All your X in one basket
As if Elon Musk (pictured) didn’t have enough on his hands convincing the world that turning Twitter into X-something-or-other is a good idea, he now has the indefatigable Senator Elizabeth Warren on his case.
Warren is a long-time campaigner on corporate governance issues and this week she called on watchdogs at the Securities and Exchange Commission (SEC) to investigate the board at Tesla since its CEO took over the social media brand. She alleges Musk’s conduct means the board had “failed to uphold its legal duty to ensure that Mr Musk act in the best interests of Tesla”.
So far, neither the SEC nor Tesla have publicly commented. Cue phone calls to check terms of the D&O insurance…
Over to another reputation debacle with lessons for boards in financial services. The clash between Nigel Farage, one-time leader of UKIP, with Tory party chiefs, on one side, and chief execs from NatWest and Coutts, the bank for posh people, on the other.
You may well know this saga already. This month, Farage announced that Coutts, his bankers, owned by NatWest, were dropping him as a client because of his political beliefs. They offered him a chance to open an account with NatWest. The BBC reported—inaccurately, as it turned out— that no, it wasn’t politics, it was for “commercial reasons”: Farage didn’t meet minimum financial standards to be a Coutts man. Then documents were released from which it emerges that Coutts were, indeed, unnerved about the risk of reputational damage from banking for the arch Brexiteer and, further (are you keeping up?), that NatWest chief exec Alison Rose was responsible for tipping off BBC reporter Simon Jack about the “commercial” reasons.
As we end the week, the banking bust-up has now cost Rose her job and the job of Coutts’ CEO Peter Flavel. Farage has called for the entire NatWest board to resign (it threw its weight behind Rose to begin with), placing chair Howard Davies under pressure to close his account at NatWest. (At the time of writing, Davies remains in post).
The British press has been gripped by a story that’s gone from one about banking rights, to one about politics, with heavy overtones that Brexit remains a live issue. The prime minister, Rishi Sunak, pointedly failed to back the NatWest board, giving every indication that he prefers to be somewhere vaguely on the side of Farage and, of course, right-leaning voters.
The big lesson here for boards is the danger of becoming embroiled in a row that is, without doubt, coloured by the lingering toxicity of the UK’s Brexit debate. Throw in a bit of CEO naivety and you have a recipe for a public relations disaster, disrupted leadership and, of course, lost jobs. There’s nothing to say except that corporate leaders must tread carefully around Brexit and politicians. Especially as we near the next general election. The stakes are high and the costs could be brutal.
It’s been a big year for the enforcers over at the Financial Reporting Council. Turns out the UK’s financial reporting and governance watchdog has set a new record of resolving ‘enforcement’ cases, with 19 done and dusted in the past 12 months.
Those cases resulted in penalties of £40.5m in total, including the FRC’s biggest ever sanction—£20m imposed on KPMG in connection with the investigation of audit work at the collapsed construction giant Carillion.
According to the FRC’s enforcement executive director, Elizabeth Barrett, we should remember that non-financial sanctions are just as important as the big fines.
“The record number of cases concluded this year reflects the strengthened capability and determination of the FRC to hold firms and individuals to account for serious accounting and audit failures,” she added.
There’s a new sheriff in town.
Remember ClientEarth, the NGO trying to break new ground by suing Shell’s board for failure to fulfil their directors’ duties when compiling the company’s climate transition plan? It was said to be the first legal action to claim directors should be held personally liable for their failure to prepare for a green transition. ClientEarth had been told they couldn’t go ahead with the claims. This week, they announced that they are appealing against that denial.
It was in May that ClientEarth heard its litigation was all but compost, with a High Court judge declining to have the courts interfere in company management at Shell or hear attempts to define new duties and duties.
The Court was asked to reconsider on 12 July, but this week came news that it is standing by its denial. So, ClientEarth will now seek permission to formally appeal. The NGO believes that, although the case was blocked from going ahead, the Court accepted climate change was a risk to Shell.
Paul Benson, senior lawyer at ClientEarth, says: “We are disappointed that the judge has declined to reconsider his decision. The recent hearing was a first step towards appeal, which we will now pursue.”
The case has grown green shoots and Shell directors can expect more courtroom drama and publicity soon. Which, really, is the point.
Know thy sell
There is growing awareness, among those in the know, of companies being sued for “greenwashing”, a key climate litigation risk if, say, a company attempts to build a sustainability case simply by introducing reusable mugs in the office kitchen (not exactly going to stop the wildfires, is it?).
Anyway, the legal eagles at City eyrie Mayer Brown say, well, if you want the best defence against greenwashing claims, you need good governance, disclosure and proper due diligence. Oh, and a “comprehensive understanding of the sustainability profile of the product, activity or transaction at hand”.
Far be it from Board Agenda to get all high and mighty, but we reckon if a board doesn’t know whether its “product’ is helping burn down the planet, then it really hasn’t been paying attention. And it probably deserves someone else’s day in court.