FINANCIAL TIMES
June 01, 2022
Hello and welcome to our weekly intelligence briefing for boards, where we help directors keep up to speed on the macro trends affecting businesses across the world, and corporate governance news.

We hope you enjoy it and, as always, you can find the latest stories and resources on FT.com/Board.
 
A look ahead with the FT leader writers
Each day FT Leader writers on the Editorial Board meet to discuss the topics to be considered for Leader columns . Here are the issues that dominated this week:
EY shocked the audit community when news emerged of its plan to split in two. Our Editorial Board welcomed the decision. "Reform is certainly needed to improve audit quality, to boost competition between auditors, to clamp down on the conflicts that can proliferate in multidisciplinary firms, and ultimately to avoid corporate collapses, such as Wirecard (which was audited by EY)."

China's economic wobble continues. Our leader's recommendation was to bolster the appetite for foreign investment in the country. "It could [...] reconsider not only aspects of its 'zero-Covid' policy but also its treatment of foreign direct investors; what is good for them is good for China’s own economy."

And in the coming days we will return to another cause - and result - of economic stress in much of the world: worker disaffection with pay and conditions as inflationary pressures mount.
 
My pick of the week’s stories
After weeks of difficult negotiations, EU leaders have agreed to ban seaborne Russian oil imports. To further deprive Vladimir Putin of revenues to fund his war in Ukraine. To stop Hungary blocking the embargo, leaders agreed to temporarily exempt oil delivered from Russia by pipeline from the ban.

As part of the sanctions package, the block agreed a ban with the UK on insuring ships carrying Russian oil, shutting Moscow out of the Lloyd’s of London insurance market. There were concerns in Brussels that if the EU acted without the UK on insurance sanctions, all the business would flow to London.
Soaring energy prices as a result of the war have fueled record inflation in Europe. Eurozone inflation rose to 8.1 per cent in the year to May, higher than economists had anticipated. In his Unhedged newsletter, US financial commentator Robert Armstrong explains the difference between US and EU inflation.
In the UK, inflation hit 9 per cent last month and is expected to reach double digits in the autumn. Employers who are committed to paying the living wage are being urged to bring forward a pay rise to match the soaring cost of living.

Policy makers meanwhile are fretting about a wage-price spiral similar to that of the 1970s. But a spiral is unlikely given the diminished scope and power of unions who negotiate pay settlements, writes employment columnist Sarah O’Connor.

Employers are finding other ways to help employees weather the crisis, by offering help with food, childcare or transport. Some companies are now repositioning working from home as a cost of living issue rather than a work-life balance matter.  

In the current inflationary environment, consumer-facing companies have to find imaginative ways of boosting revenue, writes US industries editor Brooke Masters. The latest tactic is cross-selling customers someone else’s product in order to earn commission revenue and leave production to another business.  

Research from Deloitte shows FTSE 100 bosses took home a median £3.6mn last year, in line with the pre-Covid levels of 2018, resuming the trend of steady rises in executive pay without sustained increases in performance. This looks awkward amid an inflation-fuelled cost of living crisis, argue the FT’s Lex writers. 
Despite the last terrible month for the stock market and looming economic slowdown, executives have been buying shares in their companies at a rate not seen since the early days of the Covid-19 pandemic. Howard Schultz for example bought $15mn of Starbucks shares after returning as the coffee chain’s interim chief executive in March.

In board moves, the shock appointment this week was of activist investor Nelson Peltz to the board of Unilever. Investors have been unhappy with the consumer giant’s lacklustre performance and failed attempt to buy GlaxoSmithKline’s consumer health division. Peltz’s appointment has heightened expectations of a drastic overhaul.

German police carried out a dramatic raid at the office of DWS and its owner Deutsche Bank as part of a probe into allegations of greenwashing at the asset manager. DWS chief executive Asoka Wöhrmann resigned just hours later.
The issue of greenwashing has become a fiercely debated topic in investment management, more so since HSBC suspended its global head of responsible investment after he questioned the financial risks of climate change at a Financial Times conference. For a different take on the saga, read our Moral Money newsletter on what his presentation got right.

One company that will find it tough to place itself as an ESG-compliant investment is Glencore. The commodities trader has pleaded guilty to multiple counts of bribery and market manipulation after investigations uncovered corruption in its oil operations in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria and South Sudan.

US authorities said the scale of corruption was “staggering” and that bribery was built into the corporate culture at Glencore. The company faces further corruption probes by Swiss and Dutch authorities, and a long road to rescuing its reputation.

Business columnist Helen Thomas writes that the City of London, which spent years applauding Glencore’s reputation, is guilty of indifference: “The contribution of global resources companies to the impoverishment and penury of African nations was considered a niche concern in the Square Mile… it probably still is.”

Finally, UK ministers have watered down plans for an overhaul of audit and boardroom rules, dropping a proposal to require directors to sign off on companies’ internal controls.

The plan - whose implementation into law had already been delayed - would, however, involve greater oversight of boards of directors in certain areas. Following P&O Ferries’ sacking of 800 workers, in another column, Helen Thomas explains why disqualifying directors is not an effective sanction for corporate misconduct.
 
Resources to bookmark
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ESG
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Strategy
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Technology
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Audit and risk
Updated international standards on auditing (briefing by UK’s Financial Reporting Council)
Is your audit committee prepared for an unexpected investigation? (webcast by PwC)
Shaping global accounting standards (research insight by LSE)
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People and workforce
 
From our partners Agenda
Boards grapple with post-pandemic workforce problems

This article is brought to you by FT Specialist’s Agenda, a publication that focuses on corporate boards.
 
Upcoming events
The FT Global Boardroom returns on June 7-9 to debate the most effective strategies for policy-makers, CEOs and investors as the global recovery from the pandemic moves into a new phase. This virtual conference will look closely at the economic, diplomatic and humanitarian impact of the war in Ukraine; explore how business models are adjusting to inflation and the opportunities and challenges from technological innovation. Learn more and register here.

The war in Ukraine has now entered its third month and organisations continue to grapple with the disruption to their businesses. Although primarily a humanitarian crisis, the conflict has accelerated long-term business trends already brought on by the Covid-19 pandemic such as global inflationary pressures and disrupted supply chains. This panel will discuss the business implications of the war in Ukraine. How are organisations navigating this crisis and the high level of uncertainty ahead? Does the war mark the end of globalisation? And will the crisis drastically reshape global supply chains? Learn more and register here.

US and European regulators are tightening up ESG disclosure standards with a move towards stricter compliance and enforcement procedures. The FT in partnership with Gtmhub will host this webinar to assess how to manage ESG compliance risk and provide greater consistency and transparency of ESG data and strategy execution. The discussion will focus on disclosure practices and how technology will play a role in improving standardisation and reporting. Learn more and register for the event on June 16 here.
 
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