The week in GRC: Rio Tinto CEO exit seen as warning to boards, and Fed wants bank diversity info
– The Wall Street Journal reported that a new agreement between the US Department of the Treasury and officials in Delaware may result in more aggressive enforcement of economic sanctions on non-financial companies, particularly if they attempt to hide transactions behind anonymous entities. The Treasury’s Office of Foreign Assets Control (OFAC) and the Delaware Department of Justice recently signed a memorandum of understanding to encourage information-sharing and co-ordination on investigations and to promote compliance with US trade and economic sanctions laws.
The agreement is intended to enhance transparency in corporate structures that may be used to obscure illicit business and to prevent the use of US companies by blacklisted individuals or entities.
‘Authorities in Delaware have such significant access to information about companies that are formed in Delaware, which can sometimes be difficult for OFAC to get,’ said Eric Lorber, a vice president at advisory firm K2 Intelligence Financial Integrity Network. ‘So this is going to ease that process.’ That access could help OFAC cross-reference information with other investigators, including those in the US intelligence community, Lorber said.
– According to CNN, General Motors (GM) and Nikola are teaming up to work on a fully electric and hydrogen fuel cell electric pickup truck, the Nikola Badger, in a deal that gives GM the right to nominate one director to Nikola’s board. The partnership gives GM an 11 percent stake in the start-up, receiving $2 billion in equity, the companies said. GM will be the exclusive supplier of fuel cells to Nikola’s Class 7/8 trucks in all areas besides Europe, the companies said.
– Bloomberg reported that Sheila Clark, program director of the Federal Reserve’s office of diversity and inclusion, said the Fed wants the banks it oversees to provide more information on what they’re doing to promote racial and gender diversity. ‘In the last two years, regulated entities slightly increased their submissions of assessments of their diversity policies and practices,’ said Clark in Congressional testimony. ‘[But] we are not satisfied with the level of responsiveness.’
She said the central bank is continuing to explore ways to promote greater participation by the banks, including by working with other financial regulators.
– The WSJ reported that LVMH Moët Hennessy Louis Vuitton said it was dropping its $16.2 billion takeover of Tiffany. LVMH said it no longer wanted to buy Tiffany because the deal was being dragged into trade disputes between the French government and the Trump administration, adding that it had received a letter from the French foreign ministry asking it to delay the acquisition until January 6, 2021, more than a month after the closing date in the merger agreement.
Tiffany said it has filed a lawsuit in Delaware, where key LVMH US subsidiaries are based, to enforce the agreement. ‘We believe LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms,’ said Tiffany chair Roger Farah. ‘But the simple facts are that there is no basis under French law for the foreign affairs minister to order a company to breach a valid and binding agreement.’
Jean Jacques Guiony, LVMH’s CFO, said it considered the French government’s demand a valid, legally binding order. ‘We have no other choice but to apply this decision,’ he said.
A spokesperson for the French foreign ministry didn’t respond immediately to a request for comment.
– According to Reuters, a group of mostly male executives from Australia’s largest companies said in a report that boards should be tougher in tackling sexual harassment at a time when the country is facing a number of corporate scandals. The Male Champions of Change (MCC) group said companies should work to ensure sexual harassment never takes place rather than just respond to cases when they happen. The group, which also includes some female executives, further recommended that companies stop using non-disclosure agreements to prevent people from speaking out.
‘As managers we have a collective responsibility to denounce any form of harassment or misconduct,’ said Simon Rothery, CEO of Goldman Sachs in Australia, who is a member of the group.
– Ursula Burns, who was CEO of Xerox from 2009 to 2016 and the first black woman to run a Fortune 500 company, said corporations must ‘change the criteria’ for directors to create more diverse boardrooms, CNBC reported. Burns said companies must stop screening for people who have been CEOs to join their boards because black people have historically been excluded from those roles.
‘You can probably count on two hands the number of candidates you’ll get who are diverse,’ said Burns, who is an Uber director. ‘It’s a fallacy and a structural form of racism and exclusion to say that the only people who can actually participate are people who have this very narrow set of skills.’
– The WSJ reported that JPMorgan’s leaders told employees the bank has found evidence of employees and customers misusing the government’s stimulus funds this spring and is co-operating with authorities. In a memo to employees, the bank didn’t detail specific examples but said it had found customer wrongdoing involving the small-business rescue plan known as the Paycheck Protection Program, unemployment benefits and other government programs aimed at easing the coronavirus pandemic’s economic effects.
‘Some employees have fallen short, too,’ the memo said, without elaborating. The memo described the issues as ‘conduct that does not live up to our business and ethical principles – and may even be illegal.’ A bank spokesperson declined to provide more details.
– Reuters reported that Citigroup named consumer banking head Jane Fraser as successor to Michael Corbat next year as CEO, making her the first woman to lead a major Wall Street bank. Alison Rose became the first woman to head a UK bank when she took on the role at Natwest Group last year, and Santander executive chair Ana Botin is the only female head of a major eurozone lender.
Fraser started her career at Goldman Sachs in the M&A department in London and then worked for Asesores Bursátiles in Madrid, Spain.
– According to the WSJ, the number of US-listed Chinese companies securing alternative listings in Hong Kong has increased as shares in China’s largest restaurant group started trading in the city and a major hotel chain began taking orders for its own offering.
Yum China Holdings, which runs KFC and Pizza Hut in mainland China, debuted days after it had raised the equivalent of $2.2 billion by selling new stock. Separately, Nasdaq-listed hotelier Huazhu Group began taking orders for a $970 million stock sale ahead of its planned secondary listing in Hong Kong on September 22.
A Hong Kong listing means a company’s stock can be traded during the Asian day and is likely to broaden its investor base. At the same time, US lawmakers are seeking to increase financial scrutiny of US-listed Chinese companies, raising the risk of potential delistings.
– Reuters reported that, according to Ireland’s Data Protection Commission (DPC), the key mechanism Facebook uses to transfer data from the EU to the US ‘cannot in practice be used’ for such transfers. Facebook said in a blog post that it believed the mechanism – standard contractual clauses (SCCs) – had been deemed valid by the Court of Justice of the European Union (CJEU) in July, adding: ‘We will continue to transfer data in compliance with the recent CJEU ruling and until we receive further guidance.’
Facebook said the DPC, the social media giant’s lead regulator in the EU, had ‘commenced an inquiry into Facebook controlled EU-US data transfers, and has suggested that SCCs cannot in practice be used for EU-US data transfers.’
A commission spokesperson declined to comment on the report.
– CNN reported that Rio Tinto CEO Jean-Sébastien Jacques resigned following pressure from investors over the company’s destruction of a 46,000-year-old sacred indigenous site in Australia to expand an iron ore mine. Jacques will leave once his successor is picked or at the end of next March, whichever is sooner, according to the company.
‘What happened at Juukan was wrong,’ said Rio Tinto chair Simon Thompson in a statement, referring to the destruction of two rock shelters in Western Australia that contained artifacts indicating tens of thousands of years of continuous human occupation. ‘We are determined to ensure that the destruction of a heritage site of such exceptional archaeological and cultural significance never occurs again at a Rio Tinto operation.’
In a report published last month, the company said it failed to meet some of its own standards ‘in relation to the responsible management and protection of cultural heritage.’ But it didn’t fire any executives, which sparked criticism from investor groups that accused the company of failing to take full responsibility for the demolition of the caves. On Friday, Rio Tinto acknowledged that ‘significant stakeholders have expressed concerns about executive accountability for the failings identified.’
– Reuters said Jacques’ departure warns mining executives globally that they ignore cultural and social issues at their peril, noting that the tens of billions of dollars poured into companies based on ESG factors give ethically minded investors greater influence over how companies handle corporate crises.
‘For the CEO and a couple of senior managers to go over an ESG issue, it’s just going to reverberate through boardrooms throughout the resource sector,’ said Ben Cleary, a partner at Tribeca Investment Partners.
‘Reputation is now the thin red line between license to operate and failure,’ said Neville White, head of responsible investment policy and research at Edentree Investment Management.
– Facebook CEO Mark Zuckerberg said the company will offer employees paid time off to vote and to staff polling stations for the presidential election, according to CNBC. The move follows steps taken by a handful of other tech companies, including Apple, Uber and Twitter, that will allow employees to take time off to vote or work the polls.
‘We’re less than two months away from the US elections, and we are seeing a massive shortage of poll workers to staff voting stations. Shortages can lead to hours-long waits at the polls, which makes it harder for people to participate in the democratic process,’ Zuckerberg said. Facebook is also launching a prompt at the top of users’ news feeds that encourages people to sign up to work the polls.