The week in GRC: SEC releases new strategic plan, and DoJ approves CVS plan to buy Aetna
– The Wall Street Journal reported that General Electric’s decision to replace its CEO with a relatively new board member prompted Yale University Professor Jeffrey Sonnenfeld to receive inquiries from the heads of Fortune 1000 companies asking essentially the same question: ‘Should I be worried about who we bring on boards now?’
Some of the CEOs wondered whether they would be better off seeking long-retired executives as directors because they might represent less competition for their jobs, Sonnenfeld said. ‘They worry about very young retirees with an unfulfilled career agenda,’ he added.
Between 2013 and 2017, internal candidates made up roughly 75 percent of CEO appointments at S&P 500 companies, according to an analysis by Spencer Stuart. GE’s choice, by contrast, highlights the director-to-CEO route. This works well for some companies because directors who become CEOs bring inside knowledge and established relationships with fellow board members, said James Citrin, head of the North American CEO practice for Spencer Stuart.
– As the shareholder activism landscape evolves and the influence of index-fund managers such as BlackRock and Vanguard grows, Elliott Management has been cultivating better relations with those investors and the companies it targets, according to the WSJ. Elliott has hired former research analyst Christine O’Brien to spearhead the outreach to those investors. Her job is to market the firm as a force for sound corporate governance. O’Brien’s mandate is to highlight ‘the corporate governance work Elliott has quietly been doing all along,’ she says.
– According to The New York Times, public pension fund leaders are showing a new willingness to confront private equity firms over the human impact of their investments. Private equity has continued to produce high returns, but the industry faces resistance to its high fees and profit-sharing. Some large pension funds are starting to make more investments directly. Not wanting to alienate their sources of funding, private equity firms seem willing to concede on social issues, pension experts say.
The change coincides with a growing awareness among workers that they can exert influence through public pension boards, where many of the members making investment decisions represent labor unions. ‘Workers don’t want their pension money invested in ways that hurt other workers,’ said Sarah Bloom Raskin, a fellow at Duke University and a deputy Treasury secretary in the Obama administration.
– Reuters reported that the UK’s Competition and Markets Authority (CMA) has launched a fast-track review of the audit industry, leaving all options open to improve choice and book-keeping quality for companies. The review follows calls this year by UK lawmakers who wanted the CMA to consider breaking up the Big Four accounting firms. ‘As part of its review, the [CMA] will investigate whether the sector is competitive and resilient enough to maintain high-quality standards,’ the authority said in a statement.
– The WSJ said that, according to people familiar with the matter, Trian Fund Management is evaluating a takeover bid for Papa John’s International. The activist hedge fund firm recently contacted the pizza company to collect information as it explores a possible bid, the people said. There is no guarantee Trian will make an offer or that Papa John’s will ultimately be sold. There are several other potential bidders, some people familiar with the situation said, including companies and private equity firms.
– The SEC was monitoring the impact of Hurricane Michael on investors and capital markets, evaluating the possibility of granting relief from filing deadlines and other regulatory requirements for those affected by the storm. The agency also urged investors to be vigilant for Hurricane Michael-related securities scams and check the background of anyone offering them an investment.
– The UK government is considering introducing a rule that would require companies to report pay gaps between ethnicities in their work force, a year after employers were required to report their gender pay gaps, according to The New York Times.
‘Every employee deserves the opportunity to progress and fulfill [his or her] potential in [his or her] chosen field, regardless of which background [he or she is] from, but too often ethnic minority employees feel they’re hitting a brick wall when it comes to career progression,’ Prime Minister Theresa May said in a statement.
When the UK government started requiring companies with more than 250 employees to report their gender pay gaps last year, it found that average pay for men was higher than that for women at the vast majority of businesses. Many observers hope that as the data accumulates and is publicized, businesses will be forced to do more to reduce the gap.
– The Washington Post reported that US antitrust officials approved CVS’ plan to purchase Aetna, the nation’s third-largest health insurance company, in a $69 billion deal that may transform the healthcare industry and change how millions of Americans receive basic medical services. The US Department of Justice (DoJ) approved the deal on the condition the companies sell off Aetna’s Medicare Part D prescription drug business.
The tie-up will allow CVS to turn more of its bricks-and-mortar locations into front-line clinics for basic medical services and patient monitoring. ‘Our focus will be at the local and community level,’ CVS CEO Larry Merlo said in a statement, ‘to intervene with consumers to help predict and prevent potential health problems before they occur.’
– Walmart agreed to pay $65 million to almost 100,000 current and former cashiers in California who accused the company of violating state law by refusing to provide them with seating while they worked, according to Reuters. Walmart denied any wrongdoing in the case, which was scheduled to go to trial later this year, in a filing in federal court in San Francisco on Wednesday. The settlement must be approved by a federal judge.
In addition to the payout, the company said it would begin providing seating to its cashiers in California. A Walmart spokesperson said ‘both sides are pleased to have reached a proposed resolution.’ Lawyers for the plaintiffs did not respond to a request for comment immediately.
– The SEC published a new strategic plan that will guide the agency’s work over the next four years. For example, the agency vows to work to better understand how a wider range of investors can participate in the capital markets and how to reach them while tailoring policy initiatives with retail investors in mind. Initiatives under this goal will include modernizing disclosures.
Among other things, it intends to ‘embrace innovation by analyzing market developments, evaluating existing rules and procedures, understanding the continually changing cyber-landscape and ensuring the appropriate resources are dedicated to each area.’
– The WSJ reported that General Electric delayed the release of its quarterly results by a week, saying its new CEO needed more time to complete his review. The company moved its earnings call to allow new chair and CEO Larry Culp more time ‘to complete initial business reviews and site visits’ following his October 1 appointment, the company said in a notice to investors.