The week in GRC: BlackRock eyes shareholder voting changes and DoJ to focus on white-collar crime victims
– The Wall Street Journal (pay wall) reported that the SEC is seeking more details from companies about their climate risks as it gets ready to propose new disclosure requirements on the topic. Many companies already share details on climate risks, but investors often find it hard to make comparisons. The agency last year sent at least 43 letters to US public companies on the matter, compared with none the previous four years, according to data from research firm Audit Analytics. That was the most in a single year since at least 2008. The SEC’s division of corporation finance often sends comment letters to public companies to ask about their disclosures or accounting practices in quarterly or annual filings.
The SEC has requested information from companies about significant risks related to climate change, ranging from physical effects such as severe weather to litigation and regulatory compliance costs. The agency has often sent follow-up questions asking companies to explain the reasons behind what they shared with investors.
The SEC didn’t respond to a request for comment.
– SEC enforcement director Gurbir Grewal said the agency will not offer amnesty to crypto-currency companies that self-report violations of securities laws, although they may face smaller penalties, Reuters reported. Grewal’s first remarks on crypto in an interview provide greater clarity as to how crypto-currency companies can expect to be treated by the SEC. The industry has complained that the agency has left it in the dark about how to comply with US rules. Some in the industry had hoped the regulator would encourage companies breaking its rules to voluntarily come under its oversight by giving them a one-time free pass.
‘Our message to them is not, Register your product and we’ll just ignore the billions you have under management in this crypto-lending product and your violations of the securities laws,’ Grewal said. The agency has toughened its crypto-currency stance under chair Gary Gensler, who has said many crypto-currency products and platforms are governed by existing SEC rules.
– CNN noted that BP is cutting ties with Rosneft in response to Russia’s invasion of Ukraine. The UK company said in a statement that it would exit its 19.75 percent stake in the Russian state oil company, describing the decision to attack Ukraine as ‘an act of aggression [that] is having tragic consequences across the region.’ BP CEO Bernard Looney and former CEO Bob Dudley will also stand down with immediate effect from Rosneft’s board.
‘[T]his military action represents a fundamental change,’ said BP chair Helge Lund in a statement. ‘It has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.’
– CNN also reported that Norway’s $1.3 tn sovereign wealth fund – the world’s largest – will divest its Russian assets following the invasion of Ukraine. The fund’s Russian assets, consisting of shares in around 47 companies as well as government bonds, were worth $2.83 bn at the end of 2021, the government said. ‘We have decided to freeze the fund’s investments and have begun a process of selling out [of Russia],’ Prime Minister Jonas Gahr Stoere said.
– CNBC reported BlackRock as saying that this proxy season it will make ‘pass-through’ voting – or what it calls ‘voting choice’ – available to shareholders representing roughly 40 percent of its $4.8 tn in index equity assets. ‘Our view is that the choices we make available to clients should also extend to proxy voting. We believe clients should, where possible, have more choices as to how they participate in voting their index holdings,’ BlackRock said.
It isn’t clear what percentage of those institutional clients will take advantage of the new voting power this year, but it is a fundamental change in the future of shareholder influence that is expected to grow and ultimately make its way down to retail investors. ‘BlackRock and its competitors can also try to use this pass-through voting service as a competitive advantage for clients and potential clients. We will see other fund managers moving in this direction,’ said Edmund Reese, CFO at Broadridge Financial Solutions – a BlackRock technology partner – on the new voting process.
Pass-through voting opens up a lot of questions for companies trying to gauge the likelihood that a shareholder proposal will pass against management’s stance. As the use of shareholder resolutions has grown in recent history to cover many issues including ESG concerns, the power of the biggest fund companies has also grown as more investors migrated to index funds and ETFs.
– According to the WSJ, companies such as American Express, Facebook parent Meta Platforms and Wells Fargo plan broader office reopenings in March. Many executives say they are uncertain about what the future may hold but feel confident offices can at least reopen this month as Omicron cases fall and health authorities loosen mask guidance. At this point in the pandemic, ‘we’re looking at moments,’ said Francine Katsoudas, chief people officer at Cisco Systems, which reopened its US offices on March 1. ‘This is a moment where our employees can come in.’ If cases rise once more or other circumstances call for sending employees home, the company can adapt, she said.
– Reuters reported that Shell will exit all its Russian operations, including a major liquefied natural gas (LNG) plant, becoming the latest major western energy company to quit the country following Russia’s invasion of Ukraine. Shell said in a statement it will quit the Sakhalin 2 LNG plant in which it holds a 27.5 percent stake, and which is 50 percent owned and operated by Russian gas company Gazprom. ‘We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression that threatens European security,’ said Shell CEO Ben van Beurden in a statement.
The news agency also reported that major international law firms with Russia offices were scrambling to respond as an intensifying sanctions web puts some clients off-limits and threatens their business in Moscow.
– Domino’s Pizza CEO Ritch Allison is planning to retire and will step down from his role at the end of April, the WSJ reported. The company has tapped Russell Weiner, its COO and president of Domino’s US, to succeed Allison as CEO, effective May 1. Weiner will stand for election to the board at the company’s AGM, which is scheduled for April 26.
– The WSJ reported that Apple, Ford Motor Co and Dell Technologies joined the roster of companies retreating from Russia, while other businesses warned of further supply disruptions following the country’s invasion of Ukraine. ExxonMobil said it was halting operations at a multibillion-dollar oil and gas project in Russia and would make no further investments in the country following its attack on Ukraine. Some companies have indicated that they want to take a stand against Russia. At the same time, key parts and commodities that usually flow out of Ukraine, a major agricultural exporter and an auto-parts supplier, have been bottled up inside the country.
– The WSJ reported that FINRA halted trading in the over-the-counter (OTC) market for several US-listed shares of Russian companies. The halt means traders can no longer place bets on the stock in the OTC market, in which banks often take the other side of trades. FINRA says on its site that it may halt trading if ‘an extraordinary event has occurred or is ongoing that has had a material effect on the market for the OTC stock or may cause major disruption to the marketplace or significant uncertainty in the settlement and clearance process.’
– Kenneth Polite, assistant attorney general of the US Department of Justice’s (DoJ) criminal division, said the DoJ intends to increase its focus on the victims of white-collar wrongdoing while also placing greater accountability on the individual executives directly responsible for such crimes, according to the WSJ. Polite’s speech is the latest to reinforce the agency’s emphasis on holding individuals accountable for white-collar crime rather than only levying fines on companies.
Individuals harmed by white-collar crimes can be tough to identify and their injuries difficult to calculate, but they should nonetheless be an important consideration for prosecutors and defense lawyers, he said. ‘Considering victims must be at the very center of our white-collar cases,’ Polite added.