The week in GRC: Berkshire Hathaway to oppose USG board nominees, and Volkswagen board ousts CEO
– Bloomberg reported that Christian Sewing – a retail banking executive with Deutsche Bank – was named to succeed John Cryan as CEO after a meeting of the bank’s supervisory board. Sewing’s ascent marks the return of a German national as sole CEO for the first time in 16 years. As part of the overhaul, Garth Ritchie will lead the investment bank and was elevated to co-deputy CEO with CAO Karl von Rohr.
– According to the Financial Times, HSBC is bringing in robots to help it spot money laundering, fraud and terrorist funding, becoming the latest bank to use artificial intelligence (AI) to tackle financial crime more quickly and cheaply than with large teams of compliance staff. HSBC is planning to integrate the AI software of Quantexa to screen the vast amounts of data it holds on customers and their transactions against publicly available data in the search for suspicious activity.
– The Financial Times reported that the UK’s Financial Conduct Authority (FCA) said it has had to postpone several projects and cut back on some of its ‘non-critical’ operations as it prepares for a ‘particularly challenging year’ ahead of Brexit. The FCA said it had to make ‘difficult and challenging decisions about our priority activities across all business areas that are not related to work on EU withdrawal, including limiting the number of new initiatives we’ve taken on.’
FCA CEO Andrew Bailey said ideas such as creating a digital archive of UK corporate filings would have been ‘a good thing to do, no doubt… but we’re not going to do it in the next year’ because of the growing demands of Brexit.
– Lucy Peng stepped down as executive chair of Ant Financial Services Group, the financial technology affiliate of Alibaba Group that she has led for eight years, according to the WSJ. She is being replaced by Eric Jing, Ant’s CEO, who is taking on the additional chair role with immediate effect, Ant said. It also said Peng will focus on running Lazada Group, an operator of online retail marketplaces in South East Asia that Alibaba is using as a beachhead to expand in the region. Ant’s statement said Lazada’s growth is a key part of Alibaba’s global strategy.
– The SEC’s CEO pay-ratio rule is leading big multinationals to reveal fresh details about how many people they employ in the US and to what extent some of the most recognizable US brands rely on workers in lower-cost countries, according to the WSJ. The new requirement is that companies disclose pay for the CEO and the median worker, though not necessarily the size of their domestic and overseas workforces. But companies must report these head counts if they opt to exclude some of their overseas workers – up to 5 percent of the total workforce – from their calculations of median workers’ pay.
– The FT looked at a report from the Confederation of British Industry (CBI) warning that large parts of the UK economy will be damaged if the country deviates too far from EU regulations after Brexit. Carolyn Fairbairn, head of the CBI, said the opportunities for business afforded by future regulatory freedom from the EU were ‘limited’ and that the majority of sectors want to stay close to existing rules. She said any gains from deregulation in some sectors are ‘vastly outweighed by the costs that will be incurred if the UK’s rules change so much that it reduces smooth access to the EU’s market.’
– Bloomberg reported that CalPERS is considering a policy that would urge companies in which it invests to disclose sexual-harassment settlements. The pension system would add the language to its corporate-governance policy amid growing fallout from the #MeToo movement.
‘CalPERS supports settlements, including sexual harassment, involving an executive or member of the board to be disclosed,’ the proposed policy states. It calls for corporate directors to ensure all settlements are disclosed to boards and that material settlements are publicly disclosed, including those involving harassment.
– The Times reported that Bank of America will stop lending money to gun manufacturers that make military-inspired firearms for civilian use, such as the AR-15-style rifles that have been used in multiple mass shootings. The policy is the latest example of Wall Street wading into the gun control debate after Citigroup’s announcement last month that it would require business customers to restrict certain types of firearms sales. ‘We want to contribute in any way we can to reduce these mass shootings,’ said Anne Finucane, vice chair of the bank.
– The Federal Reserve proposed retooling capital rules and annual stress tests for the largest US financial institutions in the first major big-bank rule change of the Trump era, according to the WSJ. The Fed on Tuesday said the changes would simplify rules for banks such as JPMorgan Chase and Wells Fargo without endangering the financial system. Some parts are likely to be welcomed by big banks by reducing the possibility they would fail the Fed’s annual stress tests. On the other hand, Wall Street banks have been clamoring that capital rules restricting their borrowing are too strict – and the changes would keep those rules steady or tighten them slightly for the biggest banks.
– The Financial Industry Regulatory Authority (Finra) has named Bari Havlik as executive vice president for member supervision, a role in which she will be responsible principally for leading Finra’s member regulation program, which includes surveillance and examination programs for member firms. Havlik will replace Susan Axelrod, who is leaving Finra after 28 years, and will report directly to Finra CEO Robert Cook when she starts in her new role on April 30. She was most recently a senior vice president and chief compliance officer for The Charles Schwab Corporation.
– The Guardian reported that the UK takeover panel ruled Disney will have to make a full takeover bid for Sky even if the competition regulator quashes Rupert Murdoch’s £11.7 billion ($16.6 billion) attempt to buy 100 percent of the UK’s largest pay-TV broadcaster.
The owner of Walt Disney Studios has made a $66 billion bid to take over 21st Century Fox, which owns a 39 percent stake in Sky. Meanwhile, it is awaiting the outcome of the UK competition regulator’s verdict on whether to allow Murdoch to buy the 61 percent of Sky he does not already own – a deal that was in the works before the Disney transaction.
– The FT reported that Zopa, the world’s oldest peer-to-peer (P2P) lender, moved a step closer to competing with established retail banks on their home turf by appointing a number of former executives from big banks and revamping its governance structure in preparation for the launch of its own banking offering.
Christine Farnish, currently chair of the P2P Finance Association, will head the board of Zopa’s existing P2P business, while former Barclays executive Peter Herbert will chair a separate board for a proposed new bank. Zopa Group will act as a parent company to the two businesses. Zopa said the restructuring and appointments would ‘facilitate the increasing scale of the business, ensure good corporate governance and protect the interests of its customers.’
– The Federal Reserve and the Office of the Comptroller of the Currency proposed loosening the ‘supplementary leverage ratio’, a rule that applies to eight large US banks considered crucial to the functioning of the global financial system, the WSJ said. As with the previous day’s Fed proposal to revamp annual stress tests, officials characterized the capital move as a way to simplify the Wall Street rule book without endangering the financial system.
But regulators were divided. The Fed’s governing board approved the proposal by a 2-1 vote. Fed chair Jerome Powell and Fed vice chair for supervision Randal Quarles, both appointed to their current posts by President Donald Trump, voted for the move. Lael Brainard, an Obama appointee, opposed it. Brainard declined to comment.
– The SEC announced it had made a whistleblower award of more than $2.1 million to a former company insider whose information led to multiple successful enforcement actions. The whistleblower’s information strongly supported the findings in the underlying actions and the whistleblower provided assistance to the staff during the investigation, the SEC said.
‘The SEC has issued nearly $90 million in whistleblower awards in the past month alone,’ said Jane Norberg, chief of the SEC’s office of the whistleblower. ‘As these awards demonstrate, we continue to receive high-quality information from whistleblowers, which we use to detect and prosecute securities violations and safeguard investors.’
– The FT reported that Warren Buffett, who is known for his loyalty to executives at long-term holdings, publicly broke with the management team at US building materials maker USG, a company he has invested in for more than 17 years. Buffett’s Berkshire Hathaway said it would oppose the election of four board nominees supported by management, pressuring the company to accept a $6.6 billion hostile takeover bid from the German construction material group Knauf.
‘Berkshire’s present intention is to vote against the four directors proposed by management,’ said Debbie Bosanek, an assistant to Buffett. USG did not respond to a request for comment. On Thursday it sent a letter to its shareholders saying the push by Knauf was designed to ‘undermine the board’s ability to maximize value for all stockholders.’
A spokesperson for Knauf said the statement from Berkshire reinforced that its offer ‘presents an immediate, high-value and cash-certain monetization opportunity for all USG shareholders.’
– The WSJ reported that Volkswagen’s board ousted CEO Matthias Müller and replaced him with Herbert Diess. The move comes nearly three years after Volkswagen admitted to rigging 11 million diesel-powered vehicles to cheat on emissions tests. ‘In a phase of profound upheaval in the automotive industry, it is vital for Volkswagen to pick up speed,’ Diess said.
Müller was made CEO in September 2015 and led a charge to overhaul the company’s corporate culture and accelerate development of electric vehicles while steering the company through its worst crisis ever.
In addition to the change at the top, Volkswagen’s directors also approved a plan to prepare its commercial-vehicle division, Volkswagen Truck & Bus, for a potential listing as early as next year. The board further approved a reorganization of the company’s business units. Spokespeople for Diess didn’t respond to requests for comment.