The week in GRC: SEC grants reporting relief amid Covid-19 outbreak, and HP rejects Xerox takeover bid
– The Wall Street Journal reported that, according to a person familiar with the matter, activist investor Elliott Management has nominated four directors to Twitter’s board, setting the stage for a potential proxy contest. Elliott has taken a roughly $1 billion stake in the company and has been in talks with Twitter’s management about its wish for the company to find a full-time CEO, the person said.
That most likely would involve replacing co-founder Jack Dorsey, who began a second stint as the company’s CEO in 2015. In addition to his Twitter role, Dorsey leads Square, a financial technology firm he also co-founded.
Twitter does not have the super-voting-share structure that protects some other Silicon Valley companies from outside pressure.
– US utility Evergy said it will appoint two independent directors and explore options, including a merger, under an agreement with Elliott Management, according to Reuters. The company has named Paul Keglevic, former head of Energy Future Holdings, and Kirk Andrews, CFO of NRG Energy, to the board. These directors will sit on a committee that will explore options and announce its findings in the first half of 2020.
– CNBC reported that Jack Welch died, aged 84. Welch, a railroad conductor’s son who became chair and CEO of General Electric (GE), led the company for two decades, growing its market value from $12 billion to $410 billion. With a determination to win by attacking bureaucratic complacency, Welch earned two titles: ‘manager of the century’ and ‘Neutron Jack’ for cutting tens of thousands of jobs. Under his leadership, GE became what was at the time the world’s most valuable company, after Microsoft.
– According to the WSJ, Nokia CEO Rajeev Suri is stepping down to be replaced by Pekka Lundmark, who will start his new job on September 1. Lundmark is at present CEO of Finnish energy company Fortum. Nokia has been battling Ericsson of Sweden and China’s Huawei Technologies to provide equipment powering the latest-generation 5G mobile networks to telecom companies globally.
– The SEC adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The changes are intended to improve disclosures and increase the likelihood that issuers will conduct debt offerings on a registered basis, according to the agency.
The amended rules focus on the provision of material, relevant and decision-useful information regarding guarantees and other credit enhancements, and eliminate prescriptive requirements that the SEC said in a statement ‘have imposed unnecessary burdens and incentivized issuers of securities with guarantees and other credit enhancements to offer and sell those securities on an unregistered basis.’ The amendments take effect on January 4, 2021.
– According to CNBC, a bipartisan group of US lawmakers unveiled legislation that would hold e-commerce companies liable for counterfeit products sold on their platforms. The Shop Safe Act of 2020, co-sponsored by four House members, outlines a series of steps that e-commerce platforms would have to take to prevent the sale of fake goods by third-party sellers on their platforms.
Fake goods accounted for 3.3 percent of global trade in 2016, according to the OECD. The Department of Homeland Security reported that seizures of counterfeit products at US borders have increased 10-fold over the past two decades.
– The WSJ reported that, according to people familiar with the matter, Hudson’s Bay Co CEO Helena Foulkes is leaving the company following a deal it reached with shareholders to go private. She is expected to depart in the coming weeks, the people said. Foulkes joined the parent of Saks Fifth Avenue from CVS Health Corp in 2018 and has helped streamline the retail group by selling businesses and improving operations. Shareholders recently approved a transaction with an investor group that includes Hudson’s Bay Co executive chair Richard Baker to take the company private.
A Hudson’s Bay Co spokesperson had no immediate comment.
– Swiss Re plans to make UBS Group CEO Sergio Ermotti its chair from next year, according to Reuters. Swiss Re has nominated Ermotti, who is due to step down from UBS in November, for a board seat at next month’s annual meeting. He would replace Walter Kielholz as chair from 2021, the company said. Kielholz has held that role since 2009.
– The WSJ noted that for many companies, annual reports are no longer simply filled with legalese, tables and footnotes, and executives are increasingly producing year-end summaries that allow for more reader engagement and easier consumption on mobile devices and computers.
Annual reports for 2019 from FTSE 100 companies provided better explanations of their business, potential threats to their operations and how they created value for stakeholders compared with previous years, according to research released by consulting firm Radley Yeldar. ‘The trend in corporate reporting is toward providing a more complete picture of a company’s business model, performance and prospects,’ said Lisa French, chief technical officer at the International Integrated Reporting Council.
– CNN reported that Starbucks will hold a virtual AGM on March 18 as the state of Washington deals with a coronavirus outbreak. ‘Due to the emerging public health impact of the coronavirus outbreak and to support the health and well-being of our partners and shareholders... the location of the annual meeting of shareholders of Starbucks Corporation has been changed,’ the company said in a regulatory filing. ‘In light of public health concerns regarding the coronavirus outbreak, the annual meeting will be held in a virtual meeting format only. You will not be able to attend the annual meeting physically.’
– According to the WSJ, the Bank of East Asia called a truce in a long-running battle with Elliott Management, saying it had hired bankers to help assess whether it could sell assets or otherwise improve its business. Elliott said it supports the move. The clash with David Li, the bank’s executive chair, is one of several fights Elliott has picked with business dynasties and entrepreneurs in Asia. These include two of South Korea’s largest business groups, Samsung and Hyundai Motor Group, and the firm recently launched a campaign at Japan’s SoftBank Group.
– Brett Redfearn, director of the SEC’s division of trading and markets, said the US markets are having ‘very few technical issues’ despite extremely high trading volume and elevated volatility, according to CNBC. ‘Our markets have held up very well. They’ve been orderly, they’re functioning well. We’ve seen very few technical issues, very few system glitches,’ Redfearn said. ‘And fundamentally I think the verdict is our markets are demonstrating remarkable integrity and resiliency.’
– Newell Brands said the SEC is investigating sales and accounting practices at the company, according to the WSJ. The SEC issued a subpoena to Newell in January, after making several informal requests for information, the company said in a regulatory filing. One focus of the probe, Newell said, is its treatment of goodwill – the premium a company pays when it buys another for more than the value of its net assets. The SEC’s subpoena relates primarily to the company’s ‘sales practices and certain accounting matters’ from the start of 2016 onward, the company said.
Representatives of Newell and the SEC declined to comment on the investigation.
– The WSJ reported that HP rejected Xerox Holdings Corp’s $35 billion takeover bid as too low. HP said combining the two firms would disproportionately benefit Xerox shareholders and that Xerox doesn’t have the operational experience in HP sectors such as personal systems, home printing and 3D and digital manufacturing. The offer would leave Xerox ‘burdened with an irresponsible level of debt that would subsequently require unrealistic, unachievable synergies that would jeopardize the entire company,’ HP chair Chip Bergh said.
Xerox didn’t respond immediately to a request for comment.
– The SEC issued proposals designed to make it easier for firms to raise capital via online platforms before they meet a requirement to register with the agency, Reuters said. The SEC hopes the changes to crowdfunding rules will allow smaller companies to access more capital before deciding to go public. But the proposals may raise concerns among some investor advocates who say the existing, stricter rules are not enough to encourage robust disclosure.
Under the proposals, the SEC would allow firms to raise $5 million online, rather than the current $1 million, before they must register. In a statement, commission chair Jay Clayton said the measures aimed ‘to address the gaps and complexities in the offering framework that may impede access to capital for issuers.’
– The SEC also announced that it is providing conditional regulatory relief for certain publicly traded company filing obligations, acknowledging that the effects of the coronavirus may present challenges for certain companies that are required to provide information to trading markets, shareholders and the agency. The companies may include US issuers located in affected areas, as well as companies with operations in those regions.
To address potential compliance issues, the commission has issued an order that, subject to certain conditions, gives publicly traded companies an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30. Among other conditions, companies must explain in a current report why the relief is needed in their particular circumstances.
– Reuters reported that, according to a Congressional report, Wells Fargo is not complying with the terms of multiple settlements related to its sales scandal. The US House of Representatives Financial Services Committee released the findings of its year-long probe into the bank ahead of hearings next week that will see its new CEO Charles Scharf and its chair Betsy Duke testify before the committee.
According to the report, Wells Fargo’s board of directors allowed management to submit materially deficient plans to regulators in response to the consent orders. The report also stated that the regulators failed to hold Wells Fargo accountable for its wrongdoing.
A Wells Fargo spokesperson said the bank was reviewing the report. Wells Fargo has taken various steps to fix issues and rebuild trust with customers, investors and regulators, including changes to the board, centralizing risk teams and hiring an external CEO.
– The WSJ said that Chipotle Mexican Grill founder Steve Ells is leaving the company after 27 years. Brian Niccol, the company’s CEO, is replacing Ells as chairman. Ells started the company in 1993 and served as its CEO until 2017, when he became executive chair. ‘Brian has proven that he is absolutely the right person to lead Chipotle forward and I’ve never been more confident about the future of this great company,’ Ells said in prepared remarks.
Chipotle said Neil Flanzraich will continue to serve as lead independent director and that board members Matthew Paull and Paul Cappuccio won’t stand for reelection at its AGM.
– The Federal Deposit Insurance Corporation (FDIC) said it would offer buyouts to roughly one-fifth of its staff as part of an effort to overhaul and update the agency, according to Reuters. The FDIC said it is planning to offer early retirement and buyout packages to 1,200 of its 5,800 employees. Agency officials said the move is intended to get ahead of a potential wave of retirements among its mostly older workforce.
The FDIC’s inspector general has warned that 42 percent of the agency’s workforce is eligible to retire within the next five years, leading to concerns that some departments could be left without sufficient leadership or skilled workers.
– The WSJ noted that, according to data from Equilar, when California passed a law in September 2018 requiring companies to have female directors, 91 California-based companies in the Russell 3000 had all-male boards. All but eight were in the bottom 2,000 in terms of market value. But by the end of 2019, the deadline for boards to include at least one female director, the number of those smaller-company boards with no women had dropped to six. In percentage terms, the change is nearly as marked as the one among larger California companies with all-male boards, which fell over that period to just one.