The week in GRC: New York says ExxonMobil misled investors, and Third Point sues Campbell Soup
– Reuters reported that Financial Action Task Force (FATF), the global anti-money-laundering watchdog, plans to create its first rules on oversight of crypto-currencies by Jun 2019. This would be an important step toward creating international standards for an asset that is subject to patchy regulations. The FATF said jurisdictions worldwide will be required to license or regulate crypto-currency exchanges and some firms that provide encrypted wallets to help stamp out the use of digital money for money laundering, terrorism financing or other crimes.
– Papa John’s founder John Schnatter asked the pizza company’s board of directors to remove a provision adopted to thwart takeover attempts that he says prevents him from working with other investors that may be interested in the company, according to CNBC. The so-called ‘wolf-pack’ provision is tucked inside a poison pill the board adopted in July to restrict Schnatter, who owns almost 31 percent of the company, from acquiring more equity. The poison pill is intended to defend the company against a hostile takeover if anyone amasses a stake of more than 15 percent without board approval.
Schnatter said several potential outside investors have expressed an interest in speaking to him about the company, but the provision ‘precludes me from discussing the company, my investment in the company or the activities or plans of potential investors or shareholders with them or anyone else with an interest in the company’, according to a letter sent to the board that was filed with the SEC.
A spokesperson for Schnatter declined to comment. A Papa John’s spokesperson didn’t immediately return a request for comment.
– Bloomberg reported that Siemens CEO Joe Kaeser pulled out of an investment conference in Saudi Arabia following the suspected death of dissident journalist Jamal Khashoggi. ‘Truth needs to be found out and justice applied,’ Kaeser said in a tweet. ‘It’s not a decision against [Saudi Arabia] or its people.’ Other high-profile European and US executives have also decided not to go.
– Reuters reported that a US judge affirmed a verdict against Bayer unit Monsanto that found its glyphosate-based weed killers responsible for a man’s terminal cancer. In a ruling by San Francisco’s Superior Court of California, Judge Suzanne Bolanos said she would slash the punitive damages award to $39 million from $250 million if lawyers for school groundskeeper Dewayne Johnson agreed. Lawyers for Johnson said they were still reviewing whether to accept the reduced award or retry the punitive damages portion. ‘The evidence presented to this jury was, quite frankly, overwhelming,’ the lawyers said.
Bayer said in a statement the decision to reduce the damages was a step in the right direction, but it would still file an appeal with the California Court of Appeal, because the verdict was not supported by the evidence presented at the trial. Monsanto, which denies the allegations, had asked the judge to throw out the entire original $289 million verdict or order a new trial on the punitive damages portion.
– The Wall Street Journal noted that recent stock market volatility means companies can buy back more of their own shares. The amount of shares companies may repurchase depends on recent trading volumes. Under SEC rules, a company’s repurchase of shares on any given day cannot exceed 25 percent of its stock’s average daily trading volume over the previous four weeks.
Although the S&P 500 is poised for its worst month since August 2015, trading volumes have rebounded, with market turmoil spurring investors to get in and out of positions. This opens the door for companies to aggressively buy back their own shares, which in turn potentially boosts stock prices.
– Kimberly-Clark said it was switching CEOs in the middle of a restructuring program intended to boost profits, according to the WSJ. Current president and COO Michael Hsu is set to become chief executive, effective January 1, 2019. He will succeed CEO Thomas Falk, who has served in this position since 2002. Falk, who has been chair since 2003, will become executive chair, the company said. Hsu remains a member of the company’s board.
– Reuters reported that New York Attorney General Barbara Underwood sued ExxonMobil, alleging that the oil company for years misled investors about the risks climate-change regulations posed to its business. The suit seeks undisclosed damages, a court order for a review of the company’s representations and that the company corrects ‘numerous misrepresentations’ to investors.
The suit alleges Exxon assured investors it had properly evaluated the impact of climate regulations on its business using a ‘proxy cost’ for the likely effects of future events on its business. But these proxy figures were frequently not used in its internal planning or cost assumptions, the suit claims. The company also failed to properly account for such costs in determining its volume of oil and gas reserves, or whether to write down the value of its assets, according to the suit.
Exxon ‘looks forward to refuting these claims as soon as possible and getting this meritless civil lawsuit dismissed,’ a spokesperson said. He added that the suit was the ‘product of closed-door lobbying by special interests, political opportunism and the attorney general’s inability to admit that a three-year investigation has uncovered no wrongdoing.’
– Cathay Pacific discovered a data breach in which the personal information of more than 9 million passengers may have been stolen, according to CNN. The airline said a wide range of data – including passengers’ names, dates of birth, phone numbers, email addresses and passport numbers – was exposed in a hack of its information systems earlier this year.
‘We are very sorry for any concern this data security event may cause our passengers,’ CEO Rupert Hogg said in a statement. The company is in the process of contacting affected people, he added. Cathay said it first discovered ‘suspicious activity’ on its network in March and ‘took immediate action to contain the event’ and investigate it with the help of a cyber-security firm.
– The WSJ reported that Third Point sued Campbell Soup Co and its board, alleging that the food maker distributed misleading and incomplete information to win shareholders’ support in a proxy fight over control of the company. Daniel Loeb’s Third Point aims to replace Campbell’s entire 12-person board.
With its lawsuit, Third Point seeks to stop the company from holding a November 29 shareholder vote without releasing more information. Third Point’s suit also presses Campbell to provide more details about the strategic review it recently completed, among other things. ‘We are vigorously contesting the Third Point lawsuit,’ Campbell said in a statement.
– The WSJ also reported that, according to a review of 220 annual and interim reports for the 2017-18 financial year conducted by the Financial Reporting Council (FRC), the UK’s largest companies need to improve their corporate reporting and eliminate basic errors. The FRC said judgments, estimate disclosures and cash-flow statements are the biggest source of concern in reports by companies in the FTSE 350, followed by the use of alternative performance measures.
‘We were...disappointed to see a rise in basic errors and non-compliance in a few areas of reporting,’ the FRC said in a statement.