The week in GRC: ESG funds show strong performance, and Blackstone changes hiring to target diversity
– Bloomberg reported that the US Supreme Court limited the SEC’s disgorgement powers, one of the agency’s most potent legal weapons. In an 8-1 ruling, the justices said the SEC can win disgorgement in federal court if the money can be used to reimburse defrauded investors and is capped at the wrongdoer’s net profits. But the court also suggested that awards cannot go further, putting a new constraint on the agency’s enforcement efforts.
The ruling does not directly affect the SEC’s separate authority to seek disgorgement through administrative proceedings. Justice Clarence Thomas dissented, saying he would have gone further and barred the SEC from seeking disgorgement at all in federal court.
– The Wall Street Journal reported that former Wirecard CEO Markus Braun was arrested by police days after the payments company revealed a $2 billion hole in its books. Prosecutors in Munich said he was arrested on suspicion of presenting false information. He was released on €5 million ($5.7 million) bail. Braun was Wirecard’s largest shareholder and served as CEO for nearly two decades until resigning on June 19.
Braun’s lawyers did not immediately respond to a request for comment. Braun, who turned himself in to police, is accused of ‘inflating Wirecard’s sales volume with fake income,’ according to the prosecutor. Braun has consistently denied any wrongdoing at the company, attacking allegations about its accounting practices as false and misleading.
– The SEC and the Department of Justice’s antitrust division have signed an interagency memorandum of understanding (MoU) to build co-operation and communication between the agencies with the aim of enhancing competition in the securities industry. It is the first MoU between the division and the SEC.
In particular, the MoU establishes a framework for the SEC and the antitrust division to continue regular discussions and review law enforcement and regulatory matters affecting competition in the securities industry, including establishing periodic meetings among the respective agencies’ officials. The MoU also provides for the exchange of information and expertise the agencies believe to be potentially relevant and useful to their oversight and enforcement responsibilities.
– CNN reported that, although most companies are switching to virtual AGMs during the pandemic, Tesla insists that it will hold its own meeting the traditional way. In a filing, Tesla said its management and board value in-person meetings and believe that ‘Tesla’s stockholders appreciate the interpersonal connection and dynamic that is possible only with a live, in-person annual meeting of stockholders.’ But it won’t be holding that on July 7 as originally planned. Instead, Elon Musk disclosed on Twitter that the date has tentatively been reset for September 15. A follow-up filing from the company said a specific date and location for the meeting has yet to be set.
– According to CNBC, Palantir has appointed WSJ reporter Alexandra Wolfe Schiff as its first female board member ahead of an anticipated stock market listing. ‘Big news: After over seven wonderful years at The Wall Street Journal, I’ve resigned to join the board of Palantir,’ Wolfe Schiff said.
Palantir’s home state of California requires public firms to have at least one woman on their board, and financial services firms such as Goldman Sachs have said they won’t help companies go public if they don’t have diverse boards. Palantir has also appointed Zillow co-founder Spencer Rascoff and venture capitalist Alexander Moore (an early Palantir employee) to its board, according to Bloomberg. Palantir did not immediately respond to CNBC’s request for comment.
– Reuters said that, according to a person familiar with the matter, more than 1,600 workers at Alphabet are petitioning its Google unit to stop selling email and other services to police departments. In a petition seen by Reuters, the workers expressed disappointment with Google not joining the ‘millions who want to defang and defund’ police departments. ‘We should not be in the business of profiting from racist policing,’ the Google petition said. It cited sales of the company’s G Suite package, which includes tools for email, document editing and file storage, to the police department in Clarkstown, New York.
– Blackstone Group is changing its recruiting playbook in a bid to improve its hiring process and increase diversity, according to the WSJ. The change has been planned since last year, but Blackstone is implementing it at a moment when companies are working out how to address racial inequality following the killing of George Floyd.
The investment firm and its private equity peers have long sought to hire junior investment bankers. But now Blackstone officials say the firm plans to avoid that contest in favor of on-campus recruiting, already its main source of talent and one it is expanding to bring in more candidates directly from schools, including historically black colleges and universities and women’s colleges. Blackstone, which has been working for years to extend its campus reach, says it will directly recruit from 44 schools this academic year, up from just nine in 2015.
– Bayer said it is paying up to $10.9 billion to settle a lawsuit over subsidiary Monsanto’s weed killer Roundup, which has faced lawsuits over claims it causes cancer, The Guardian reported. The pharmaceutical company said the Roundup settlement would ‘bring closure to approximately 75 percent’ of the current 125,000 filed and unfiled claims. The resolution also puts in place a mechanism to resolve potential future claims, the company said.
‘First and foremost, the Roundup settlement is the right action at the right time for Bayer to bring a long period of uncertainty to an end,’ said Bayer CEO Werner Baumann in a statement. Bayer said the agreement is subject to a judge’s approval.
– CNN said Lufthansa appeared set to receive a $10 billion bailout from the German government after the airline’s largest single shareholder dropped his opposition to the rescue plan. Heinz Hermann Thiele had been threatening to block the deal, but he relented just hours ahead of a shareholder vote, telling Frankfurter Allgemeine that he would vote for the resolution. At the virtual meeting of shareholders, Lufthansa CEO Carsten Spohr appealed for support, saying: ‘We are asking for nothing less than your approval to save Deutsche Lufthansa.’
‘We simply don’t have any money,’ Lufthansa chair Karl-Ludwig Kley told shareholders during the meeting on Thursday. Reserves amassed during good years will soon be depleted and, without government help, insolvency would loom, he added.
– The SEC has found problems with conflicted relationships and inadequate fee and expense disclosures at private equity and hedge fund firms, the WSJ reported. The agency detailed the issues it has seen in recent examinations of investment firms in a public alert, without naming individual firms found to have problems. The alert is intended to help private-fund advisers improve their compliance programs and give investors information on what to look out for, the SEC said.
It identified nine broad types of conflicts of interest it has seen in exams, including giving preferential treatment to certain investors and having multiple companies owned by the same firm doing business with one another. The agency also noted as a problem how some firms have handled material non-public information, such as insider information about companies they do business with.
– ESG funds have often lagged the broader market, but that’s no longer the case as investors recognize that companies have to do better, particularly in terms of social issues highlighted by the Black Lives Matter movement, CNN noted. For example, the iShares ESG MSCI USA, Vanguard ESG US Stock and FlexShares STOXX US ESG Impact ETFs are each up roughly 10 percent over the past year, easily outperforming the Dow and S&P 500 over the same timeframe.
According to research from mutual fund tracker EPFR, funds with socially responsible or ESG mandates attracted more new money last week for the 11th time in the past 12 weeks. EPFR said that so far this year, ESG funds have brought in $61.6 billion in new money.
‘One of the reasons you are seeing investors embrace ESG is that this is no longer about just avoiding companies that are doing bad things and controversial sectors,’ said Blake Pontius, director of sustainable investing and portfolio specialist for William Blair’s global equity team. It’s smart business practice to be more inclusive, he added, noting that gender and ethnic diversity on a company’s board and management team often leads to better stock performance over time.
– Reuters reported that Standard Bank faced criticism from activists over climate issues at its AGM, although shareholders did not heed their calls to vote out directors over links to fossil fuels. Climate advocates have increased the pressure on Africa’s largest bank by assets after it declined to table two climate change-related resolutions from activist shareholder JustShare at the AGM.
Activists from JustShare and other groups took the opportunity of the virtual meeting to raise questions and concerns about Standard Bank directors with ties to fossil fuels, the firm’s climate-related disclosures and its involvement in projects including a Ugandan crude oil pipeline and gas developments in Mozambique.
Standard Bank CEO Sim Tshabalala said the company was firmly and irrevocably committed to tackling the climate crisis and that work was underway on some of the issues at the center of the resolutions proposed by JustShare. The bank told Reuters after the AGM that it aimed to make its first climate-related financial disclosures in the next three or four months and outline a policy on lending to oil and gas projects by the end of the year.
– According to the WSJ, Blackstone Group named Google CFO Ruth Porat to its board of directors, a move that comes as the firm shifts toward technology and growth investments. Porat joined Google as CFO in May 2015 and also took on the same responsibility at its parent company, Alphabet, later that year. Blackstone chair and CEO Stephen Schwarzman said Porat would be a valuable asset to the company’s board. Women now hold three of Blackstone’s 12 board seats, boosting female representation to 25 percent.