The week in GRC: Activists said to eye peace deals, and companies invest in sanctions compliance
– CNN reported that Hewlett-Packard’s (HP) board of directors unanimously rejected a bid to be acquired by Xerox. The HP board felt Xerox’s offer ‘significantly undervalued’ the company, according to a letter sent to Xerox vice chair and CEO John Visentin.
‘Our board of directors has reviewed and considered your unsolicited proposal dated November 5, 2019 at a meeting with our financial and legal advisers and has unanimously concluded that it significantly undervalues HP and is not in the best interests of HP shareholders,’ HP said in the letter. ‘The board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company’s stock.’
HP’s board said in the letter it has ‘great confidence’ in the company’s strategy and ability to ‘continue driving sustainable long-term value.’ But the company didn’t entirely reject the possibility of a merger with Xerox.
Xerox did not immediately respond to a request for comment.
– According to The Wall Street Journal, the SEC reported its first annual decline in tips from whistleblowers as the agency prepares to finalize a proposal that may limit the size of big awards. The SEC received 5,212 tips during the 2019 fiscal year ended in September, down 1 percent from a year earlier, the agency said. The largest drop was in tips about potential cases of fraud in securities offerings, which had spiked the year before.
The SEC may start setting limits on its largest awards under a proposal introduced last year that would give the agency discretion to scale back awards above $30 million. Whistleblower advocates and attorneys have criticized the proposal, saying it could discourage people from reporting on corporate wrongdoing.
SEC chair Jay Clayton addressed those concerns in a statement, saying critics have mischaracterized the proposal as imposing a cap on future awards. ‘Congress vested in the commission the authority and responsibility to use our good judgment and experience to determine award amounts,’ Clayton said.
– The Guardian said that, according to new research, hubris and overconfidence caused by excellent financial performance is a major cause of irresponsible corporate behavior. Di Fan, a senior lecturer at the business school of the Australian National University, said his research shows that companies earning above-average profits are more likely to breach their environmental or social obligations. He said corporate governance had failed to curb bad behavior and, based on his earlier research of US companies, fines needed to be increased as much as six-fold to encourage better behavior.
Fan said his research shows companies are more likely to break environmental and social regulations if they are either financial under-performers or financial over-performers. Under-performers were under economic pressure to ‘take shortcuts’ but in the case of very successful companies ‘we find that it is hubris behind this tendency,’ he said.
– T-Mobile announced that CEO John Legere will be stepping down at the end of next April after his contract expires, CNN reported. The move comes amid speculation that Legere may be a leading contender to become the next CEO of WeWork, although Legere dismissed reports that he was looking to take that job. He will be replaced by Mike Sievert, T-Mobile’s president and COO. The company said Legere will remain a board member and will assist with the company’s pending acquisition of Sprint.
– According to the WSJ, the world of shareholder activism is seeing a new playbook that calls for quick peace deals that enable investors and the companies they target to avoid costly, protracted battles. For example, AT&T and Emerson Electric Co have recently ended high-profile activist challenges by quickly agreeing to make modest changes.
The new set-ups are more like non-binding handshake agreements and, in the case of AT&T and Emerson, merely entitle the activist to recommend or advise on board changes. Drawn-out activist campaigns can be expensive and time-consuming, creating resentment among executives and board members.
– The WSJ said global companies are making greater investments into sanctions compliance, hiring staff and training existing employees as the US government expands its use of sanctions and trade restrictions. One of the biggest shifts affecting compliance officers has been the expansion of US sanctions to non-financial industries, such as shipping and manufacturing, according to Elizabeth Rosenberg, a sanctions policy adviser at the US Department of the Treasury during the Obama administration.
Compared with financial institutions, which have well-established sanctions compliance programs, many non-financial companies have fewer controls in place, said Rosenberg, who is now a senior fellow at the Center for a New American Security.
– According to Reuters, Norwegian Air appointed Jacob Schram as CEO to take charge of the company’s restructuring as it struggles with a low-cost, long-haul model in an overcrowded industry. Schram joins Norwegian from McKinsey where he worked as an adviser, Norwegian’s board said. He succeeds Bjørn Kjos, Norwegian’s founder who stepped down in July having built the company into Europe’s third-largest budget airline.
‘[Schram’s] extensive management experience from global companies, proven leadership skills, strong commercial consumer orientation and impressive track record of value creation will greatly benefit Norwegian as the company enters into a new phase,’ board chair Niels Smedegaard said in a statement.
– According to the WSJ, Australia’s Westpac Banking Corp has been accused of the biggest breach of the country’s anti-money-laundering and terrorism financing laws. Westpac allegedly breached money-laundering laws more than 23 million times, including failing to report in a timely way about $7.5 billion in international transfers, Australia’s financial intelligence agency said in a court filing.
‘We know we have to do better,’ said Westpac CEO Brian Hartzer, telling reporters that the bank agreed with the statement of claim filed by the Australian Transaction Reports and Analysis Centre. The bank had self-reported to the agency what it said was a failure to report a large number of international fund transfers, and Hartzer said Westpac should have identified and rectified the failings sooner. He added that he accepted there was a need for accountability within the bank but declined to say whether he would step down.
Hartzer said the bank had invested heavily to improve the management of financial crime risks, including enhancing automatic detection systems. He pledged to personally get to the bottom of the claims.
– The WSJ reported that some Democratic senators – half of whom are running for president – support a new bill that would require the Federal Reserve to formally factor climate-change risks into its oversight of large financial institutions. Senator Brian Schatz, D-Hawaii, announced he was joining with nine other Democrat senators on the legislation, including presidential hopefuls Elizabeth Warren, D-Massachusetts, Michael Bennet, D-Colorado, Cory Booker, D-New Jersey, Amy Klobuchar, D-Minnesota and Kamala Harris, D-California. Rep Sean Casten, D-Illinois, has introduced a companion bill in the House of Representatives.
The bill, if passed, would direct the Fed to more formally incorporate climate change-related risks into its regulatory regime and would require the central bank to stress-test firms with more than $250 billion in total assets to ensure they can withstand the problems climate change can bring to the economy and the financial system.
– Microsoft said it has nominated GlaxoSmithKline CEO Emma Walmsley to its board of directors, according to Reuters. The company said Helmut Panke, former chair of the board of management at BMW, will not seek re-election to the board after his current term expires. Charles Noski, former vice chair of AT&T and Bank of America, is also leaving the board.