The week in GRC: Fox picks new directors, and SEC adopts changes to disclosure requirements
– The Guardian reported that Deutsche Bank has confirmed it is in merger talks with rival Commerzbank, following months of speculation over a potential tie-up. Deutsche Bank released a statement confirming that ‘in light of arising opportunities’ it had ‘decided to review strategic options’ and was engaging with its German counterpart. Commerzbank also confirmed in a statement that the two lenders had agreed ‘to start discussions with an open outcome on a potential merger.’
Deutsche Bank CEO Christian Sewing wrote to staff acknowledging the months of speculation over the deal. ‘We, the management board, will review the options that present themselves to us carefully,’ Sewing said. ‘It is our responsibility and it is our duty. In doing so, we will keep the interests of the bank and all of our stakeholders in mind.’ He cautioned that talks might not lead to a successful merger.
– According to CNN, Lyft set a price range for its IPO that could value the company at roughly $20 billion. The company expects to raise as much as $2.1 billion through the sale of stock, though it won’t sell all of its shares to the public through the offering. Lyft’s co-founders – CEO Logan Green and president John Zimmer – will hold just less than half the votes among shareholders; they’ll be given a special issue of stock that grants them 20 votes for each of their shares.
A number of the regular shares will go to employees of the company, and some will be made available to its drivers. Drivers will be getting bonuses of up to $10,000 if they have completed 20,000 rides and $1,000 if they have completed between 10,000 and 20,000 rides by the end of last month. And they will be allowed to take that bonus in shares of the company at the eventual IPO price.
– Reuters said that, according to a spokesperson for Sanofi, the French drug maker is working on a succession plan to find a new CEO in agreement and consultation with current chief executive Olivier Brandicourt. Sanofi has set an age limit for its CEO job at 65 and Brandicourt will be 65 in February 2021. ‘It is the responsibility of any company’s board of directors to consider and plan for the succession of its CEO and executive committee members by identifying the next set of future leaders,’ a spokesperson said.
– According to the Financial Times, tech investors are increasingly including #MeToo clauses in deals with start-ups, forcing entrepreneurs to disclose complaints about sexual harassment in the workplace. Lawyers and deal advisers said such clauses were being used in contracts, due diligence exercises and codes of conduct on both sides of the Atlantic, following high-profile allegations of harassment and discrimination at major companies.
– Median compensation for 132 CEOs of S&P 500 companies reached $12.4 million in 2018, up from $11.7 million for the same group in 2017, according to a Wall Street Journal analysis. The gains were driven by robust corporate profits and strong stock market returns for much of the year. Most of these CEOs received significant raises – the median was 6.4 percent – even though the December stock-market decline meant most of the companies finished out the year posting sluggish shareholder returns.
If the pay trends continue for the rest of the companies in the S&P 500 index, 2018 could mark a third straight year for record CEO pay – and one of the clearest examples in years of shareholder performance lagging CEO pay.
– The SEC has appointed Justin Jeffries as the associate regional director for enforcement in the agency’s Atlanta regional office. Jeffries succeeds Aaron Lipson, who left the SEC in December 2018. In his new role, Jeffries will oversee the Atlanta office’s enforcement efforts in Georgia, North Carolina, South Carolina, Tennessee and Alabama.
– According to Reuters, whistleblowers will be able to report suspected price-fixing online instead of showing up at the offices of the EU’s antitrust regulators in an effort to make it easier for companies to come forward. The European Commission’s leniency program rewards companies reporting either a cartel or providing evidence with reduced fines. ‘Users of eLeniency can directly provide corporate statements and upload supporting documents on a dedicated secure server of the commission,’ the EU competition enforcer said.
– The WSJ reported that the SEC is expected to propose the first US rules on proxy advisers following an organized campaign by public companies that think such firms have too much sway over shareholder proposals. Companies argue that they spend too much time and money fighting proposals they think would be detrimental to their overall performance.
On Monday, SEC member Elad Roisman, who is leading the overhaul, said the commission should reassess whether asset managers need more guidance about how to use the services of proxy advisers. He also questioned whether it was appropriate for the SEC to exempt proxy advisers from some regulations on investment advice.
Proxy advisory firms say institutional investors rely on their research and recommendations to make informed decisions about how to vote their clients’ shares. ‘We’re hopeful that to the extent any changes are made, they’re made with sensitivity to all the stakeholders,’ said ISS general counsel Steven Friedman. Glass Lewis declined to comment. In a November 2018 letter to the SEC, Glass Lewis CEO Katherine Rabin said ‘arguing that proxy advisers exert undue influence on investors is simply untrue.’
– The UK’s Financial Conduct Authority (FCA) said it had fined UBS a record £27.6 million ($36.6 million) for allegedly failing to report 136 million transactions properly for nearly a decade in a repeat offense, according to Reuters. The FCA said the failings cover reports between November 2007 and May 2017. ‘If firms cannot report their transactions accurately, fundamental risks arise, including the risk that market abuse may be hidden,’ said Mark Steward, the FCA’s executive director of enforcement.
UBS said it was pleased to have resolved what it called a legacy matter that it was fully provisioned for. ‘Although there was never any impact on clients, investors or market users, the bank has made significant investments to enhance its transaction reporting systems and controls,’ UBS said.
– The WSJ reported that the EU fined Google €1.49 billion ($1.7 billion) for limiting how some websites could display ads sold by its rivals. The fine doesn’t come with a specific order to change Google’s business practices because the antitrust regulator says Google ended the last type of anti-competitive behavior at issue in the case shortly after charges were filed nearly three years ago.
‘Google has cemented its dominance in online search adverts and shielded itself from competitive pressure by imposing anti-competitive contractual restrictions on third-party websites,’ said Margrethe Vestager, the EU’s antitrust chief. ‘This is illegal under EU antitrust rules.’ Even though Google stopped this behavior in 2016, Vestager said that ‘at a minimum our decision requires Google to put a stop to those restrictions or any other restrictions with an equivalent effect and not to reinstate them.’
Kent Walker, Google’s senior vice president of global affairs, said, ‘We’ve already made a wide range of changes to our products to address the commission’s concerns. Over the next few months, we’ll be making further updates to give more visibility to rivals in Europe.’ In the past, the company has said that although it believes it behaved legally with the business at issue in Wednesday’s decision, it ended the allegedly anti-competitive behavior to resolve the issue expeditiously.
– The WSJ said Fox Corp, which began trading as a stand-alone company following a spinoff from 21st Century Fox, named Paul Ryan, the former speaker of the US House of Representatives, to its board. The new Fox, which holds TV assets including Fox News, the Fox broadcast network and television stations, and Fox Sports, also appointed Anne Dias, Roland Hernandez and Chase Carey to its board.
Hernandez, CEO of Hernandez Media Ventures, served as chief executive of Telemundo Group from 1995 to 2000. Dias founded media-focused investment fund Aragon Global Holdings. Carey, chair and CEO of Formula 1, held various top posts at 21st Century Fox, including vice chair, until this year.
The board also includes Jacques Nasser, who previously served as chair of mining company BHP Billiton; Rupert Murdoch, the company’s co-chair; and his son Lachlan Murdoch, the company’s chair and CEO.
– According to CNBC, Rite Aid shareholders approved the company’s reverse stock split, in a move aimed at boosting the drugstore chain’s shares high enough to continue trading on the NYSE. The company’s board of directors may choose a stock split ratio of 1-for-10, 1-for-15 or 1-for-20, Rite Aid said in a statement. The board will determine the date at which the split becomes effective at a later time. Approximately 78 percent of shareholders voted in favor of the move, the company said, citing preliminary results.
– The SEC voted to adopt amendments to modernize and simplify disclosure requirements for public companies, investment advisers and investment companies. The amendments are intended to improve the readability and navigability of company disclosures, and to discourage repetition and disclosure of immaterial information.
Among other things, the amendments will increase flexibility in the discussion of historical periods in management’s discussion and analysis, allow companies to redact confidential information from most exhibits without filing a confidential treatment request, and incorporate technology to improve access to information on the cover page of certain filings.
– The WSJ reported that AT&T’s WarnerMedia unit CEO John Stankey said the company is creating the new role of chief diversity and inclusion officer, amid concerns among employees about the lack of women in the entertainment company’s senior ranks. Stankey said the position will ‘help ensure our business encourages and values diverse perspectives, supports the unique voices of the talent we work with and is reflected in the world-class content we create.’
– CNN reported that, according to people familiar with the matter, the US Department of Justice has issued multiple subpoenas as part of an investigation into Boeing’s Federal Aviation Administration certification and marketing of 737 Max planes. The criminal investigation, which is in its early stages, began after the October 2018 crash of a 737 Max aircraft operated by Lion Air in Indonesia, the people said. Investigators have sought information from Boeing on safety and certification procedures, including training manuals for pilots, along with how the company marketed the new aircraft, the people said. It’s not clear what possible criminal laws could be at issue in the probe.
A Boeing spokesperson referred to a statement the company released that indicated it ‘does not respond to or comment on questions concerning legal matters, whether internal, litigation or governmental inquiries.’
– The WSJ said DWS Group, the asset management business of Deutsche Bank, recently raised $843 million in a single day for a new fund that tries to invest in the best corporate citizens in the US – one of the most successful ETF debuts of all time. Asset managers have for years been talking about a new dawn for strategies that deliver competitive returns along with a clear conscience, but investors have been slow to buy into so-called ESG funds.
The successful inaugural run of DWS Group’s Xtrackers MSCI USA ESG Leaders Equity ETF may signal a step change in investor participation. There are $11.6 trillion in assets overseen by US money managers that consider ESG criteria, up from $8.1 trillion in 2016, according to the most recent biennial report from US SIF.
– CNN reported that former NBA player Shaquille O’Neal will join Papa John’s board of directors. O’Neal will also invest in nine Papa John’s stores in Atlanta and become an ambassador for the brand in advertisements. ‘Shaquille has an excellent entrepreneurial background, including as a restaurant franchise owner and is a natural creative marketer,’ said Jeff Smith, chair of Papa John’s board.
– According to the WSJ, US hedge fund manager Elliott Management lost its battle to boost dividends and gain board seats at South Korean auto manufacturer Hyundai Motor Group, highlighting the challenge activist investors face in proxy fights with Asia’s family-run businesses. Shareholders at Hyundai Motor Co and its auto-parts affiliate Hyundai Mobis Co rejected Elliott’s proposals for one-time dividends totaling KRW7 trillion ($6.2 billion), more than four times what the two companies’ boards proposed.
Elliott’s dividend proposals got 13.6 percent of the vote at Hyundai Motor and 11 percent at Hyundai Mobis. Shareholders also backed the two companies’ combined five independent board nominees.
‘Elliott is encouraged by the support the shareholder proposals received from independent shareholders of [Hyundai Motor Co] and Mobis,’ a spokesperson for the hedge fund firm said. ‘We are confident the future holds further improvements at Hyundai.’