#ICGN16: Part 2

#ICGN16 was held in San Francisco, June 27-29, the annual meeting of the International Corporate Governance Network. #ICGN16 was the hashtag for tweeting at the meeting, so check Twitter for additional posts to #ICGN16. This is a continuation of a few of my rough notes from the conference. Accuracy for details isn’t one of my noted strengths, so I’m tempted to say the post is for ‘entertainment purposes’ only but I do hope readers will get some sense of the proceedings. View Part 1 of #ICGN16

#ICGN16: Remarks of Jack Ehnes

CalPERS and CalSTRS hosted #ICGN16. Unfortunately, I could only spend a short time at the ICGN Conference this year. I did hear one speech from Jack Ehnes, Chief Executive Officer, CalSTRS, paying tribute to his counterpart at CalPERS. Anne Stausboll had been CEO of CalPERS since January 2009 and was/is very committed to sustainable investment. She serves as the chair of the Ceres Board, was one of the drafters of the UN Principles for Responsible Investment and served on its original governing board. I’m sure there were many other well deserved tributes to her throughout #ICGN16. I hope she will continue to be involved after her retirement from CalPERS at the end of June.

Ehnes also mentioned that California’s economy recently surpassed that of France, making ours the 6th largest in the world (if it were an independent country). Another side note: It looks like we will all soon be dwarfed by China, which spends more on economic infrastructure than North and South America and Western Europe combined. Ehnes also noted California is home to the Sustainability Accounting Standards Board and that 93% of equity market impacted by climate change (I’m curious; what’s not?). CalSTRS views it as an unprecedented opportunity to invest in clean technology. He also discussed a the Sacramento Delta, which provides water for 28 million people and is the subject current infrastructure debate. 

CalSTRS was begun in 1913. Prior to the Brexit vote it had $188B in assets. The fund engaged with 35 companies this year around environmental issues; all but two were successfully withdrawn.

#ICGN16: Global Stewardship Principles

ICGN members, led by investors representing assets under management in excess of US$26 trillion, approved new Global Stewardship Principles at the Annual General Meeting. Kerrie Waring, ICGN Executive Director said,

ICGN has long advocated that with shareholder rights come responsibilities, and we have a well established body of work on the subject dating back to 2003. Our decision to publish the ICGN Global Stewardship Principles this year reflects a heightened sense of recognition of the important role that investors play in preserving and enhancing value on behalf of their beneficiaries or clients.

George Dallas, ICGN Policy Director said:

One of ICGN’s core priorities is to make successful stewardship a reality to support sustainable financial markets. In light of growing proliferation of Stewardship Codes in markets around the world, our ambition was to develop and internationally recognised framework of stewardship principles for investors, to enhance investor/company dialogue and to serve as a point of reference to regulators and standard setters globally.

ICGN Global Stewardship Principles

• Principle 1: Investors should keep under review their own governance practices to ensure consistency with the aims of national requirements and the ICGN Global Stewardship Principles and their ability to serve as fiduciary agents for their beneficiaries and clients.
• Principle 2: Investors should commit to developing and implementing stewardship policies which outlines the scope of their responsible investment practices.
• Principle 3: Investors should exercise diligence in monitoring companies held in investment portfolios and in assessing new companies for investment.
• Principle 4: Investors should engage with investee companies with the aim of preserving or enhancing value on behalf of beneficiaries or clients and should be prepared to collaborate with other investors to communicate areas of concern.
• Principle 5: Investors with voting rights should seek to vote shares held and make informed and independent voting decisions, applying due care, diligence and judgement across their entire portfolio in the interests of beneficiaries or clients.
• Principle 6: Investors should promote the long-tem performance and sustainable success of companies and should integrate material environmental, social and governance (ESG) factors in stewardship activities.
• Principle 7: Investors should publicly disclose their stewardship policies and activities and report to beneficiaries or clients on how they have been implemented so as to be fully accountable for the effective delivery of their duties.

The global stewardship principles, adopted at #ICGN16 are critical in countries, such as the US, where the government has not adopted a formal stewardship code. ICGN comes close to truly embracing the spirit of former Supreme Court Justice Louis Brandeis, who wrote:

There is no such thing to my mind … as an innocent stockholder. He may be innocent in fact, but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with public welfare.

I’d like to see an 8th principle. Institutional investors should survey their members/customers to obtain information concerning values that should be applied in investing, monitoring and voting. Investing is a statement of values. Funds need to know the values of their customers/members to better serve their needs as real people, not just as maximizing economic robots.

#ICGN16: Ann Yerger and Richard Koppes Honored

Rich Koppes About to Accept Lifetime Achievement Award

Ann Yerger

I missed the ceremony, but Ann Yerger and Richard Koppes received will deserved honors. Ann Yerger, now of EY and formerly the Executive Director of the Council of Institutional Investors, was given the ‘ICGN Award for Excellence in Corporate Governance’ in recognition of her work in galvanizing investor collaborative initiatives resulting in significant advances in American corporate governance over 25 years. Richard (“Rich”) Koppes was awarded the prestigious ICGN Lifetime Achiever Award for his work in promoting shareholder rights as the Deputy Executive Officer and General Counsel of CalPERSand for numerous roles which included his attorney work at Jones Day and key roles at Stanford’s Director’s College and NACD for many decades.  (press release) Thanks to tweet from Diane Miller @miller_diane for photo on left and SEChistorical.org for photo on right.

#ICGN16: The role of the PCAOB in investor protection

Steven Harris, Board Member, PCAOB gave a brief talk, indicating that consulting services have outstripped auditing fees. The audit practice is no longer the centerpiece of the Big Four firms’ practice areas. For several years now the assurance practice has generated less than half of the total revenues at each of the global firms. Violations continue 16 years after adopt of rules (Sarbanes Oxley Act), as reported by all global networks. The UK found violations in 4 of 6 firms reviewed. Harris stressed the need fir comment letters. The US deserve reports as good as others around the world get but 80% of recent comments came from auditors… only about 8% from investors.

Steven B. Harris, PCAOB

I am grateful to you and your many members for, among other things, commenting on our rule making projects and serving on the Public Company Accounting Oversight Board’s (“PCAOB”) two advisory groups…

The Supreme Court, in United States v. Arthur Young, described the auditor’s role as a “public watchdog function” that demands “total independence from the client at all times and requires complete fidelity to the public trust.”^[1] This means that auditors must work on behalf of investors and the public interest….

some question if the auditor is truly independent when it is paid more for non-audit services than for the audit.^[10] Others have expressed concerns when firms perform certain compliance work or advise on and implement certain tax structures for their audit clients.^[11]

Harris noted that because of new rules adopted by PCAOB, firms will be required to name the engagement partner—the person most directly responsible for the audit, on a new form disclosing information about Audit Participants beginning in early 2017. See PCAOB Issues Staff Guidance for Firms Filing the New Form AP, Disclosing Engagement Partner Names and Other Firms Participating in Public Company Audits. Attendees were reminded of the important role of public comments. See Current and Recent Standard-Setting Activities and Jacquelyn Lumb‘s post PCAOB’s Harris raises alarm about increase in Big Four firms’ consulting and advisory services.