The week in GRC: Nissan CEO faces angry shareholders, and SEC presses firms on Chinese audits amid coronavirus
– The Guardian reported that companies paid out a record $1.43 trillion in dividends to shareholders around the world in 2019. The record-breaking payout from public companies was driven by strong performances in stock markets in North America and emerging economies, including by some unusually high special dividends. The total payment was 3.5 percent higher than in 2018.
Analysts at Janus Henderson studied dividends paid by the world’s 1,200 largest companies in 2019. They found that shareholder payouts from UK and European firms were less generous than the global average. Payouts to investors in oil companies rose more quickly, by 10 percent, but dividends from telecoms stocks fell.
– Asset management firm Water Island Capital urged Pattern Energy Group shareholders to reject a $2.63 billion buyout offer from the Canada Pension Plan Investment Board, describing it as undervalued, according to Reuters. Water Island said that in light of a surge in renewable energy companies’ valuations Pattern Energy’s stand-alone price would exceed $30 per share. Pattern Energy has scheduled a special meeting of its shareholders for March 10 to vote on the deal.
– The Wall Street Journal said Franklin Resources agreed to buy fellow asset manager Legg Mason for $4.5 billion in cash. The combined firm will manage roughly $1.5 trillion in assets under management, ‘well balanced’ between individual investors and pensions and other large institutions. A deal clears uncertainty around Legg Mason’s future that has existed for almost a year, since activist investor Trian Fund Management took a stake in the company and secured representation on its board. Franklin said Trian has agreed to vote on the deal.
– Nissan Motor Co CEO Makoto Uchida faced angry shareholders at a rowdy meeting during which they questioned whether he had a plan to reverse the company’s losses, the WSJ reported. Several shareholders at the meeting called for executives to take a pay cut as penance.
Uchida said he intends to cut costs by making Nissan’s alliance with Renault work better. ‘Nissan is a great company,’ he said. ‘We have a lot of problems, but we will make this company one that people will take pride in again.’
The special shareholder meeting was called to ratify the board nominations of Uchida and other directors to replace those who have resigned or have been ousted from Nissan and Renault. Keiko Ihara, who heads the board’s compensation committee, said directors were now accounting for performance when setting executive severance payments.
– CNBC reported that Attorney General William Barr said at a US Department of Justice (DoJ) workshop that in addition to questions regarding potentially anti-competitive behavior, the agency is considering what a concentrated tech market means for a legal immunity originally created to help small start-ups.
Section 230 of the Communications Decency Act, which says tech companies cannot be held legally liable for content posted by third-party users, has been important in allowing some of the biggest tech firms to grow while keeping community standards on their platforms and without becoming buried by lawsuits. Executives say the law is still key to their work, particularly in allowing for ‘good faith’ content moderation. But Barr said the industry Section 230 protects is no longer fragile or emerging.
– In addition, US tech companies will soon need to comply with new requirements in the EU regarding artificial intelligence and sharing data with smaller rivals, as the EU seeks to assert its ‘technological sovereignty’ from the US and China, according to the WSJ. EU regulators revealed plans aimed at placing more restrictions on machine learning-enabled technologies in fields ranging from public surveillance cameras to cancer scans and self-driving cars.
EDiMA, an industry group representing big platforms including Google, Amazon and Facebook, welcomed the proposals as a ‘starting point’ and said it would engage with the European Commission to address some of the shared concerns.
– CNN reported that former New York City mayor Michael Bloomberg unveiled a tougher-than-expected Wall Street reform plan that calls for restoring some of the post-crisis financial guardrails ‘gutted’ by President Donald Trump. Bloomberg, who has deep ties to Wall Street, wants to fortify the Volcker Rule, reinstate consumer protections overturned by the Trump administration, bolster the Elizabeth Warren-inspired Consumer Financial Protection Bureau, create a dedicated corporate crime group at the DoJ and require companies to report climate change risks.
He does not support more sweeping changes embraced by more progressive rivals such as Bernie Sanders, who wants to break up big banks and has vowed to be a ‘nightmare’ for Wall Street.
– According to the WSJ, the UK’s Financial Reporting Council (FRC) said companies and auditors should provide up-to-date information on the risks arising from the novel coronavirus when reporting their year-end results. Companies with operations or close trading ties to China should detail how they could be affected by the outbreak as part of their obligation to disclose the principal risks to their business, the FRC said.
‘Companies will need to monitor developments and ensure they are providing up-to-date and meaningful disclosures to their shareholders when preparing their year-end reports,’ a spokesperson said.
SEC chair Jay Clayton on January 30 said he had asked the agency’s staff to monitor the potential effects of the virus and, if necessary, to provide guidance and other assistance to companies regarding disclosures. If enough companies are affected by an event or situation, the SEC could issue a deadline extension for affected parties.
– The WSJ reported that UBS Group CEO Sergio Ermotti is stepping down and will be succeeded by ING Group boss Ralph Hamers. UBS, Switzerland’s largest bank by assets, said Hamers will join its board in September and become CEO on November 1. Ermotti has been UBS’s CEO since 2011 and was expected to announce his departure this year or next.
UBS chair Axel Weber said Hamers is ‘the right CEO’ to lead the company through changes across the banking industry, as a ‘seasoned and well-respected banker with proven expertise in digital transformation.’ He thanked Ermotti for ‘adding a successful chapter to the history of this more than 150-year-old bank.’
– The Financial Reporting Council (FRC) has launched a major review into whether companies and their auditors are adequately reflecting the financial risks of the climate crisis in their accounts, according to The Guardian. The FRC plans to use the review to make sure companies are being clear with investors about their exposure to climate-based risks.
FRC chief executive Sir Jon Thompson said company reports and accounts were ‘essential to understanding how the corporate world is responding to the challenge of climate change.’ The FRC will also examine whether companies have adopted the recommendations put forward by the Taskforce on Climate-related Financial Disclosures, which was set up to highlight the financial exposure of companies to the risk of climate chaos.
– The SEC said it was pressing the Big Four accounting firms to ramp up internal controls on audits of US-listed Chinese companies, particularly in light of business risks posed by the coronavirus, according to Reuters. The commission has been engaged in a decade-long struggle with the Chinese government to inspect audits of US-listed Chinese companies. The PCAOB is still unable to access those, it said.
The SEC said on Wednesday that it had been urging the largest accounting firms, which audit roughly 140 US-listed Chinese companies, to ensure they are scrutinizing how firms are managing and disclosing the risks. The agency said it had also asked the firms to keep an eye on the impact of the virus on audit quality, since the coronavirus had caused personnel disruptions in mainland China and Hong Kong.
– The WSJ reported that, according to people familiar with the matter, Nissan’s board cut the exit package of former CEO Hiroto Saikawa, who presided over a fall in the car maker’s earnings. The board also stopped a process that had allowed departing executives to remain with the company in a consulting role.
At a special shareholder meeting on February 18, Saikawa lost his board seat at Nissan, his final position at the company, triggering the departure payment. Saikawa didn’t contest the payment decision, one of the people familiar with the matter said.
‘In the past, we didn’t have a clear policy on compensation at the end of service,’ said Keiko Ihara, the director in charge of compensation issues, at the shareholder meeting. She said the board decided to take into account the reasons for an executive’s departure and the performance of the company.