The week in GRC: Companies make racial justice pledges, and activists target corporate leaders

Jun 12, 2020
This week’s governance, compliance and risk-management stories from around the web

– The Financial Times reported that US civil rights groups have received a wave of donations from companies since Minneapolis police killed George Floyd. The FT found more than $450 million in pledges to groups focused on social and racial justice, which usually depend more on individual donations, often from people in disadvantaged communities. For example, Walmart and its foundation promised to put $100 million into a new racial equity center, Warner Music and Sony Music announced $100 million funds with few details attached and Nike pledged $40 million to various organizations.

Darren Walker, president of the Ford Foundation, said just writing checks ‘is not going to work this time because more is going to be demanded of corporations,’ noting rising pressure for CEOs to support tangible policy changes. Doug McMillon, CEO of Walmart and chair of the Business Roundtable, said companies should look for ‘leverage points’ where they could shape policy.

– According to Reuters, data management software maker Commvault Systems said it had reached an agreement with activist investor Starboard Value and added three independent directors to its board. The hedge fund firm launched a proxy fight and nominated six members to Commvault’s board in April.

The agreement also calls for the creation of an operating committee to oversee the company’s financial health. Starboard said it will withdraw its previous slate of directors and support the board’s nominations at the 2020 AGM.

– According to The Wall Street Journal, companies are facing pressure from employees to do more to combat racism and promote diversity, as social activism over the killing of Floyd builds in the workplace. For example, adidas – like many brands – took to social media to speak out against racism, but some black employees at the company’s US offices say the corporate culture at the German company is far from equitable. Those sentiments were echoed in recent days at other companies, from cosmetics sellers to media outlets.

‘We recognize that we have not done enough and we are dedicated to doing more,’ adidas said in response to the general employee backlash. ‘We are close to finalizing our commitments to ensure our people, most importantly our black employees, are heard, supported and involved in solutions.’

– The FT said that, according to Morningstar and other corporate governance data providers, 16 shareholder proposals concerning social or environmental issues have passed at US companies in 2020 – suggesting that large asset managers have become more willing to back dissident investors over management. The 2020 total beats the previous record of 14 set last year, Morningstar said, with about a month still to go in the proxy season.

‘This has been a total banner year in terms of majority votes,’ said Heidi Welsh, executive director of the Sustainable Investments Institute, a non-profit data provider. Winning proposals this year have covered a range of issues. For example, New York state comptroller Thomas DiNapoli won majority support for a petition at Chipotle that asked the company to disclose mandatory arbitration claims in employee contracts.

Reuters reported that Volkswagen CEO Herbert Diess apologized to the company’s supervisory board for having made ‘inappropriate and wrong’ statements at an internal event, the carmaker said. ‘The members of the supervisory board accepted the apology of Dr Diess, and will continue to support him in his work,’ the statement added.

The Diess apology follows a heated debate between Volkswagen’s CEO and members of the supervisory board, according to people familiar with the matter. Worker representatives control nine seats on the 19-member supervisory board at Volkswagen. Through a spokesperson, Diess declined to comment on the details of the discussion of the supervisory board.

– The WSJ reported that Greg Glassman, founder and CEO of CrossFit, said he had decided to retire after his inflammatory remarks about the killing of Floyd prompted sponsors and gym owners to sever ties with the company. ‘On Saturday I created a rift in the CrossFit community and unintentionally hurt many of its members,’ Glassman said in a statement. ‘I cannot let my behavior stand in the way of HQ’s or affiliates’ missions.’

Glassman did not respond to requests for comment. The company said Dave Castro, one of Glassman’s longtime lieutenants, would take over as CEO. ‘CrossFit is a community – one that is global, diverse and tough,’ Castro said in a statement. ‘Our community is hurt, though. Our shared bond brings together millions of people with differing opinions, viewpoints and experiences. Friction is inevitable. Common ground, mutual respect and fellowship must also be inevitable.’

– According to the FT, Commerzbank’s second-largest shareholder Cerberus has criticized the German bank’s leadership and called for two seats on its supervisory board to ‘prevent Commerzbank’s demise.’ The FT said the private equity firm argued in a confidential letter sent to the bank’s chair Stefan Schmittmann that ‘swift and decisive action now’ was required to stop a ‘downward spiral’ caused by costs, low profits and managerial inaction. It called for ‘significant change at the supervisory board, the management board and the company’s strategic plan.’

Commerzbank declined to comment. The bank’s supervisory board met to discuss the letter at a long-scheduled meeting on Wednesday. In a statement, the supervisory board said the share price performance was ‘not satisfactory’ but did not directly address Cerberus’ specific demands. It said the implementation of the current strategy was making ‘good progress,’ adding that the bank was planning to give a strategy update in August and that the supervisory board was ‘carefully evaluating’ shareholders’ opinions.

– Social network company Reddit named venture capital investor Michael Seibel to its board, days after co-founder and former director Alexis Ohanian resigned and urged the company to replace him with a black candidate, Reuters reported.

Ohanian’s resignation came as the death of Floyd led to widespread protests against racism and police brutality, and also heightened the debate about diversity on US boards. Responding to Ohanian’s request, CEO Steve Huffman said ‘the unacceptable gap’ between Reddit’s content policy and values has reduced the company’s effectiveness in combating hate and racism, and slowed down its response to problems.

CNBC said that, according to a report from Lazard, activist shareholders have increasingly focused on removing company leaders during the Covid-19 pandemic. In the second quarter to date, 50 percent of all campaigns by activists have involved attacks against boards or management teams, compared with a consistent 33 percent in the first quarter of 2020 and the whole of 2019.

The removal or replacement of top executives at European companies has become a more prominent demand, according to the report. Lazard’s head of European shareholder advisory, Rich Thomas, said leadership is ‘never more important’ for activist investors than in times of crisis. ‘That is why we are seeing leadership of companies firmly in the crosshairs of many activists and activist campaigns,’ he said, adding that the coronavirus crisis has taken away some of the traditional tools available to shareholder activists.

‘During the Covid-19 crisis, the shareholder base was less interested in cost reductions, job cuts and return on capital. When the question has been about leadership, and how the board and management is steering the company through this crisis, they have been more receptive.’

– Unilever said it would consolidate its dual UK-Dutch corporate structure into a single company based in the UK with the intention of enabling it to more nimbly navigate the challenges posed by the Covid-19 pandemic, the WSJ reported. Less than two years ago Unilever dropped a similar restructuring, aimed at merging its two, separately listed British and Dutch operating companies. At the time, Unilever had proposed moving its headquarters to Rotterdam.

The company has long said a single structure would reduce complexity and improve its agility, particularly in deal making. This week it said that is even more important amid the pandemic and its aftermath.

CNBC reported that Valerie Jarrett, a senior adviser for the Obama Foundation and former senior adviser to ex-president Barack Obama, has some ideas for CEOs on emphasizing action over words when it comes to racial justice. ‘I don’t think we need any statements of support,’ she said. ‘There’s plenty of that to go around.’ Jarrett, who is on the board of directors at companies such as Lyft and has been an advocate for board diversity, said workplace diversity cannot stop at the level of the board or with senior executives.

‘It’s not just enough to put somebody on the board or senior staff if they don’t feel there is a welcoming environment where they can thrive,’ she said. ‘We need to go beneath the quotas and focus on systematic change from the shop floor to the boardroom.’

According to data from human resources consulting company Mercer, 64 percent of workers in entry-level positions are white. At the senior staff level, 85 percent of positions are held by whites. Women and minorities continue to under-earn white male colleagues, according to the Economic Policy Institute.

– Brian Benczkowski, head of the US Department of Justice’s criminal division, will leave the agency in July, the WSJ reported. Benczkowski has helped supervise investigations into major white-collar crime and the agency’s response to the opioid crisis. His portfolio includes the division’s fraud section, which is responsible for enforcement of the FCPA. His decision to leave was voluntary and had been in the works for some time, according to an internal memo announcing his departure.

‘It truly has been the honor of my professional career to serve at the department once again, and to lead the men and women of the criminal division,’ said Benczkowski, who previously served as chief of staff to former attorney general Michael Mukasey, in a statement.

– The WSJ reported that companies including Apple, Google and Hasbro announced new initiatives to promote racial justice, as company leaders try to show their commitment to change amid the national outcry stemming from Floyd’s killing. Apple said it would spend $100 million on a racial-justice initiative that aims to invest in education, economic equality and criminal-justice reform with the aim of increasing opportunities for people of color.

Susan Wojcicki, CEO of the YouTube arm of Google, said the video platform would create a $100 million fund aimed at amplifying content from black creators, in addition to highlighting racial justice issues through its official channel. Microsoft said it will not sell facial-recognition technology to US police until there is a national law regulating its use, following similar commitments from Amazon and IBM this week.

– Even so, CNBC said tech companies have made little progress in their stated goal of expanding diversity. Six years after their first diversity reports, Alphabet, Apple, Facebook, Microsoft and Twitter have seen low single-digit increases in their percentage of black employees, according to a CNBC analysis. Amazon shows a higher increase, but those numbers include warehouse and delivery workers.

‘Every year they put out the same diversity report, check the box, then send out the same report the next year,’ said Freada Kapor Klein, founding partner at Kapor Capital. ‘We’re at a crucial crossroads – I don’t think what tech companies have done to date is anywhere near enough.’

In response to requests for comment, the tech companies pointed to incremental progress. Last year, Google showed its largest increase recorded in hiring black tech employees in the US. At Apple, 53 percent of new hires in the US are from historically underrepresented groups in tech. Despite the slow improvements, critics still welcome companies’ efforts to publish reports, noting that industries such as Wall Street don’t publish diversity data on an annual basis.

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