The week in GRC: Goldman Sachs wants IPO-stage board diversity, and Xerox to nominate new HP board

Jan 24, 2020
This week’s governance, compliance and risk-management stories from around the web

The Guardian reported that Sainsbury’s, Lego and H&M are among the companies to make a CDP-produced list of companies deemed to be at the forefront of efforts to tackle the climate crisis. CDP scores companies based on the environmental data they voluntarily disclose on its platform. Just 2 percent of the 8,000 companies it scores made the A-list, with Nestlé, Unilever, BT and Walmart among the 179 to make the cut.

Companies that focus on the climate crisis don’t do so at the expense of business success, CDP said, with companies on the A-list also outperforming peers on the stock market by 5.5 percent a year. Dexter Galvin, CDP’s global director of corporations and supply chains, said the A-list firms were ‘blazing a trail for others to follow.’

– According to CNBC, Starbucks said it will try to become ‘resource positive’, storing more carbon than it emits, eliminating waste and providing more clean freshwater than it uses. ‘By embracing a longer-term economic, equitable and planetary value proposition for our company, we will create greater value for all stakeholders,’ Starbucks CEO Kevin Johnson said in announcing the new goal.

Starbucks is among the growing number of companies announcing extensive sustainability goals as consumers grow increasingly concerned about climate change. BlackRock said recently it plans to revamp its investing strategy with sustainability as a key goal. Microsoft recently said it is trying to remove more carbon from the atmosphere than it emits by 2030.

– Sticking with the sustainability theme, The Wall Street Journal reported that a member of Tyson Foods’ founding family is urging the meat industry to tackle issues such as resource conservation and food waste. John R Tyson, the company’s chief sustainability officer and son of chair John H Tyson, said the company is looking to create a global coalition of protein producers, academics and environmental and human rights groups to work on social and environmental issues.

The Coalition for Global Protein is being established as meat producers face criticism over livestock production’s greenhouse gas emissions and water pollution, in addition to the industry’s treatment of animals and workers. John R Tyson was due to host the group’s first meeting this week at the World Economic Forum in Davos to discuss sustainability commitments, collaborative research and how to measure progress.

– According to Reuters, Lonza chair Albert Baehny said the company plans to hire a drug industry veteran by late May. Baehny said his short list of CEO candidates has been narrowed down to six people, all from outside the company, with final interviews to begin soon. ‘One of the criteria should be 20-plus years of pharma experience, ideally. And pharma can be extended to bioprocesses [or] bioproducts, but in this area,’ Baehny said. ‘Our long-term strategic focus will be on’ pharma and biotech.

– The WSJ looked at what it described as a developing tussle over how to treat more than $5.5 trillion in assets on company books, which it said is causing strife between investors and companies and investment advisers and academics. The conflict concerns accounting goodwill, which is the premium a company pays when it buys another for more than the value of its net assets. A five-year boom in M&A has added urgency to how to account for the financial concept.

FASB is considering whether to continue to assess goodwill by tests or return to a similar approach to the guidelines of nearly 20 years ago, when companies wrote down a set portion of goodwill each year for up to 40 years. Many companies contend that the test approach is expensive and subjective.

Reuters reported that Senator Elizabeth Warren, who is running for the Democratic Party’s presidential nomination, wants the biggest US banks to provide details about their assessments of and preparations for risks related to the climate crisis. ‘To protect themselves and the economy from climate-driven catastrophes, large financial institutions must act quickly to address risks,’ Warren wrote in letters sent to top executives at Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, State Street and Wells Fargo.

‘I write to ask for more information about the risks caused by the climate crisis on the financial industry and your institution’s practices, including what steps, if any, your institution is taking to adapt to mitigate these risks,’ she wrote in the letters. She asked for detailed written responses by February 7. Led by the Bank of England, dozens of central banks have called for better disclosure of risks related to climate change and have begun looking at approaches to their supervision that take such risks into account.

Reuters asked each bank for comment on Warren’s letter after normal business hours. A JPMorgan spokesperson said the bank was reviewing the letter. A Wells Fargo spokesperson pointed to the environmental sustainability section of its website. A State Street spokesperson, while declining to comment, noted the bank’s track record on the issue, which includes support for carbon pricing.

– Gerry Cross, candidate for executive director of the European Banking Authority (EBA), told lawmakers the EU must resist lobbying pressure from banks to weaken pending capital rules, according to Reuters. Cross sought to reassure lawmakers at a confirmation hearing that as second in command at the EBA he would not be unduly influenced by the industry.

Cross, currently a senior official at the Central Bank of Ireland, once worked for the Association for Financial Markets in Europe, one of Europe’s main financial sector lobbying groups. He tried to underscore the tough approach he would take toward banks, saying that the last set of capital rules to address problems highlighted by the financial crisis must be implemented.

– The SEC announced two whistleblower awards in connection with separate enforcement actions after the tipsters provided significant information that helped the agency shut down separate fraudulent schemes targeting retail investors.

In the first action, the whistleblower alerted the agency to a fraudulent scheme and was awarded more than $277,000. In the second action, the whistleblower – a harmed investor – provided critical information that enabled the SEC staff to recover assets that were later returned to victims. The SEC awarded the whistleblower $45,000.

The SEC has awarded roughly $387 million to 72 individuals since issuing its first award in 2012.

– According to CNBC, BlackRock chair and CEO Larry Fink was concerned that his annual letter to CEOs would provoke a ‘severe backlash’ against his firm, particularly because many of its clients are large hydrocarbon producers. Fink warned earlier this month that the climate crisis would lead to a ‘fundamental reshaping of finance’, with a significant reallocation of capital set to take place ‘sooner than most anticipate.’

‘And yet, we can talk about the public narrative, but the private conversations we had with our clients I would say was 99:1 in favor,’ Fink said.

In his letter, Fink explained how BlackRock would avoid investments in companies that have a high sustainability-related risk and would start to exit investments in coal production, introduce funds that ban fossil-fuel stocks and vote against corporate managers who aren’t making progress on fighting the climate crisis.

– Xerox Holdings said it plans to nominate 11 independent candidates to HP’s board, setting the stage for a proxy fight after the PC maker rejected its $33.5 billion takeover offer, Reuters reported. The candidates include Kim Fennebresque, former CEO of Cowen Group, and Jacob Katz, former chair of Grant Thornton.

‘HP shareholders have told us they believe our acquisition proposal will bring tremendous value, which is why we lined up $24 billion in binding financing commitments and a slate of highly qualified director candidates,’ Xerox CEO John Visentin said.

HP did not immediately respond to a request for comment.

– Goldman Sachs CEO David Solomon said the bank will help companies go public only if they have at least one ‘diverse’ board member, according to CNBC. Solomon said the performance of public offerings of US companies with at least one female director has been ‘significantly better’ in the last four years than of those without.

‘Starting on July 1 in the US and Europe, we’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women,’ Solomon said. ‘And we’re going to move toward 2021 requesting two.’ Roughly 60 companies in the US and Europe have gone public recently with all-white, all-male boards, he said. ‘Look, we might miss some business, but in the long run, this I think is the best advice for companies that want to drive premium returns for their shareholders over time,’ Solomon said.

– The WSJ reported that the Swiss Financial Market Supervisory Authority (FINMA) said an unnamed former bank CEO must pay SFr730,000 ($774,150) and banned him from dealing securities for six years in relation to unlawful insider trades made through his wife’s accounts. FINMA said the CEO used information received on the job and shared inside information with others for share trades, breaking internal rules and supervisory law. A spokesperson declined to name the CEO or whether any criminal proceedings are taking place.

Swiss and other European regulators have in recent years ramped up efforts to prevent insider trading and other market abuses but take less action against individuals and firms than their US counterparts.

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