The week in GRC: Companies get new FCPA guidance, and cannabis firms face rising D&O insurance costs
– The Wall Street Journal reported that Elliott Management Corp is pressing Crown Castle International Corp to revamp its approach to its fiber-cable business, which the activist investor says has weighed on the company’s market value. Elliott publicly released a letter it sent to Crown’s board that criticized what it called disappointing returns tied to the $16 billion it has invested to build up the company’s fiber-cable business. Crown’s fiber strategy ‘has not been effective and has significantly detracted from shareholder returns,’ Elliott said in the letter.
Crown defended its strategy in a statement, saying that it has beaten the S&P 500 index on a total-return basis for one, three and five-year periods through July 2. ‘While we firmly believe our strategy best positions Crown Castle to deliver near and long-term value creation, we remain open to having continuing dialogue with Elliott, as we do with all shareholders,’ Crown said.
– Lloyds Banking Group CEO António Horta-Osório will step down next year after a decade in charge, and the bank appointed Robin Budenberg as its new chair, CNBC reported. Horta-Osório said he would step down from the UK’s biggest domestic bank by June next year and was leaving with ‘mixed emotions.’ He led the turnaround at the lender following its government rescue in the financial crisis, with the bank returning fully to private hands in 2017.
Budenburg has worked at SG Warburg and UBS, and has previously advised the government on its bailout of UK banks including Lloyds during the crisis. He will join the Lloyds board on October 1 and take over as chair in early 2021.
– CoreLogic said its board unanimously rejected a $7 billion takeover bid from investment firms Cannae Holdings and Senator Investment Group, according to Reuters. The real estate data analytics company said the unsolicited proposal ‘significantly undervalues’ it, raises regulatory concerns and was not in the best interests of its shareholders. CoreLogic also said it adopted a short-term shareholder rights plan, the implementation of which would prevent investors from acquiring 10 percent or more of the company’s common stock, or 20 percent in the case of certain passive investors.
Cannae Holdings and Senator Investment Group had previously said they own enough shares in the company to call a special meeting and that Bank of America was sure it could arrange financing for the deal.
– The WSJ reported that the New York State Department of Financial Services fined Deutsche Bank $150 million in part over claims that it failed to properly monitor its dealings with late financier and convicted sex offender Jeffrey Epstein. ‘In each of the cases that are being resolved today, Deutsche Bank failed to adequately monitor the activity of customers that the bank itself deemed to be high risk,’ said superintendent of financial services Linda Lacewell in a statement, adding that ‘despite knowing Mr Epstein’s terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions.’
The bank signed a consent order to settle the action. ‘We acknowledge our error of onboarding Epstein in 2013 and the weaknesses in our processes, and have learned from our mistakes and shortcomings,’ a Deutsche Bank spokesperson said.
– According to the WSJ, a new edition of an influential handbook on the FCPA clarifies the government’s view on aspects of the law’s enforcement. The US Department of Justice and the SEC released the first edition of the guide in 2012 to educate companies about the FCPA. The latest edition includes more than 2,600 tweaks in both form and content. It summarizes changes to enforcement policies over recent years, lists new partner agencies, provides fresh, anonymized studies of FCPA cases and updates government practices based on high-profile judicial rulings.
The new guide also contains additions that speak to criticism in recent years about how the SEC in particular enforces the accounting provisions. ‘Although a company’s internal accounting controls are not synonymous with a company’s compliance program, an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls,’ an addition in the guide reads. The SEC declined to comment on the new guide.
– The UK’s Financial Reporting Council (FRC) said PwC, Deloitte, KPMG and EY should ring-fence auditing work in the country as a separate business by June 2024, Reuters reported. The FRC had already begun seeking voluntary changes to help speed up reform and said on Monday it was asking the firms to agree to operational separation based on a set of principles it has discussed with them. Those principles include ensuring that the total amount of profits distributed to partners in the audit practice does not persistently exceed the contribution to profits of the audit practice, a step that prevents consultancy work subsidizing audit activities.
Deloitte said it would work with the FRC to develop its plans, but that it was important not to lose momentum with other reforms. KPMG said it supported operational separation in the UK as a first step to restoring trust in companies. PwC said it would continue to engage with the FRC on the complexity and detail of the principles. EY said it would work with the FRC, but that the proposals alone would not deliver all the changes needed.
– According to Reuters, Canadian and US cannabis companies are facing a surge in already high costs of insurance to protect top executives from personal liability in the wake of lawsuits by investors alleging fraud and misinformation.
‘More frequently we’re seeing prospective investors and board members requiring [directors’ and officers’] coverage in place prior to engaging with a company in order to ensure adequate protection in the event of... litigation,’ said Charles Grodecki, senior vice president at insurance brokerage AmWINS Brokerage of the Carolinas. ‘With claims starting to roll in, we’re beginning to see higher entry-level premiums.’
– According to the WSJ, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) said Amazon.com agreed to settle allegations it violated multiple US sanctions regulations. The company allegedly provided goods and services to individuals or entities subject to US sanctions, primarily due to deficiencies in its automatic screening processes, according to a settlement agreement.
An Amazon spokesperson declined to comment.
The amount Amazon agreed to pay to settle the allegations – roughly $135,000 – is tiny compared with the size of the company, but the agreement highlights the importance of implementing and maintaining effective sanctions-compliance tools and programs. Amazon voluntarily disclosed the alleged violations and took remedial measures, factors that played a role in the settlement total, according to OFAC. It also credited Amazon for co-operating with the investigation.
– Reuters reported that Bernhard Maier, chair of Czech carmaker Skoda Auto, part of the Volkswagen Group, will step down at the end of July after nearly five years. Skoda did not give a reason for Maier’s departure and said a successor would be elected by the board next month. Maier took the helm as chair in November 2015, coming from Porsche. The carmaker has reported record profits and revenue since then.
– CNBC reported that presumptive Democratic nominee Joe Biden, laying out his plans for an economic recovery, said President Donald Trump is too focused on the stock market during the Covid-19 pandemic. Biden said he wanted to end the ‘era of shareholder capitalism.’
‘Throughout this crisis, Donald Trump has been almost singularly focused on the stock market, the Dow and Nasdaq. Not you. Not your families,’ Biden said. ‘If I am fortunate enough to be elected president, I’ll be laser-focused on working families, the middle-class families I came from here in Scranton. Not the wealthy investor class. They don’t need me.’ Among the policies Biden described is a tax increase for companies. His plans call for a 28 percent corporate tax rate, above the 21 percent set by Trump’s 2017 tax cuts but still below where the top rate was previously.
– According to Bloomberg, Vanguard Group, the NYSE and Nasdaq are pushing back against threats from Capitol Hill and the Trump administration to curb US investments in Chinese companies. During a panel discussion hosted by the SEC, executives from the firms questioned a bill under consideration in Congress that could lead to Chinese companies being kicked out of US stock markets. The aim of the legislation is to force Chinese authorities to comply with US accounting rules, but among the concerns raised was that it might prompt companies to relocate to markets with less regulatory oversight.
‘Companies will likely move their listings,’ said Rodney Comegys, a principal at Vanguard. ‘They’ll move their place from New York to Hong Kong.’ The bill cleared the Senate unanimously in May with a companion version now being reviewed by the House. It would lead to the delisting of Chinese companies if they don’t allow their books to be examined by the US Public Company Accounting Oversight Board.