The week in GRC: Nissan plans majority-independent board, and Toshiba to add foreign directors
– The Wall Street Journal reported that Toshiba said it would put international investors on its board, including one with ties to a US hedge fund that holds a Toshiba stake. The move is the latest sign of activist investors using their influence in Japan. Toshiba said it was the first time in almost 80 years that a non-Japanese person would serve on its board.
The announcement came in the wake of pressure from several US and Asia-based investors that have taken stakes in Toshiba. CEO Nobuaki Kurumatani said that in selecting the board slate, he recognized that roughly 70 percent of Toshiba’s shareholders are now non-Japanese. ‘We always kept a channel of dialogue open and spoke fairly actively with them,’ he said.
Others with overseas connections nominated to the Toshiba board include Jerry Black, former CEO of management consulting firm Kurt Salmon, Paul Brough, executive chair of commodities trader Noble Group, and fund manager Ayako Hirota Weissman of Horizon Kinetics. The nominations require shareholder approval at a meeting in June.
– According to CNN, Bed Bath & Beyond said Monday that chief executive Steven Temares was stepping down ‘effective immediately’. The move comes amid activist shareholder pressure for changes at the company. Bed Bath & Beyond said Mary Winston will serve as interim CEO until a replacement is found. Temares is also resigning from the board, the company said.
‘The board determined that now is the right time to identify the next generation of leadership,’ said Patrick Gaston, independent chair of the retailer’s board. Bed Bath & Beyond, facing pressure from activist investors, recently appointed five new independent members to its board. The activists had been pushing to replace the entire board and to remove Temares as CEO.
– Lloyd’s of London has asked the Banking Standards Board to carry out a survey of the insurance market’s 45,000 participants on issues such as honesty and respect to help to improve the working environment, Reuters said. Lloyd’s has already banned alcohol at its in-house bar before 16.00 GMT and threatened lifetime bans from its building for bad behavior. CEO John Neal said the survey would help Lloyd’s to ‘put in place further measures to build a diverse and inclusive market in which everyone is respected and valued.’
– Reuters reported that PG&E submitted a proposed order to a US district court judge that would require the company’s CEO and board to visit Paradise, California by July 15 to see the destruction caused by a wildfire in November that may be linked to the company’s equipment.
The order, agreed to by the US Department of Justice and US Probation Office requires Judge William Alsup’s approval. The judge recently called for PG&E officials to tour the town of Paradise. November’s Camp Fire leveled the town and killed more than 80 people. The fire also pushed PG&E to seek Chapter 11 bankruptcy protection in the expectation of liabilities.
– The Financial Industry Regulatory Authority (Finra) said it is launching a multi-year initiative to integrate and simplify brokerage firms’ digital interactions with Finra across several programs in order to help firms develop more efficient and effective compliance programs. The initiative is the latest outgrowth of the ongoing FINRA360 organizational improvement initiative.
‘We believe there is significant opportunity to further enhance compliance and reduce costs by transforming firms’ digital experience when interacting with Finra, whether that involves sending and receiving data and reports, managing compliance tasks and notifications or accessing regulatory guidance,’ president and CEO Robert Cook said in a statement.
– CNBC reported that, according to people familiar with the matter, Uber’s underwriters, led by Morgan Stanley, were so concerned the company’s IPO faced difficulties that they used a technique ahead of the deal so they could provide extra support for the stock. This level of support, known as a naked short, goes beyond the traditional help a new offering can get.
The naked short technique shares the same name as a practice that was outlawed during the financial crisis. But naked short-selling as part of a syndicate in an IPO is still legal, according to SEC rules, and was disclosed in Uber’s prospectus as a possibility.
‘A naked short position is more likely to be created if the underwriters are concerned there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors [that] purchase in this offering,’ Uber said in the filing.
Morgan Stanley declined to comment on whether it engaged in naked short-selling. Uber also declined to comment.
– The WSJ said that, in an effort to fight financial crime, regulators in eight Nordic and Baltic countries have agreed to share more information about money-laundering threats. The plan is to create a co-ordinated process for exchanging information across Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden. A formal agreement among the agencies is being drafted.
The initiative comes as banks in the Baltic and Nordic region face questions about their anti-money laundering (AML) safeguards. Those questions have prompted credit ratings firms to cut their outlooks and banks to reshuffle their management. Regulators and banks around the world are taking a number of steps to improve their AML compliance.
– The WSJ reported that, according to people familiar with the matter, Trian Fund Management may launch an activist campaign at Legg Mason to press the money manager to improve its results. Trian recently held discussions with Legg Mason management about the need to cut costs and improve profit margins, the people said. The two sides may still negotiate a settlement that avoids a proxy fight, they added.
Legg Mason earlier this year revealed plans to cut annual expenses by as much as $110 million by the end of 2022. On Monday’s conference call with analysts, Legg Mason CEO Joseph Sullivan sought to assure investors the company is moving quickly on that front.
– According to the WSJ, market turmoil is unlikely to slow the pace at which US companies are engaging in share buybacks. The more than 80 percent S&P 500 companies that have reported results for Q1 repurchased $180 billion worth of their own stock during that time, according to S&P Dow Jones Indices. That is on pace to be the second-highest amount on record based on data since 1998. Although data isn’t yet available for Q2, companies increased buying during the two previous market pullbacks.
Democratic presidential candidates have indicated that they want to restrict how much stock US companies can buy back, arguing that the process enriches shareholders at the expense of workers.
– USA Today owner Gannett Co said that based on a preliminary vote count, all eight of its director nominees were elected to its board, beating candidates nominated by its shareholder MNG Enterprises, better known as Digital First Media, Reuters reported. The newspaper chain had launched a proxy fight against Gannett by nominating six directors after Gannett rejected MNG’s $1.36 billion buyout offer. MNG, which is controlled by hedge fund firm Alden Global Capital, later cut its slate to three nominees.
Gannett’s slate of eight director nominees was backed by Glass Lewis & Co and Egan-Jones Proxy Services, while one of MNG’s nominees gained the support of ISS.
‘Gannett’s newspapers are critical local resources, and we hope Gannett’s incumbent board and management shift course to embrace a modern approach to local news that will save newspapers and serve communities. That would be the best outcome,’ MNG said.
– The WSJ released its CEO pay ranking, an analysis of 2018 compensation for S&P 500 chief executives. According to the report, median pay reached $12.4 million for CEOs of the biggest US companies last year, a fourth straight post-recession high despite stock market returns falling at most of the companies. Most S&P 500 CEOs got raises of 5 percent or better during the year, while total shareholder return was -5.8 percent, according to the study.
– Reuters reported that the EU fined Barclays, Citigroup, JPMorgan, MUFG and Royal Bank of Scotland a combined €1.07 billion ($1.2 billion) for rigging the foreign exchange market. The European Commission said individual traders at the banks formed two cartels to manipulate the spot foreign exchange market for 11 currencies, including the dollar, the euro and the pound.
Citigroup was hit with the largest fine of €311 million, while UBS was not fined because it had alerted the commission about the two cartels.
JPMorgan and RBS said they were pleased to have settled the cases and that they had since made changes to their controls. JPMorgan said the fine related to the conduct of one former employee and RBS that it served as a reminder of how it had lost its way in the past. MUFG said it had also taken measures to prevent a recurrence. Barclays and Citigroup declined to comment.
– According to the WSJ, Nissan Motor Co announced a new slate of board directors, aiming to add outside oversight of management decisions. Seven people on the 11-member board will be nominally independent. Five are from either Europe or the US. The remainder are Japanese. Keiko Ihara, an independent director who led the selection of nominees, described the new board as diverse and ‘the result of a fair selection process’. The nominees must be approved by shareholders in late June.
Under the new lineup, Nissan CEO Hiroto Saikawa keeps his job and board seat along with Renault chair Jean-Dominique Senard and Renault CEO Thierry Bolloré.
– Reuters reported that Mitsubishi Motors Corp said Osamu Masuko will step down as its CEO on June 21 and be replaced by Takao Kato, who is president of its operations in Indonesia. Masuko will continue to chair the board, Mitsubishi Motors said, adding that Masuko and Kato will hold a press conference on May 20 to discuss the changes.
– According to the WSJ, KPMG said it would increase the oversight of its UK audit arm but stopped short of following a regulator’s recommendation that the country’s biggest accounting firms split their audit and consulting businesses. The firm will create a new audit executive committee responsible for managing performance, risks and controls at the audit business, effective June 1.
The change follows the UK Competition and Markets Authority (CMA) in April recommending an operational split between the so-called big four accounting firms’ audit and consulting businesses. The regulator also proposed that large accounting firms participate in joint audits with smaller audit firms, and for corporate audit committees to be held accountable for their choice of auditor.
The steps announced by KPMG don’t go as far as that. ‘These changes do not mark the separation of KPMG UK’s audit practice from the rest of the firm, but will deliver on many of the recommendations proposed by the CMA and the [Business, Energy and Industrial Strategy] select committee in their recent reports on the profession,’ KPMG said in a statement.