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Dec 04, 2020

The week in GRC: Federated Hermes targets diversity and companies press Congress on climate change

This week’s governance, compliance and risk-management stories from around the web

CNN reported that a vote on whether Swiss companies should face greater liability at home for human rights and environmental abuses committed overseas did not pass. Provisional results showed that more than 50 percent of voters approved of the Responsible Business Initiative but it did not garner support from the majority of cantons and both are necessary for a referendum in the country to pass.

The initiative would have required Swiss companies to assess the human rights and environmental practices not just of their own operations, but also of subsidiaries, suppliers and business partners, ensuring they’re in line with international standards. Companies could then have been held liable in Swiss courts for violations committed by subsidiaries and suppliers they control, unless management was able to prove proper due diligence had been carried out.

Reuters said that, according to people familiar with the matter, US insurance companies are taking a closer look at the recruiting and succession practices of corporate customers amid concerns about an increasing number of lawsuits over a lack of diversity among top executives and directors. Insurers are meeting company officials to examine diversity practices before renewing or signing new director and officer policies, insurers and brokers said. Before pricing coverage, insurers want details about top-level succession planning and how companies recruit, they said.

‘This is an operational risk that’s not going to go away,’ said Amber Finch, an attorney who negotiates insurance coverage for companies. A California law set to take effect on January 1 compounds the risk, she added. It will require public companies headquartered in the state to name board members from under-represented communities.

CNBC reported that Nasdaq filed a proposal with the SEC asking the agency to adopt new listing rules regarding the makeup of companies’ boards and greater transparency around who fills board seats. Under the proposal, most Nasdaq-listed companies would be required to have at least two diverse board directors: one woman and one person who identifies as either an under-represented minority or LGBTQ+. If a company cannot meet these requirements, it would not be delisted, but it would need to explain why it cannot meet the goals. Failing to publish data could result in delisting.

Nasdaq said the timeframe for companies to meet the board requirements would depend on each company’s listing tier, but that all companies will be expected to have at least one diverse director within two years of the SEC’s approval. ‘Disclosure is really the foundation of our markets and our economy,’ said Nasdaq president and CEO Adena Friedman. ‘We rely on companies to make full and accurate disclosures to inform investors so that investors can make their own decisions as to which companies they want to invest in and what they expect of the companies [they are invested in].’

– Diamond mining company De Beers outlined plans to ethically source its diamonds and be carbon-neutral by 2030 amid growing investor pressure on companies to be environmentally and socially responsible, Reuters reported. De Beers said it would provide the origin and impact of every diamond it discovers and sells, and extend a set of ESG standards beyond its value chain and across diamond mining as well as other sectors.

De Beers has led industry efforts to verify the authenticity of diamonds and ensure they are not from conflict zones. The company has tracked high-value diamonds from miner to retailer using blockchain to clear the supply chain of imposters and conflict minerals.

– According to The Wall Street Journal, US employees started heading back to the office in greater numbers after Labor Day but that pace is now stalling. The recent surge in Covid-19 cases has led to an increase in the number of employees resuming work at home after some momentum had been building for returning to the workplace, property analysts said.

About a quarter of employees had returned to work as of November 18, according to Kastle Systems. That rate is up from a low in April of less than 15 percent. The office return rate climbed steadily over the summer and early fall, but has flattened out after reaching a high point of 27 percent in mid-October, Kastle said. The office return rate in the New York City region is 15.9 percent.

– Federated Hermes’ stewardship team said it had written to the boards of some of the UK’s largest companies to warn them it would take a tougher stance on diversity and climate change at AGMs in 2021, Reuters reported. The asset manager’s EOS team said it would now recommend a vote against any chair of a FTSE 100 company with a board where women make up ‘materially less’ than 20 percent of the executive committee and its direct reports.

As part of another new policy, EOS said it would also recommend voting against the chair of any company that does not have at least one director from an ethnic minority background or any ‘credible plan to rapidly achieve this’. On climate change, EOS said it would recommend votes against the chair or other responsible directors where a company’s strategy is ‘materially misaligned’ with the goals of the Paris climate change agreement.

– The WSJ reported that a wide array of large US companies including Amazon, Citigroup and Ford Motor Co urged Congress to work closely with president-elect Joe Biden to address climate change. In a letter to lawmakers and the Biden transition team, more than 40 companies say they support the US rejoining the Paris climate accord and urge ‘president-elect Biden and the new Congress to work together to enact ambitious, durable, bipartisan climate solutions.'

The letter is the latest sign that a significant cross-section of US companies are lining up with environmentalists on climate change. The American Farm Bureau Federation – once one of the major opponents of climate legislation in Congress – recently announced a new agribusiness coalition to promote federal support for cutting agricultural emissions.

– The SEC awarded more than $6 million to joint whistleblowers whose information and assistance led to the successful enforcement of SEC and related actions. The whistleblowers’ substantial assistance, provided to the SEC and another government agency, included submitting documents, participating in interviews and identifying key individuals involved in the misconduct. The SEC has awarded roughly $728 million to 118 individuals since issuing its first award in 2012.

Reuters reported that the National Labor Relations Board (NLRB) issued a complaint accusing Google of unlawfully monitoring and questioning several workers who were then fired for protesting against company policies and trying to organize a union. The NLRB said Google unlawfully placed employees on administrative leave and terminated them for accessing documents related to how the company polices internal forums, according to the complaint.

Google said it was confident it had acted legally. ‘Google has always worked to support a culture of internal discussion, and we place immense trust in our employees,’ it said. ‘Actions undertaken by the employees at issue were a serious violation of our policies and an unacceptable breach of a trusted responsibility.’

– According to the WSJ, the EU plans to introduce in the coming weeks new proposals aimed at changing behavior – and, in some cases, business models – at large online platforms. The European Commission is completing regulatory plans outlining how online platforms should remove illegal content quickly and refrain from using their power to quash rivals or push their own products on their sites.

Reuters reported that mining and trading company Glencore said it aimed to reach net-zero emissions by 2050 through reducing its direct and indirect carbon footprint by 40 percent by 2035 compared with 2019 levels. The company said it would also focus on investing in metals that were vital for the transition to a lower-carbon world. But the company remains the world’s largest coal exporter and said it did not believe selling its coal mines would help reduce associated emissions.

– The WSJ said that, according to former regulators and auditors, new leadership at the SEC is expected to prompt increased oversight of public company audits. The SEC supervises the PCAOB, which sets audit standards, inspects audits and disciplines audit firms for violations.

Regulatory experts said new leadership at the SEC could influence the PCAOB’s agenda, which is expected to eventually reflect the goals of a new administration. Those may include items such as mandatory audit firm rotation or stricter rules for auditors. ‘Through regular engagement with the PCAOB and its staff, the SEC has focused its oversight on improving audit quality and strengthening the PCAOB’s critical programs, including registrations, inspections, standard-setting and enforcement,’ an SEC spokesperson said.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...