The week in GRC: Republicans pass tax bill and, in the House, vote in favor of proxy adviser reform bill

Dec 22, 2017
This week’s governance, compliance and risk-management stories from around the web

- The House of Representatives and the Senate voted to approve the $1.5 trillion US tax bill on Wednesday, Reuters reported. The bill cuts the US corporate income tax rate from 35 percent to 21 percent, and also gives other business owners a new 20 percent deduction on business income and reshapes how the government taxes multinational corporations along the lines that the country’s largest businesses have recommended for years.

Democrats were united in opposition to the tax legislation, calling it a giveaway to the wealthy that will widen the income gap between rich and poor, while adding $1.5 trillion over the next decade to the $20 trillion national debt.

 

- GE, which has paid a net negative federal corporate income tax rate since at least 2008, may find itself on the hook for as much as $9 billion in new taxes because of the Republican tax bill, making the legislation less of a Christmas present than investors expected, according to The Street.

GE was one of 18 Fortune 500 companies that paid no net federal income taxes between 2008 and 2015, a study by the Institute on Taxation and Economic Policy found. The company's tax bill is likely to go up under the new legislation, a Deutsche Bank analyst said. John Inch wrote that ‘GE could owe up to $9 billion in new taxes, or an average of $1.1 billion a year for the next eight years’ – due to the company’s overseas reinvested profits.

 

- The House of Representatives also passed the Corporate Governance Reform and Transparency Act of 2017 on Wednesday, known to some as the Proxy Adviser Reform Bill, Pensions & Investments reported.

House of Representatives member Sean Duffy, R-Wisconsin said that while proxy-advisory firms play an important role in advising clients, ‘they are susceptible to conflicts of interest’. Duffy said that along with more accountability and transparency from the firms, the bill if passed would create more competition in the proxy-advisory firm industry.

The bill had been supported by NIRI, the Society for Corporate Governance, Nasdaq, NYSE, the US Chamber of Commerce and other business groups.

 

 - Eric Schmidt will step down as the executive chairman of Alphabet, Google’s parent company, the FT reported. Schmidt will formally step down at Alphabet’s next board meeting, in January, but will continue to serve as a technical adviser with a seat on the board.

Schmidt served as Google’s CEO until seven years ago, when Larry Page took the post. A spokesperson for Google told the FT that Schmidt’s move had been under discussion for more than a year and that the role of executive chairman would no longer be needed after the creation of Alphabet, the holding company, in 2015.

 

The founder and CEO of Papa John’s, John Schnatter, is stepping down from his executive post, effective January 1, following a string of public controversy, CNN reported. Schnatter had become embroiled in the public debate about whether NFL players should be allowed to take a knee during the national anthem – having discussed it during an earnings call with investors.

Papa John’s was labelled by one far-right website as ‘pizza of the alt-right’, a claim it has denied. John Schnatter will continue to serve as the company’s chairman, while Steve Ritchie, the current chief operating officer, will serve as the new CEO.

 

- The SEC will be cracking down on suspicious cryptocurrencies in the new year, CNBC reported. ‘We’re in line from some serious regulatory responses to all of this and that will be forthcoming after the first of the year,’ Harvey Pitt, the SEC’s former chairman said on the CNBC show ‘Fast Money’.

The SEC and Finra have already offered warnings about the risks of cryptocurrency and Pitt said there are concerns about insider trading. On Tuesday the SEC temporarily suspended trading in shares of the Crypto Co, whose stock had increase by more than 2,700 percent this month.

 

- Corporate access meetings could be in breach of RegFD according to new research from Harvard Business School, Quartz reported. The academic study found that investors are more likely to ask pointed questions in private meetings than they are in public, potentially leading to off-side conversations taking place. The authors of the report suggest that publishing minutes from investor meetings could be a way to avoid falling foul of RegFD.

 

- Reuters reported that the SEC had sued luxury real estate developer Robert Shapiro and his Woodbridge Group of Companies for allegedly operating a $1.2 billion Ponzi scheme targeting thousands of investors.

According to the SEC’s complaint, Shapiro ran a ‘sham’ business model that allegedly defrauded more than 8,400 investors, including many elderly, in unregistered Woodbridge funds. It said Shapiro promised 5 to 10 percent annual interest on money he said would be used for loans to commercial property owners paying 11 to 15 percent interest rates.

 

- The cost of compliance for organizations rose 43% between 2011 and 2017, while the cost for not being in compliance rose 45% in that time, according to new research from data-integration firm Globalscape and Ponemon Institute, the WSJ reported. A vast majority of organizations (90 percent) believe that compliance with the upcoming General Data Protection Regulation (GDPR) would be difficult to achieve. GDPR is considered by respondents to be the most challenging among other data compliance regulations such as Health Insurance Portability and Accountability Act (HIPAA), Gramm-Leach-Bliley Act (GLBA) and Federal Information Security Management Act (FISMA).

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