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UK CEOs ‘not incentivised’ to focus on their environmental impact

executive pay, pay, remuneration, pay ratios, corporate governance, finance

Are chief executives rewarded for tackling the climate crisis? Not in the UK it seems. In fact, far from it.

Research from remuneration experts at Vlerick Business School in Ghent has found that UK CEOs are not incentivised to make their businesses environmentally friendly. Indeed, analysis of 159 UK companies found that just 6% of their chiefs have a KPI focused on the environment. Less than 1% have long-term incentives focused on this area.

That will comes as a shock to many in the week that the world’s climate emergency efforts are focused on the COP25 meeting in Madrid and working out how the Paris climate agreement will be put into operation.

Xavier Baeten, a professor at Vlerick, said the climate crisis may have been accepted by big business as a reality, and many acknowledge they have to play a role in reducing their harmful practices. But this has yet to feed into pay arrangements in any significant way.

“There is a general consensus in business, certainly among larger firms, that there is a climate crisis and that different stakeholders have to play a role in becoming part of the solution,” said Baeten.

“They now understand how their practices are impacting the environment, and are actively looking to implement initiatives that focus on being more environmentally friendly.

“However, our research shows that for the overwhelming majority of UK firms, there is no incentive for the top CEOs to enact these environment-focused initiatives and policies.”

Baeten says government intervention on pay may not work and that it would be more effective if companies reflect on exactly how the climate will affect their businesses, develop appropriate sustainability strategies and only then put in place the right KPIs.

Focus on returns

The research showed that just 21% of UK chiefs executives worked with a long-term incentive that included elements unrelated to the profit of the company, or returns for shareholders.

Despite all recent talk of stakeholder engagement and companies becoming “purposeful” businesses, Vlerick concludes that UK CEOs are “much more strongly steered towards uplifting the share price compared with other countries”.

Investors have focused enormous engagement efforts on excessive pay and adjusting business models to take account of climate risk. However, the associated incentives for CEOs have generally been passed by.

That may change. There are efforts to have more companies report according to guidelines issued 2017 by the G20s Task Force on Climate-related Financial Disclosures. Exposure to the the glare of publicity caused by those reporting principles could compel boards to adjust incentives too.

If not, it’s highly likely the pressure will eventually come from investors again.

Ironically, COP25 saw the the UN secretary general, António Guterres, comment that national governments were doing too little to help business.

“I’m meeting more and more business leaders that complain that they cannot do more because governments will not allow them to do so, because of the environment that is still created in the bureaucratic, administrative, tax regulatory and other frameworks that are under government control.”

Many will view that a let-off for companies who could take their own action now, such as Baeten points out, in reviewing their sustainability strategies.

Despite much activity on climate, Vlerick’s research demonstrates that business is still grappling to integrate the consequences of global warming into all processes. Time to move a little quicker.

The post UK CEOs ‘not incentivised’ to focus on their environmental impact appeared first on Board Agenda.

[…]

UK CEOs ‘not incentivised’ to focus on their environment impact

executive pay, pay, remuneration, pay ratios, corporate governance, finance

Are chief executives rewarded for tackling the climate crisis? Not in the UK it seems. In fact, far from it.

Research from remuneration experts at Vlerick Business School in Ghent has found that UK CEOs are not incentivised to make their businesses environmentally friendly. Indeed, analysis of 159 UK companies found that just 6% of their chiefs have a KPI focused on the environment. Less than 1% have long-term incentives focused on this area.

That will comes as a shock to many in the week that the world’s climate emergency efforts are focused on the COP25 meeting in Madrid and working out how the Paris climate agreement will be put into operation.

Xavier Baeten, a professor at Vlerick, said the climate crisis may have been accepted by big business as a reality, and many acknowledge they have to play a role in reducing their harmful practices. But this has yet to feed into pay arrangements in any significant way.

“There is a general consensus in business, certainly among larger firms, that there is a climate crisis and that different stakeholders have to play a role in becoming part of the solution,” said Baeten.

“They now understand how their practices are impacting the environment, and are actively looking to implement initiatives that focus on being more environmentally friendly.

“However, our research shows that for the overwhelming majority of UK firms, there is no incentive for the top CEOs to enact these environment-focused initiatives and policies.”

Baeten says government intervention on pay may not work and that it would be more effective if companies reflect on exactly how the climate will affect their businesses, develop appropriate sustainability strategies and only then put in place the right KPIs.

Focus on returns

The research showed that just 21% of UK chiefs executives worked with a long-term incentive that included elements unrelated to the profit of the company, or returns for shareholders.

Despite all recent talk of stakeholder engagement and companies becoming “purposeful” businesses, Vlerick concludes that UK CEOs are “much more strongly steered towards uplifting the share price compared with other countries”.

Investors have focused enormous engagement efforts on excessive pay and adjusting business models to take account of climate risk. However, the associated incentives for CEOs have generally been passed by.

That may change. There are efforts to have more companies report according to guidelines issued 2017 by the G20s Task Force on Climate-related Financial Disclosures. Exposure to the the glare of publicity caused by those reporting principles could compel boards to adjust incentives too.

If not, it’s highly likely the pressure will eventually come from investors again.

Ironically, COP25 saw the the UN secretary general, António Guterres, comment that national governments were doing too little to help business.

“I’m meeting more and more business leaders that complain that they cannot do more because governments will not allow them to do so, because of the environment that is still created in the bureaucratic, administrative, tax regulatory and other frameworks that are under government control.”

Many will view that a let-off for companies who could take their own action now, such as Baeten points out, in reviewing their sustainability strategies.

Despite much activity on climate, Vlerick’s research demonstrates that business is still grappling to integrate the consequences of global warming into all processes. Time to move a little quicker.

The post UK CEOs ‘not incentivised’ to focus on their environment impact appeared first on Board Agenda.

[…]

Survey launches to reveal boardroom risk thinking

risk management

The Board Agenda Leadership in Risk Survey has been launched today in partnership with Mazars, the international auditing and accounting firm. The research and subsequent report is also produced in association with the INSEAD Corporate Governance Centre.

The survey will provide a significant insight into risk thinking and preparedness among European companies and the role of the board in placing risk at the centre of corporate decision making.

The risk landscape has changed dramatically in recent years with the advent of climate as an existential threat, the evolution of new technologies, growing political uncertainty and the prevalence of cybercrime.

The survey aims at revealing the action board members are taking to provide effective oversight in an age of unprecedented risk, and whether boards also see the opportunities in the risks before them.

The survey and report will examine the level of skills present in the boardroom to manage appropriate risks, the governance structures built around risk management and the planning that goes into confronting significant risks and opportunities.

The report will also look at the nature of risk appetite, how it is defined, and how “risk culture” inside organisations is monitored and reviewed. We also ask how risk is reflected in the structure of executive incentives.

In addition the survey seeks to explore readiness for specific risks such as geopolitical change and uncertainty, cybersecurity, reputation and climate change.

Risk and its management is a major issue for boards and investors. This survey will help illuminate the priority given to risk in the boardroom.

Take part in the survey and provide your insight on this critically important issue.

The post Survey launches to reveal boardroom risk thinking appeared first on Board Agenda.

[…]

Greater Glasgow & Clyde NHS Board – Members

Members – Greater Glasgow & Clyde NHS Board Reference: 2734 Remuneration: £8,584 per annum Location: Glasgow City Closing date: 08 January 2020 at midnight If you are looking for a rewarding and worthwhile opportunity, we would like to hear from you. Applications are invited from a wide range of people who have an interest in […]

The post Greater Glasgow & Clyde NHS Board – Members appeared first on NEDworks.

[…]

Judicial Appointments Commission – One Lay Commissioner with responsibility for Welsh matters, and one Judicial (Tribunal Judge) Commissioner

One Lay Commissioner with responsibility for Welsh matters, and one Judicial (Tribunal Judge) Commissioner – Judicial Appointments Commission Body: Judicial Appointments Commission Appointing Department: Ministry of Justice Sector: Judicial, Prison & Policing Location: London Skills required: Communication / Media / Marketing, Legal / Judicial Number of Vacancies: 2 Remuneration: £338 per day. Remuneration is taxable […]

The post Judicial Appointments Commission – One Lay Commissioner with responsibility for Welsh matters, and one Judicial (Tribunal Judge) Commissioner appeared first on NEDworks.

[…]

Non-Executive Director – The Bay Learning Trust

Non-Executive Director – The Bay Learning Trust Recruiter: Academy Ambassadors Location: Lancaster, Lancashire (GB) Salary: unpaid/ voluntary Posted: 28 Nov 2019 Closes: 12 Dec 2019 Position/Level: Board Responsibilities: Executive Management, Finance, HR Sector: Education Contract Type: Voluntary / Trustee Language: English The Bay Learning Trust, established in 2016, seeks to appoint a new board member […]

The post Non-Executive Director – The Bay Learning Trust appeared first on NEDworks.

[…]

National Museums Scotland – Chair

Chair – National Museums Scotland Reference: 1722 Remuneration: non-remunerated Location: Edinburgh, City of Closing date: 10 January 2020 at midnight Do you share our passion for cultural heritage and have the skills to help us realise our ambitions? Following a decade of investment in our museums and collections, and with the successful completion of the […]

The post National Museums Scotland – Chair appeared first on NEDworks.

[…]

Be proactive with shareholder engagement to avoid damaging disputes

activism, activist, investors, shareholder engagement

Corporate governance remains high on the business agenda. The media spotlight on the impact of business on the environment has sharpened while perennial boardroom issues such as executive remuneration and director overboarding continue to cause unease with shareholders amidst an uncertain macroeconomic climate.

However, changes in UK company law and the UK Corporate Governance Code have now empowered dissatisfied shareholders more than ever before. Resolutions which receive more than 20% of votes against require the company to explain what actions it will take to engage shareholders to comprehend the reasons behind the negative reaction. It also necessitates an update on shareholder feedback and further actions taken within six months and final summary in the annual report.

Investors therefore can cause concrete change through their voting, forcing companies into action over issues that they may be dragging their heels on. The balance of power has shifted and companies must react accordingly to maintain the highest standards of corporate governance and avoid damaging disputes with their own shareholders.

Areas of dispute

Resolutions put forward for approval at the AGM are increasingly vulnerable to investor protest votes, with six “close calls” (vote is within 10% of the required majority) in the FTSE 100 and 19 in the FTSE 250 through the past AGM season. Six votes were also lost among FTSE 350 companies over the period.

The authority to allot shares on a non-pre-emptive basis saw the most close calls, followed by remuneration policy or report and the ability to hold general meetings on not less than 14 days’ notice.

Shareholder activism has seen a notable increase over recent years, a trend we expect to see continue through 2020

In addition, for nearly a third (31%) of the companies surveyed, directors’ resolutions received the lowest votes in favour out of all resolutions put to the meeting. This indicates that there is a clear willingness to hold the board and its directors to account, and ensure they have both the time and commitment to carry out their duties.

Shareholder activism has seen a notable increase over recent years, a trend we expect to see continue through 2020. There are two strands to activism—”overt” activism which is driven by specific activist funds, and “covert” governance-related activism which is driven by traditional institutional investors as responsible stewardship.

The UK remains a hotspot for activism due to long-established procedures of companies engaging with their main institutional investors as encouraged by the Stewardship Code and transparency around shareholder data.

Activism typically relates to governance issues, M&A, operational improvement or problems around the balance sheet however nearly all the time the resolutions proposed are in relation to the removal of existing directors or the addition of new directors.

This is because passing an ordinary director removal or election resolution is easier than a special strategy-related resolution that requires a super majority of 75%.

Company recommendations

Shareholder engagement is not a “box-ticking” exercise, nor is it a process that can be left—comfortably—to the last minute. Investment managers and corporate governance and stewardship teams are working more closely together than ever before.

It is crucial that companies prepare suitably for their AGM, a process that must start long before the meeting to avoid last-minute firefighting. Visibility and proactive shareholder engagement will be the key to quelling any investor dissent and getting the company on the front foot.

Shareholder dissent is no longer an exception, it is the new normal

On the basis of this conclusion, we offer these recommendations to UK companies in the run-up to the 2020 AGM season:

  • Companies should conduct a year-round process of corporate governance engagement with shareholders, aligned to the financial calendar and investor relations programmes;
  • Proxy advisers remain a vital constituent within corporate governance engagement. Companies should be aware of the recommendation frameworks employed by the key advisers in the same way that their policies are aligned to the strategies used by key shareholders;
  • Good and improving corporate governance performance should be highlighted throughout the financial calendar, arguably placed within a demonstrable framework that sets out key policies and benchmarks;
  • Engagement should be conducted by key non-executive members of the board and committees. Proactive shareholder engagement should be a component part of the job description of these members rather than an optional extra;
  • Employee representation is likely to be a focus for shareholders going forward. Resolutions and policy relevant to this point should be carefully considered and particular attention should be given to the experience and job descriptions of the nominees;
  • Non-executive director nominations should be supported by detailed biographies, highlighting the relevant expertise now required by the Stewardship Code and which are aligned to a transparent skills matrix;
  • In the event of likely shareholder dissent at 20% or more for a resolution, UK businesses should not only engage quickly and actively with shareholders but prepare for the potential to be placed on the Public Register—specifically to align the reporting process with the financial calendar.

Shareholder dissent is no longer an exception, it is the new normal, and so against an increasingly volatile equity capital market, poor corporate governance could impact shareholder value as much as weak financial results.

Sheryl Cuisia is founder and managing director of Boudicca Proxy Consultants and a judge for the NED Awards 2020.

The post Be proactive with shareholder engagement to avoid damaging disputes appeared first on Board Agenda.

[…]

South of Scotland Enterprise – Members

Members – South of Scotland Enterprise Reference: 2733 Remuneration: £261 per day Location: South of Scotland Closing date: 10 January 2020 at midnight Appointment of Members of the Board of South of Scotland Enterprise Would you like to make a difference in the south of Scotland and contribute to the work of a new enterprise […]

The post South of Scotland Enterprise – Members appeared first on NEDworks.

[…]

News story: Bankruptcy application currently unavailable.

The online form to apply for bankruptcy in England and Wales is currently unavailable […]