN16 just had to keep forging ahead so my notes are even more fragmented and brief.

Be sure to check out the latest ICGN Guidance on Diversity on Boards. McKinsey report found diversity matters. Gender-diverse companies 15% more likely to outperform. Ethnically diverse companies 35% more likely to outperform.

#ICGN16 Enhancing the value of corporate reporting and audit

#ICGN16 Enhancing the value of corporate reporting and audit

Bill O'Mara

Bill O’Mara

#ICGN16: Enhancing the value of corporate reporting and audit

Through purposeful engagement with companies, Investors can play an important role in improving the value of corporate reporting so that it is more responsive to evolving investor needs. To what extent does the corporate reporting and auditing architecture help or hinder this interaction? Would enhanced reporting by management, audit committees and auditors facilitate these interactions? How can we encourage more investors to become more engaged on audit-related topics?  What role should investors play in helping to shape corporate reporting requirements?

Leonardo Pereira

Leonardo Pereira

Bill O’Mara, Global Head of Audit, KPMG International – Discussed evolution of audit reports in UK. Qualitative commentary re numbers. That evolution should migrate to US. Chilling effect of auditors discussion analysis. Need to avoid boilerplate. Changes every year and explains how it changes each year. New graphics.

Cindy Fornelli

Cindy Fornelli

Leonardo Pereira, Chairman, Securities and Exchange Commission of Brazil (CVM), Brazil – The size of the report is a problem globally. What is really material? We are not protecting investors if we provide too much information.

Chaired by: Cindy Fornelli, Executive Director, Center for Audit Quality – SEC concept release on audit committee disclosure. Don’t miss it. Highlights include:

  •  audit committee’s oversight of the auditor, including communications and meetings between the auditor and audit committee (on, for example, critical accounting policies and estimates), its review of PCAOB inspections, its assessment of the auditor’s objectivity and skepticism, and the role of the audit committee in audit scope;
  •  audit committee’s process for appointing or retaining the auditor, including how the audit committee assessed the auditor’s performance, the request for proposal and selection process, shareholder ratification of the auditor, and the audit committee’s role in compensation determinations; 
  • qualifications of the audit firm and certain members of the engagement team selected by the audit committee, including selection of the engagement partner as well as auditor tenure;  location of audit committee disclosures in SEC filings, whether they should be included in the audit committee report, elsewhere in the proxy statement, annual report, or within the company website; and

    Gary Buesser

    Gary Buesser

  •  applicability to smaller reporting companies and emerging growth companies.
Laban Jackson

Laban Jackson

Gary Buesser, Director and Research Analyst, Lazard Asset Management LLC – UK audit reports. Hopefully, the UK view will spread. We need something that gives heads up on critical disagreements or issues. The should be a balance between that and free flow of information. There is insight to be gained and value in talking to boardmembers. Annual consultation between directors and investors is welcome trend. Directors become more valuable if exposed to discussions with shareholders.

Laban Jackson, Audit Committee Chairman, JP Morgan, USA Corporate report is too often a sham because too much is required. 498 pages! Not wild about lawyers but hard for auditors to argue against. Companies and their reports are covered up with lawyers and lawsuits. Things outside of rules… open and honest discussions are what’s needed. Don’t let management tell you that board members can’t talk to investors; you’re the boss. Engagement with board is the best way to influence audit disclosures. Reporting has become so complicated that things get lost.

#ICGN16: That’s it for My Coverage

I had to leave early to work on a no-action letter back and forth volley from H&R Block on transforming proxy access lite. Apparently, I rushed for nothing because the decision is still not out on the May 5 request. There was also an SEC stakeholder roundtable in Washington on the proxy season in review. Wouldn’t it be nice if all these #corpgov events could be better coordinated? Be sure to check #ICGN16 on Twitter for links to more posts. In addition, ICGN should soon be posting highlights. They should have some great photos and summaries.

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