Uber: Culture Clash

CGLytics takes a look at the recent IPO of Uber and how negative stories and scandals led to lower than expected interest

Uber launched its IPO on May 10th, with an initial share price of USD 45.00 per share. Despite a potential undervaluation of the business of at least USD 25 billion, Uber failed to attract the attention of investors and only managed to raise USD 8.1 billion. An array of scandals and controversies that the company had to contend with over the past several years may have led to the company’s uninspiring launch. Examples hereof include Kalanick referring to his desirability as “Boob-er”, proven allegations that the company booked fake rides on Lyft’s app, spying on the movements of celebrities such as Beyoncé, and even launching a self-driving program without having obtained the necessary permits. These events eventually culminated in a series of revelations in 2017 that ended with Travis Kalanick stepping down as CEO.

Kalanick and Company Culture

In February a former employee released a blog post in which she detailed her experience working for the company which involved sexual harassment and gender bias. Shortly thereafter the New York Times released an article which described Uber employees indulging in illicit substances, in addition to a manger being fired for sexual misconduct. The article would appear to be the tip of the iceberg and by June that same year over 20 employees were fired due to inappropriate behavior. Founder and CEO Travis Kalanick was also forced to step down amid pressure from investors.

Determined to regain control, Kalanick promised to return to the helm of his company. Kalanick’s super-voting shares, which gave him 10 votes per share, had previously allowed him to drastically influence corporate decisions. This was evidenced when Kalanick spontaneously appointed two new directors without informing the board. These appointments came amidst a lawsuit against Kalanick by venture capital firm, and major Uber shareholder, Benchmark. The VC firm sued for fraud, breach of contract and breach of fiduciary duty. The firm further pledged to reject a critical USD 9 billion investment proposal from multinational conglomerate SoftBank.

Ultimately, Uber’s Board approved a series of changes in order to counter Kalanick’s influence, appease Benchmark, and lock in the Softbank investment. These changes included a reform of the company’s by-laws which implemented a “one-share one-vote” rule and led to an increase in size of Uber’s board from an original 11 members to 17. Two of these seats are reserved for representatives of SoftBank, and three are to be filled by independent directors. Of the 17 board positions available, five remain unfilled. This is in part due to the deal still being in review by the Committee on Foreign Investment in the United States (CIFUS), although the deal is expected to eventually be approved.

Board Size: Bigger Does Not Always Equal Better

Although these reforms were implemented in the hopes of instigating better governance practices, studies have repeatedly shown that companies with a smaller board size (9.5 directors) outperform companies with a large board (14+) by as much as 8.5% in terms of return.  Utilising CGLytics’ governance data and analytics, an examination of the two industries in which Uber operates (Information Technology and Consumer Discretionary) appears to corroborate the correlation between a smaller board size and higher shareholder returns.

Source: CGLytics Data and Analytics

As the legal frameworks for companies leveraging the concept of a “sharing economy” are still developing, much of Uber’s future lies in the hands of market regulators. Many European countries such as Greece, Belgium, and Romania have outlawed Uber from operating in their countries. Moreover, if Uber drivers were to be classed as employees rather than independent contractors, as is currently under debate in the United States, then Uber’s bottom line would be significantly impacted.

Although the company has come a long way since its “Bro-Culture” days, the company’s inability to enforce a professional corporate culture have led to the installation of what may appear to be inconsistent governance measures. Primarily, it has increased the size of the board (which could potentially affect the company’s ability to provide returns to shareholders) in an attempt to counterbalance the influence of the company’s former CEO. The clashes between Softbank, Benchmark, and Kalanick have left an enduring impact on Uber’s reputation, valuation, and governance dynamics, with the company’s share price currently feeling the most pressure.

Get access to the same insights as investors and proxy advisors with CGLytics’ boardroom intelligence capabilities. With easy to use comparison tools and standardised data, instantly perform a governance health check against regulatory norms and market standards.

Corporate Governance Risk Report

About the Author

Jaco Fourie: U.S. Research Analyst

Jaco holds a Bachelor of Science degree in Accounting and Finance from the University of Reading. He has gained experience as a research analyst from his enrollment at the Henley Business School and the International Capital Market Association Centre.

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2017-2018 S&P 500 Review: Increasing Boardroom Diversity

The CGLytics report, Increasing Boardroom Diversity – 2017-2018 S&P 500 Review, describes the current boardroom composition of S&P 500 companies through comparative data captured between 2017 and 2018, evaluating the progress made and the likelihood of achieving greater diversity in the coming years.

2017-2018 S&P 500 Review: Increasing Boardroom Diversity

Pressure is continuing to build for S&P 500 companies to step up the pace in their board refreshment initiatives in order to catch up with their global peers.

The CGLytics report, Increasing Boardroom Diversity – 2017-2018 S&P 500 Review, describes the current boardroom composition of S&P 500 companies through comparative data captured between 2017 and 2018, evaluating the progress made and the likelihood of achieving greater diversity in the coming years. The report addresses diversity by gender and age – comparing the degree of diversity seen in accordance to sector. The report also reflects on current problems with “overboarding” and how to ensure directors have the availability to serve responsibly.

5 Key Takeaways:

Boards got bigger, with average number of members rising to 11 (from 10 in 2017)

One-third of new appointments were women

All but one company absent a female director in 2017 corrected this in 2018

The average age of all boards increased to 63.5 years old

Data reveals certain companies benefited from adding younger directors to their board

Download the report to learn more.

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The Gender Barometer in the Dutch Boardroom

This article describes the current state of play of gender diversity in boardrooms of Dutch listed companies (AEX, AMX and AScX) and the prospect to achieve the 30% quota in the Netherlands in 2016.

The Gender Barometer in the Dutch Boardroom

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Waivers Of Mandatory Retirement Ages And Company Performance

CGLytics examines the costs and benefits of waiving the mandatory retirement age for directors, elaborating upon aspects of the S&P 500: Increasing Boardroom Diversity Report.

In today’s competitive corporate landscape, a company’s board refreshment policy should aim to ensure that board agendas are robustly debated with a variety of perspectives present. This multitude of perspectives as an integral part of the organisation’s decision-making bodies has often been termed “cognitive diversity”.

This article seeks to further elaborate upon certain aspects of CGLytics’ S&P 500: Increasing Boardroom Diversity Report, with a particular focus on age diversity within the boardroom, and examines the costs and benefits of waiving the mandatory retirement age for directors. The data included in this report is based on the same data set used in the publication, incorporating board composition data as of year end 2018.

Download Now: Mandatory Retirement Age – A Brief Overview

About the Author

Jaco Fourie: U.S. Research Analyst

Jaco holds a Bachelor of Science degree in Accounting and Finance from the University of Reading. He has gained experience as a research analyst from his enrollment at the Henley Business School and the International Capital Market Association Centre.

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AI in the Boardroom: Fantasy or Reality?

While the exact role of AI in the boardroom in up for debate, the question remains: has the Robo Director come of age?

Artificial intelligence (AI) is everywhere even as a member of the board of a private equity firm based in Hong Kong. While the exact role of AI in the boardroom is up for debate, the question remains: has the Robo Director come of age?

Enter the Robo Director

On the face of it, the case for an AI-based director is powerful: machines can pull together vast amounts of information and make decisions based on complex algorithms. Moreover, certain technological advancements have given certain algorithms the ability to learn: cognitive technologies – such as machine learning and deep learning – are becoming more reliable and accessible day by day.

However, even the smartest machines are only as clever as the data they have at their disposal. Although this may also be said of humans, in practice people have unique intuition that operates and combines old and new variables at a different level than machines are currently capable of. This capacity enables the human director, or an entire board of directors, to change direction more quickly than a machine can when faced with new, unforeseen situations. Machine learning is based on repeated behaviours to extract data and then create an output based on that data extraction. Regular corrections to the algorithm are made based on human interpretations of the output, increasing the algorithm’s output accuracy over time. Machine-learning however does not currently provide the capacity to solve new problems when externalities comes into play. Often we hear of great business decisions made on the fly based on instinct or business nous, which are uniquely human traits…so far.

AI as the Assistant

AI works best in situations where large volumes of data must be processed and the logic that drives predictions and decisions can be easily expressed. Just as doctors and other medical professionals harness the power of AI to make better diagnoses, AI can support boards to make better decisions. However, the quality of the data plays a critical role in the algorithm’s capacity to identify trends, as it is reliant on “five-star data” for optimal recommendations.

Corporate Governance

AI can now improve problem-solving by assessing governance risks on a macro-level, and subsequently analyse structural deficiencies in a company’s governance policies and practices when compared to its peers faster than previously possible. Parameters can be set and certain aspects of governance can become data-driven rather than model-driven. This means better decisions and, more importantly, fewer wrong decisions that could lead to reputational and financial risk.

Competitive Landscape

With access to large volumes of data, AI can be harnessed to position a company in its competitive landscape. Models and methods can be developed to pinpoint a company’s competitiveness against competitors and to assess its performance trajectory.

Decision-Support Tools

AI can facilitate better strategic decisions based on real-time data and advanced analytics. Customer marketing journeys can be mapped more accurately, generating more positive outcomes. With better information at their disposal the board can focus on strategy rather than operations.

Unalterable Past, Perfidious Future

In business, many decisions are made using a combination of historical data, modelling and conjecture. But the truth is that the business environment is inherently uncertain: there are no control experiments or reruns. What worked in the past might not necessarily work in future, as evidenced in the classic case of the failure of the firm Long Term Capital Management. However, AI programs and technologies, when supplemented by governance data of the highest quality, can augment a board’s decision-making.

Getting ready for the boardroom of the future

Boards need to be fully prepared with the latest information and insights to make the right decisions, which support their long-term strategy. CGLytics has the deepest global governance data set in the market to date, and if combined with AI, the potential opportunities for boardroom intelligence really are endless.

Jonathan Nelson

CGLytics

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S&P 500 companies are listening: One third of new board appointments in 2018 were women

Gender diversification on boards was a prominent issue in 2018 and shareholders had never been more explicit in their expectations of companies.

Gender diversification on boards was a prominent issue in 2018 and shareholders had never been more explicit in their expectations of companies. The CGLytics Review of Diversity in the Boardroom of S&P 500 Companies reveals the progress made by companies to improve female board representation and discusses new ways for identifying top candidates using new methods and tools.

Through research on the appointments and departures of S&P 500 company directors between 2017 and 2018, we can see evidence that companies are actively trying to improve gender diversity on boards. This is likely the result of investors pushing for greater female representation, along with media and legislators.

While overall female representation only grew by 1%, the following three data points demonstrate how S&P 500 companies are progressing:

1. One third of new board appointments in 2018 were women

One of the most encouraging changes we saw in 2018 was the increase in the percentage of new appointments that were women. 33% of new appointments were female, up 25% from the previous year. And of the 60 new appointments under the age of 50, more than half of these were women, demonstrating that companies are looking at younger female leaders when making their selection.

2. Telecommunications Services have the highest representation of women on boards

Almost all industries saw an improvement in gender diversity of their boards between 2017 and 2018. The financial sector showed the greatest improvement, with female appointments up by 2 percent. While Telecommunication Services had a three-percent decrease in female representation in 2018, the industry still shows the largest representation of women on boards, at 28%.

One of the most encouraging changes we saw in 2018 was the increase in the percentage of new appointments that were women. 33% of new appointments were female, up 25% from the previous year.

3. 27 female appointments needed to reach gender diversity goals of 30% and 1,431 female appointees to reach full gender parity

With female representation reaching 24%, we investigated how many more appointments are needed in order to hit 30% and 50% targets. We discovered that if the net is cast wider than the current 1,329 women sitting on S&P 500 boards, then an additional 1,227 female candidates are available (drawing from S&P Midcap 400 and S&P SmallCap 600 boards).

Getting ready for the coming season’s gender debate

Boards need to be fully prepared for conversations around gender diversification this upcoming proxy season and companies should be ready to provide evidence of their efforts to improve female representations.

In addition to real-time governance risk intelligence and Pay for Performance analytics, CGLytics provides companies with a networking tool for discovering and connecting with top candidates for succession planning.

Aniel Mahabier

CGLytics

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Action needed despite third of new S&P 500 board appointments being women

Gender diversification on boards was a prominent issue last year, and shareholders have never been more explicit in their expectations of companies, writes Aniel Mahabier

Gender diversification on boards was a prominent issue in 2018 and shareholders had never been more explicit in their expectations of companies.

A CGLytics report on diversity in the boardrooms of S&P 500 companies reveals that some progress has been made on an issue that was very prominent in 2018. Companies have improved female board representation – but at a much slower rate than is needed to meet targets set by some proxy advisers and new legislation.

In the past 12 months, the emphasis on gender diversity in the boardroom has never been greater. Demands from not only the media but also shareholders, investors, proxy advisers and governing bodies, as well as campaigns such as the Fearless Girl, have made all companies, regardless of industry, sit up and take notice.

There are, of course, many benefits to improving boardroom gender diversity that go far beyond fresh perspectives and improved profitability. But in order to build an effective board that meets current diversity standards, nomination and governance committees need to find new ways to recruit the right – and best – female candidates to fill their board.

Appointments and departures of S&P 500 company directors between 2017 and 2018 are evidence that companies are actively trying to improve gender diversity on boards. While overall female representation grew by only 1 percentage point, there are some data points that demonstrate how S&P 500 companies are progressing.

1. One third of new board appointments in 2018 were women 

One of the most encouraging changes in 2018 was the increase in the percentage of female appointments to boards. Thirty-three percent of new appointments were female, up from 25 percent from the previous year. Of the 60 new appointments under the age of 50, more than half were women, demonstrating that companies are recruiting younger female leaders. In tandem with gender, diversity of age should also not be overlooked as our findings reveal a positive correlation between the number of younger directors on S&P 500 boards and one-year company total shareholder return

2. Telecommunications services have the highest representation of women on boards

Almost all industries saw an improvement in gender diversity of their boards between 2017 and 2018. The financial sector showed the greatest improvement, with female appointments up by 2 percentage points. While telecommunication services saw a 3 percentage-point fall in female representation in 2018, the industry still shows the largest representation of women on boards, at 28 percent.

One of the most encouraging changes we saw in 2018 was the increase in the percentage of new appointments that were women. 33% of new appointments were female, up 25% from the previous year.

3. Representation of female directors is growing, but radical action is required to hit targets

With female board representation reaching 24 percent (up just 1 percentage point from 2017), it’s critical to understand how many more appointments are needed to reach gender diversity goals of 30 percent and 50 percent: currently, 327 female appointments are needed to reach 30 percent and 1,431 to reach full gender parity. But to find suitable candidates to fill S&P 500 boards, companies are going to need to extend their network or look further afield.

If a wider net is cast – for instance, looking at female directors on S&P MidCap 400 and S&P SmallCap boards, as well as C-level executives – then in the US alone 2,577 candidates are available. Beyond the US market, the CGLytics database shows more than 20,000 professional and experienced female candidates.

3. 27 female appointments needed to reach gender diversity goals of 30% and 1,431 female appointees to reach full gender parity

With female representation reaching 24%, we investigated how many more appointments are needed in order to hit 30% and 50% targets. We discovered that if the net is cast wider than the current 1,329 women sitting on S&P 500 boards, then an additional 1,227 female candidates are available (drawing from S&P Midcap 400 and S&P SmallCap 600 boards).

Getting ready for the coming season’s gender debate

Boards need to be fully prepared for conversations around gender diversification this upcoming proxy season and companies should be ready to provide evidence of their efforts to improve female representations.

In addition to real-time governance risk intelligence and Pay for Performance analytics, CGLytics provides companies with a networking tool for discovering and connecting with top candidates for succession planning.

Aniel Mahabier

CGLytics

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What’s New for the 2019 Proxy Season?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices.

During the 2018 proxy season, shareholders engaged actively in governance matters. The CGLytics FTSE 100 Proxy Review revealed shareholders to be particularly interested in director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practice.  So what’s in store for 2019?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices. They should prepare for early engagement with investors, who have expanded their ESG capabilities with access to best-in-class analytics to aid engagement and voting.

CEO Pay, Board Refreshment and Gender Diversity will continue to dominate

We envisage the following themes will dominate 2019 across Europe:

Proactive shareholder engagement 

To obtain early shareholder buy-in during the proxy season. Investors will favour an ongoing positive dialogue in preference to a reaction to a negative vote.

Transparency will endure as a central theme 

Boards should be prepared to engage openly on their board composition, say-on-pay proposals and governance decisions.

Board refreshment, gender diversity and board composition 

These will be key governance matters as investors seek to favour board strategy and composition that ties to long-term company performance.

CEO Pay 

Pay will be scrutinised – compensation policies and practices must be fully transparent and reflect, and support, business strategy and promote long-term success.

CEO succession planning 

Chairs and nomination and governance committees will be required to plan for CEO succession to mitigate business continuity risk.

Environmental, Social and Governance (ESG) 

ESG will continue to gain momentum as investors continue to become more information savvy and continue to evaluate companies’ progress on their environmental, social and governance practices.

Boards must be equally, if not better, informed as shareholders in order to engage adequately and constructively

Getting ready for the coming season

Boards need to be fully prepared for the upcoming proxy season. They must be equally, if not better, informed as shareholders in order to engage adequately and constructively, to be certain to avoid any reputational risks. Having access to the same intelligence as proxy advisors and investors is fundamental to proxy season preparedness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enable good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

Aniel Mahabier

CGLytics

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Be prepared: Learnings from the UK 2018 proxy season

The UK is at the forefront of shareholder concern of good corporate governance practices. In a climate of increasing proactive shareholder engagement, the CGLytics FTSE 100 2018 proxy season review evaluates underlying trends to provide unique insights for being prepared for the forthcoming season.

The UK is at the forefront of shareholder concern of good corporate governance practices. In a climate of increasing proactive shareholder engagement, the CGLytics FTSE 100 2018 proxy season review evaluates underlying trends to provide unique insights for being prepared for the forthcoming season.

During the 2018 proxy season, shareholders showed increasing interest in key governance matters, including director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practices. Transparency emerged as a consistent concern.

We saw unprecedented dissent from investors on director re-elections. The number of resolutions opposing individual director re-elections rose from 38 in 2017 to 80 in 2018. The reason for the increase was due to a general concern about directors becoming ‘overboarded’ and unable to fulfil their duties. Investors were also looking closely if boards possessed the right composition including skills, diversity, and gender to support long-term growth plans.

2018 Proxy Season Highlights

Say on Pay

The GCLytics report explained that CEO pay is a real concern among investors who repeatedly voted down remuneration reports and questioned short-term remuneration plans.

Pay and performance

During the year, shareholders strongly urged companies to bring pay in line with performance and voted strongly against remuneration-related resolutions if it was seen as misaligned.

33% of companies have a pay for performance misalignment

The FTSE 100 CEO compensation landscape is evolving, with a growing emphasis on long-term incentives. However, the CGLytics study conducted on pay for performance alignment shows a material misalignment between pay and performance within many FTSE 100 companies during 2017:

  • 33% of companies have a pay for performance misalignment
  • 34% of companies display a strong alignment
  • 32% of the companies show a conservative pay practice for the performance generated, compared to other FTSE 100 companies.

 

With the 2019 proxy season fast approaching, boards need to be fully prepared to engage with shareholders. Having the same information as proxy advisors and investors is fundamental to proxy season readiness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enables good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

Aniel Mahabier

CGLytics

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