The week in GRC: CEO-worker pay ratio averages 339-1, study finds, and SEC says court ruling costs harmed investors
– CNN reported that Xerox ended its deal to be taken over by Fujifilm, having reached a new agreement with activist investors Carl Icahn and Darwin Deason, who had opposed the deal. The Japanese company said it disputes Xerox’s ‘unilateral decision’ and does not think the US company has the legal right to ax the transaction.
The Xerox board said it felt it was ‘in the best interests of the company and all of its shareholders’ to ditch the Fujifilm deal and side with Icahn and Deason. Fujifilm said in a statement that it is reviewing all options, including legal action. It said it still believes the takeover is ‘the best option designed to allow the stockholders of both companies to share the enhanced future value of the combined company.’
– According to The Guardian, the first comprehensive study of differences between US CEO pay and that of median workers found the average pay ratio has reached 339 to 1, with the highest gap approaching 5,000 to 1. The study, published by Keith Ellison, D-Minnesota, includes data on almost 14 million workers at 225 US companies with total annual revenues of $6.3 trillion.
In 188 of the 225 companies in the report’s database, a single CEO’s pay could be used to pay more than 100 workers; the average worker at 219 of the 225 companies studied would need to work at least 45 years to earn what his/her CEO makes in one. It also shows how some of the widest disparities exist in consumer discretionary industries such as fast food and retail, with a 977 to 1 ratio.
‘Now we know why CEOs didn’t want this data released,’ said Ellison, who championed the implementation of the pay ratio disclosure rule through the Dodd-Frank Act. ‘I knew inequality was a great problem in our society but I didn’t understand quite how extreme it was.’
– The SEC named James Reese as chief risk and strategy officer of the agency’s office of compliance inspections and examinations (Ocie). He has served as acting chief since February 2017. The chief risk and strategy officer leads the office of risk and strategy, which was established in 2016 to consolidate Ocie’s risk assessment, market surveillance, large firm monitoring and quantitative analysis teams, and provide operational risk management and organizational strategy for the national exam program.
– The FT looked at growing pressure from investors and initiatives such as the 30 Percent Club to increase female participation on corporate boards.
– The Wall Street Journal looked at the emerging trend at some large companies of combining their risk and compliance functions with their ESG and human rights programs. Examples include Barrick Gold, which is bringing together its corruption, human rights and compliance programs; Novartis, which is combining its risk management and compliance programs; and both Lockheed Martin and AstraZeneca, which are merging their compliance and sustainability functions.
Such developments are part of a growing recognition that protecting companies’ reputation and mitigating risks requires a more co-ordinated and integrated response, said Alison Taylor, managing director at BSR, a global non-profit sustainability organization.
– The Vatican called for more regulation of markets and financial systems, saying economic crises showed they were not able to govern themselves and needed a strong injection of morality and ethics, according to Reuters. A document written by two key Vatican departments appeared to challenge plans to further deregulate markets in some countries, such as the US, where President Donald Trump wants to loosen banking rules implemented after the 2008 financial crisis.
The document states that profit for the sake of profit and not for the greater good is ‘illegitimate’ and condemns a ‘reckless and amoral culture of waste’ that has created oligarchies in some countries while leaving great masses of impoverished people ‘without any means of escape.'
– The Big Four accounting firms – KPMG, Deloitte, EY and PwC – have created contingency plans for a break-up of their UK businesses, an option politicians and regulators are increasingly pushing, the FT reported. Executives from all four firms and the next-largest UK audit firms, Grant Thornton and BDO, said they had planned for a potential break-up in case regulators force them to spin off their audit from their consulting businesses.
Bill Michael, chair of KPMG’s UK business, said his firm had been thinking about break-up scenarios ‘for some time’ as the current business model of the Big Four – which generate a growing portion of their revenues from consulting – is ‘unsustainable.'
PwC said it had ‘a documented business continuity plan covering a range of scenarios that could threaten the existence of the firm.’ EY said: ‘Working alongside regulators and standard setters, the profession can evolve to best serve business, investors and stakeholder needs.’
– The WSJ reported that the SEC has been unable to get more than $800 million in disgorgement of ill-gotten gains since a 2017 US Supreme Court ruling limited the time the agency has to recover funds for harmed investors. The amount is a ‘meaningful percentage’ of the total fines the SEC imposes on wrongdoers, the commission’s enforcement co-director Steven Peikin told US lawmakers. Under the court’s decision, the agency has only five years to sue bad actors after a fraud occurs.
‘We can’t reach back beyond five years and pull money out of the pocket of wrongdoers and return it to investors,’ Peikin told a panel of the House Financial Services Committee. ‘This is going to have a significant impact on the recovery we achieve for investors.’
– Reuters reported that the US Senate voted in favor of keeping internet neutrality rules in a bid to overturn the Federal Communications Commission (FCC) decision to repeal them, although the measure is unlikely to be approved by the House of Representatives or the White House. The FCC in December repealed rules set under former president Barack Obama that barred internet service providers from blocking or slowing access to content or charging consumers more for certain content.
– CBS said its board voted to strip National Amusements president Shari Redstone and her family of their voting control over the media company, according to the WSJ. CBS said 11 of the 14 board members not affiliated with National Amusements supported the proposal, but that falls short of the threshold the Redstone family believes is required for approval after it moved to amend the company’s rules on Wednesday.
The boardroom drama sets the stage for what may be a prolonged legal battle over governance of CBS. The company contends that Shari Redstone is trying to force it to merge with Viacom. She denies the assertion.
CBS said its directors approved a stock dividend that would dilute National Amusements’ voting power from nearly 80 percent to about 20 percent. ‘The board of directors has taken this step because it believes it is in the best interests of all CBS stockholders, is necessary to protect stockholders’ interests and would unlock significant stockholder value,’ CBS said in a statement. CBS also said it has postponed its annual meeting, which was scheduled for Friday. National Amusements said the board’s plans to issue a dividend are invalid.
– The FT reported that Hyundai Motor Company’s executives are appealing for shareholder support for a restructuring aimed at strengthening the founding family’s control over key units, following opposition from two proxy advisory firms. Hyundai Motor CEO Lee Won-Hee asked for shareholder backing of the deal, saying the plan is ‘the best option to strengthen our business competitiveness and enhance transparency.’
– According to CNBC, Allergan might face activist pressure from David Tepper’s Appaloosa Management after the Federal Trade Commission cleared the way for him to build on his stake in the drug company. Appaloosa has been making changes to its holdings, disclosing earlier this week that it exited a 4.6 million share stake in Apple and a 1.98 million share stake in Comcast and added new stakes in Applied Materials and Wells Fargo. It started building its Allergan stake in 2015.
A spokesperson for Appaloosa declined to comment on the Allergan approval. A spokesperson for Allergan said the company ‘welcomes all investments in our company.’