The week in GRC: NYC alleges Chipotle violated labor law and BlackRock backs more ESG proposals
– The Wall Street Journal reported that some of the companies that are once again hosting virtual AGMs this year hope to improve the experience for investors, many of whom felt muted last year after the sudden shift to remote technology. This year 346 companies – 86 percent of a total of 403 in the S&P 500 that filed their proxy statement up to April 22 – said they would hold their AGM remotely as large physical gatherings remain restricted, according to MyLogIQ.
Some companies are working to increase interaction with their shareholders, from allowing investors to ask live questions and interact with management to allocating more time for questions and incorporating new videoconferencing tools. ‘Investors expect public companies to do a better job this year of providing meaningful ways for their shareholders to participate in virtual annual meetings,’ said Amy Borrus, executive director of the Council of Institutional Investors. ‘Unlike last proxy season, corporate executives have had a year to plan and work out any kinks.’
– Chesapeake Energy Corp said CEO Doug Lawler would leave at the end of April, just months after the company emerged from a high-profile bankruptcy reorganization, according to Reuters. Lawler took the reins at Chesapeake in 2013. The company said board chair Mike Wichterich would serve as interim CEO while it searches for a permanent replacement.
– CNBC noted that Citigroup faced a shareholder vote on whether to consider a non-management worker in its pool of candidates when filling a board seat. The proposal, brought by shareholder advocate James McRitchie and based on the NFL’s Rooney Rule, is meant to diversify boards and bridge the gap between corporate management and its workforce. The aim is to ensure workers can provide their input and the board is aware of important issues.
McRitchie submitted similar proposals to Starbucks, Disney, Woodward, WD-40, Citigroup and Edwards Lifesciences. In proxy filings, the boards all argued against the proposal by pointing out that the companies already have open lines of communication with employees and a robust process to nominate board members.
Starbucks, AT&T and Citigroup declined to comment on the proposal. Walmart, Disney, Woodward and WD-40 did not respond to a request for comment. A spokesperson for Edwards Lifesciences referred to the proxy filing for the company’s public stance.
– According to the WSJ, companies are spending more money on dividends and share buybacks after pausing or shrinking them last spring in an effort to preserve cash during the pandemic. Executives are increasing these shareholder rewards as they become more optimistic about the economic recovery and the outlook for their business. The US economy is expected to grow by 6.4 percent this year, with Covid-19 vaccinations and stimulus funds prompting a surge in consumer spending.
Lawmakers are divided on buybacks. Senators Elizabeth Warren, Democrat-Massachusetts, and Bernie Sanders, I-Vermont, are among leading lawmakers who warn they enrich executives and shareholders at the expense of workers, while most Republican policymakers are wary of imposing limits.
– Reuters reported that, according to people familiar with the matter, the SEC is considering new guidance to curb growth projections made by listed blank-check companies and clarify when they qualify for certain legal protections. The measures being weighed by officials at the agency would escalate its crackdown on the flood of deals in special purpose acquisition companies (Spacs), which it worries is putting investors at risk. The Spac market had already started to lose steam after the SEC earlier this month suggested warrants issued by Spacs should be accounted for as liabilities rather than equity instruments.
– The SEC said Alex Oh has resigned her position as director of the division of enforcement for personal reasons. Melissa Hodgman will return to the role of acting director of the division. Oh had only taken up the role last week.
‘Melissa is an exceptional attorney who has proven to be an effective leader of the enforcement division. I’m grateful that she will take on this role again and look forward to working closely with her to fulfill the mission of the SEC,’ said chair Gary Gensler in a statement. ‘I thank Alex for her willingness to serve the country at this important time.’
Hodgman was the division’s acting director from January 2021 until earlier this month. Before that, she had been the associate director in the SEC’s home office since October 2016.
– Reuters reported that US Labor Secretary Marty Walsh said a lot of gig workers in the US should be classified as ‘employees’ deserving of related benefits, in what could be a policy shift that is likely to impact millions of workers and raise costs for companies that depend on contractors such as Uber and Lyft.
‘We are looking at it but in a lot of cases gig workers should be classified as employees... in some cases they are treated respectfully and in some cases they are not and I think it has to be consistent across the board,’ Walsh said. ‘These companies are making profits and revenue and I’m not [going to] begrudge anyone for that because that’s what we are about in America... but we also want to make sure that success trickles down to the worker.’
– Christopher Cestaro, who was appointed acting chief of the US Department of Justice’s (DoJ) FCPA unit in July 2019 and was permanently given the position later that year, will join WilmerHale, the WSJ reported. The market for the unit’s prosecutors has been driven by the rising prominence of the FCPA, which became a key compliance concern for multinational companies after the DoJ stepped up its enforcement in the early 2000s.
Cestaro will begin at WilmerHale on May 10 and work in the firm’s Washington, DC office as a member of its white-collar defense and investigations practice. David Last, who served most recently as the FCPA unit’s principal assistant chief, will assume leadership of the team on an acting basis.
– CNN reported that New York City is suing Chipotle Mexican Grill, alleging that the company violated a law requiring fast food chains to give their employees more predictable, less hectic schedules. In a lawsuit, the city’s Department of Consumer and Worker Protection (DCWP) said that from the end of November 2017 through at least September 2019 workers experienced nearly 600,000 violations of the law. Chipotle owes workers $151 mn because of the violations, the city said.
The company did not comment on the specific allegations mentioned in the suit. ‘We make it a practice to not comment on litigation and will not do so in this case, except to say the proceeding filed today by the DCWP is a dramatic overreach,’ said Laurie Schalow, Chipotle’s chief corporate affairs officer, in a statement. ‘Chipotle will vigorously defend itself.’
– BlackRock has so far increased its support for shareholder ESG proposals and published a slew of criticisms of public companies that haven’t bent to its overall requests, according to the WSJ. For the roughly 170 ESG shareholder proposals it voted on during the first half of the proxy year, BlackRock backed 91 percent of environmental proposals, 23 percent of social proposals and 26 percent of governance proposals.
For the 1,000-plus proposals in the year that ended in June 2020, BlackRock backed 6 percent of environmental proposals, 7 percent of social proposals and 17 percent of governance proposals.
The firm’s new stewardship head, Sandy Boss, said BlackRock made changes over the past year to ensure its votes were in line with its investment priorities. ‘We are going through a period of change to align our investment convictions with the firm’s message,’ she said.