News Roundup: This Week in Governance

Proxy advisers challenge remuneration agreements, enforcement of due diligence mandates must be realistic, and watchdogs suspend US climate risk reporting.

Is it reasonable enough?

Proxy voting adviser Glass Lewis has caused a stir after advising clients to vote against London Stock Exchange Group chief executive David Schwimmer's new pay structure.

Mr Schwimmer hit the headlines a few weeks ago when it was revealed the company was looking to increase his salary from around £6m in 2023 to just over £13m this year.

And this is something one of his employees, Julia Hoggett, chief executive of the London Stock Exchange, started discussing on her blog last year calling for an increase in executive pay to help the UK compete with other markets. That's for later.

bloomberg Glass Lewis said: “We do not believe the company has sufficiently rationalized an increase of this size with a lump sum approach, particularly given the CEO's remuneration compared to UK peers.”

This will displease the LSEG board and, if shareholders follow Glass Lewis' advice, Schwimmer may have to holiday at Cleethorpes rather than the Cloisters ( should be pointed out) Board of Directors Agenda I don't know where Schwimmer vacations. However, we are here in Cleethorpes as always—ed.).

Glass Lewis and other proxy voting advisers are now being accused of “handicapping” the UK in its efforts to find top leadership talent. CityAM quotes Cavendish's Emily Watts as saying, “Proxy advisors have rules of conduct that, while not legally binding, effectively limit corporate behavior based on arbitrary benchmarks.'' He has the ability to direct.”

And as if we needed a reminder that CEO pay is a major conflict, fellow proxy advisor ISS also announced this week that Smith & Nephew's Deepak Nath It recommended that shareholders reject a plan to increase CEO compensation from $9.15 million to $11.79 million. financial times newspaper ISS reported that it had “serious concerns” about the pay plan.

Shareholders at AstraZeneca have staged a technical revolt, with 36% rejecting a £1.8m pay rise for chief executive Pascal Soriot. The plan was passed, but current rules require votes to be published on the investment association's public register and the board to respond to shareholders in some way.

The debate over executive pay has now morphed into a discussion about the role proxy advisors play in the market, reflecting the recent battle in the United States.

This is a claim made by the Capital Markets Industry Taskforce, a campaign group chaired by Julia Hogito, which adds to a larger debate about UK governance and whether it has become too burdensome. But at a deeper level, the debate is about something bigger: preparing the foundations for the future of the UK economy. On the other hand, there are those who want higher wages and less regulation as a competitive advantage (especially after Brexit). The other are those who believe the UK position is about bigger issues than executive pay and regulation. It's an endless debate.

“Learn and improve”

The Institute for Business Ethics (IBE) has issued a warning about EU brands infringing the new Corporate Sustainability Due Diligence Directive (CSDDD). It must be properly enforced, declares the IBE.

The directive was passed in March (currently awaiting final approval by the European Parliament) and requires companies to check their supply chains for human rights and environmental violations.
Despite some last-minute hiccups, the bill passed.

According to IBE Deputy Director Rachel Saunders, new laws must target the right businesses.
“This directive will only work if its enforcement is realistic and targets the egregious failures of large organizations, rather than holding them accountable for unforeseen failures.”

She further added: “If a human rights or environmental issue is identified in a supply chain, and a large company at the top of the supply chain can make a strong case that it was truly unaware of the practice, despite due diligence, then It's got to be worth it.'' Rather than immediately punishing someone, give them an opportunity to learn and improve. ”

Fines for cheating on exams

KPMG's exam fraud scandal in the Netherlands resulted in the company receiving a hefty $25 million fee from the US audit regulator.

The penalty is against the firm's Dutch branch and the firm's former head of assurance, Mark Hogeboom, for having “hundreds” of accounting trainees share their answers before their exams over a five-year period from 2017 to 2022. This was imposed in response to this.

The company fined the full $25 million, and Hogeboom was given “permanent disbarment” and a $150,000 fine, saying he made “multiple false statements” to regulators during the investigation. It has been found.

The Dutch Financial Markets Authority has imposed “enhanced supervisory measures” on the company.

Erica Williams, chair of the Public Company Accounting Oversight Board (PCAOB), said the regulator “will not tolerate wrongdoing.”

“Ethical decline threatens the trust of investors on which our system depends, and the PCAOB will take action to hold companies accountable when they fail to enforce a culture of honesty and integrity.” .”

stay within range

And along with the sustainability warning comes another warning. In the United States, new climate risk reporting rules appear to be on hold while litigation unfolds challenging their introduction.

Since it was given the green light in early March, up to five different efforts have been launched in litigation to “keep” the new rules in place. Luke Weick, an attorney representing the Texas Energy Producers Alliance, one of the litigants, told Bloomberg that “the commission recognizes that it has gone far beyond its limits.”

In an article on the Harvard University Governance Blog, the SEC stated: “In issuing the injunction, the Commission does not depart from its view that the final rule is consistent with applicable law and within the Commission's long-standing authority to require disclosure of material information.” It helps the house make investment and voting decisions. Therefore, the Commission will continue to vigorously defend the validity of the final rule in court and looks forward to a speedy resolution of the litigation. ”