The week in GRC: SEC creates ESG enforcement task force and Capital Group calls for workforce diversity data

Mar 05, 2021
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that ExxonMobil added Michael Angelakis and Jeffrey Ubben to its board after the company faced pressure from a pair of activist investors. Angelakis is the chair and CEO of private equity firm Atairos. Ubben is co-founder of Inclusive Capital Partners, an investment firm focused on promoting ESG practices. ‘Their contributions will be valued as ExxonMobil advances plans to increase shareholder value by responsibly providing needed energy while playing a leadership role in the energy transition,’ said Exxon chair and CEO Darren Woods.

DE Shaw said it welcomes the board additions. The other activist, Engine No 1, has nominated four candidates to Exxon’s board. ‘We remain confident our nominees bring the right experience and skills to help put ExxonMobil on a path to sustainable, long-term value creation for the benefit of all shareholders,’ Engine No 1 said after Exxon announced the board appointments.

– Oilfield services provider Baker Hughes said the SEC is conducting an investigation into the company’s sale of products in projects that were impacted by US sanctions, Reuters reported. Baker was notified in December of the SEC’s formal investigation into its records and internal controls related to sales at the impacted projects, the company disclosed, adding that it is providing the information sought by the agency. The company said it has also initiated a review with the assistance of outside legal counsel regarding the company’s internal controls and compliance related to US sanctions requirements.

– The WSJ noted that big US companies are giving a more detailed picture of diversity in their workforces, with dozens of them publicly sharing gender or race information, many for the first time. These disclosures are voluntary but have been nudged by new SEC and investor interest. They also reflect a new focus among many companies on workforce diversity following last summer’s protests over discrimination, racial inequity and the death of George Floyd while in police custody.

‘I can’t say we have a client that hasn’t talked about it in the boardroom,’ said Deb Lifshey, an attorney at executive pay consultant Pearl Meyer & Partners. ‘All companies are focused’ on diversity, she added.

CNBC reported that Senator Elizabeth Warren, D-Massachusetts, criticized share buybacks as market manipulation made to inflate executive pay, calling them a bad use of excess companies’ profits that could instead be reinvested in a business or its workers. Asked whether buybacks could be wholly bad if they increase the value of existing shares held by long-time investors or retirement funds, Warren said: ‘This is nothing but paper manipulation. ‘Everybody’s doing better’? Listen to yourself! Nothing about the business changed. They’re still turning out the same number of widgets at the same cost and selling them to the same customers.’

She argued that buybacks are a convenient way to pump residual corporate profits into the market to increase the wealth of the company’s top shareholders, which often include executives and corporate management.

– The SEC‘s division of examinations has published its 2021 exam priorities, including a greater focus on climate-related risks. The division will also focus on conflicts of interest for brokers (Regulation Best Interest) and investment advisers (fiduciary duty) and risks relating to financial technology.

‘This year, the division is enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change,’ said acting SEC chair Allison Herren Lee in a statement. ‘Through these and other efforts, we are integrating climate and ESG considerations into the agency’s broader regulatory framework.’

CNN reported that Rio Tinto chair Simon Thompson is stepping down over the company’s destruction of an ancient sacred Indigenous site in Australia. Thompson has told Rio Tinto’s board that he will not seek re-election in 2022, according to the company. ‘As chairman, I am ultimately accountable for the failings that led to this tragic event,’ Thompson said in a statement. ‘The tragic events at Juukan Gorge are a source of personal sadness and deep regret, as well as being a clear breach of our values as a company.’

Rio Tinto apologized for the demolition in June and cut bonuses for its former CEO Jean-Sébastien Jacques and two other senior executives. Months later and under pressure from investors, Jacques was forced to resign. Thompson said in his statement on Wednesday that the company has engaged with investors, the government and Indigenous communities to learn from the demolition of the caves.

Reuters reported that, according to people familiar with the matter, JPMorgan Chase has hired Alfredo Porretti to head its shareholder activism defense efforts in North America as investors launch new campaigns to press companies to make significant changes. He will head shareholder engagement and M&A capital markets for North America and be based in New York, the people said. Porretti was previously head of shareholder advisory work at Greenhill & Co.

JPMorgan declined to comment.

– The Financial Times reported that Jorge Paulo Lemann, the founding partner of 3G Capital, will step down from the board of Kraft Heinz as part of the 81-year-old billionaire’s plan to reduce his travel commitments. 3G, the US-Brazilian investment group, has a 20 percent stake in Kraft Heinz. It said it planned to remain a long-term investor in the company despite Lemann’s exit from the board.

‘Lemann’s decision not to stand for re-election is not the result of any disagreement with management or the board related to the company’s operations, policies or practices,’ Kraft Heinz said in a statement.

– The SEC announced the creation of a climate and ESG task force within its division of enforcement. The task force will be led by Kelly Gibson, the acting deputy director of enforcement. It will be a division-wide effort with 22 members and will develop initiatives to identify ESG-related misconduct. Its initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

CNBC reported that, according to Equilar’s new gender diversity index, 23.5 percent of all board seats on the Russell 3000 are held by women as of the fourth quarter of 2020. That is an increase from 21.5 percent in the fourth quarter of 2019, 18.5 percent at the end of 2018 and 15 percent at the end of 2016. Only 71 companies – 2.4 percent of the total – have boards that are at least half female.

Women were appointed to 39 percent of all new director seats in 2020, down from 44 percent the previous year. Equilar warns that at the current rate, boards will not reach gender parity until 2032, two years later than it projected a year ago.

– Capital Group, one of the world’s largest providers of actively managed mutual funds, has written to more than 1,500 companies calling for them to disclose more data on workforce diversity, Reuters reported. It is the first time the firm has laid out its position on corporate diversity to company executives in this way and follows similar calls from other asset managers. In a letter dated February 1, Capital CEO Rob Lovelace said diverse teams help to improve financial performance, boost productivity and ensure companies remained relevant to an increasingly diverse customer base.

Although managing the process ‘can be complex,’ Lovelace said it was part of the firm’s fiduciary duty to understand how a company was performing on the issue and to engage with corporate laggards.

– The WSJ reported that the European Commission is proposing legislation that will force companies with more than 250 employees to report on the difference in earnings between female and male workers doing the same work. On average, women get paid 14.1 percent less an hour than men, according to data from the statistical office of the EU.

The legislation would give employees the right to request information on how their earnings compare with earnings of others doing the same work. It would also give prospective employees applying for a job the right to request information about their expected salary before the interview.

 

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