The week in GRC: Election challenges companies’ political speech policies, and investors demand board racial diversity disclosures

Oct 30, 2020
This week’s governance, compliance and risk-management stories from around the web

CNBC reported that Dunkin’ confirmed sale talks with Inspire Brands, the privately held owner of Arby’s and Jimmy John’s. The coronavirus pandemic and its disruption of coffee drinkers’ usual routines has hit Dunkin’s sales, but its drive-through lanes are helping its sales recovery.

– Jack Ma’s Ant Group made the biggest stock market listing in history, CNN reported. The tech company priced its dual listing on the Stock Exchange of Hong Kong and Shanghai’s STAR Market such that the IPO will raise more than $34.1 billion and value the company at roughly $310 billion. The previous IPO record was held by Saudi state oil company Aramco, which raised $29.4 billion in an offering on the Riyadh exchange last December. The Chinese government has been encouraging the country’s top tech companies to list at home instead of on exchanges in the US.

– According to The Wall Street Journal, many financial institutions wanting to offer banking services to the expanding number of legal cannabis growers and distributors in the US continue to face hurdles due to uneven regulations and expensive compliance efforts. The disparities between federal and state laws governing the use of cannabis and hemp, and the differences across states, are preventing banks from accessing what has become a lucrative and legal business in many areas. Regulators have issued little guidance and some of the existing advisories are outdated or set few clear obligations for banks.

CNBC reported that American International Group (AIG) said its board approved a plan to separate the life and retirement business from the rest of the company, and named president Peter Zaffino as CEO, effective next year. Zaffino, who succeeds Brian Duperreault, will take charge in March.

The insurer said it has yet to decide how to carry out the separation, beyond the board voting to establish two independent, market-leading companies. The board’s decision does not rule out a single sale and any proposed transactions will also need board approval, AIG said.

– According to Reuters, Barry Nigro stepped down from the US Department of Justice’s antitrust division, where he was the second-most senior official after Assistant Attorney General Makan Delrahim, and will rejoin his old law firm Fried Frank Harris Shriver & Jacobson. Nigro joined the Justice Department in 2017 and began as Delrahim’s chief deputy last year. He returns to Fried Frank as chair of the antitrust department, effective November 2.

– Companies under investigation by the SEC are increasingly opting to defend themselves before receiving a Wells notice warning of a potential civil enforcement action, the WSJ reported. The notices offer recipients a chance to respond but many companies are providing a defense to the SEC ahead of the Wells notice by submitting a white paper, requesting a meeting with the enforcement division, or both.

In the three full fiscal years under chairman Jay Clayton, between October 2017 and this past September, the SEC sent out an average of 4.7 letters a year to companies, based on corporate disclosures. In the preceding 16 years, Wells notices averaged roughly 14 a year, Audit Analytics data shows. An SEC spokesperson said it isn’t informative to draw conclusions from the number of disclosed Wells notices, because investigations can play out in many different ways.

‘What is clear from a look at the cases brought to date is the vigorous work of the women and men of the SEC’s enforcement division to combat wrongdoing, compensate harmed investors and maintain confidence in the integrity and fairness of our markets,’ the spokesperson said.

– The SEC announced that William Hinman, director of the agency’s division of corporation finance, plans to leave the SEC later this year. Since joining the SEC in May 2017, Hinman has led the division’s work on issues such as updating public company disclosures, the proxy process and the securities offering framework. He has also overseen the division’s core functions, including the disclosure review program.

‘Whether through his work strengthening and increasing access to our public and private markets, modernizing disclosure requirements to reflect current drivers of value and risk, or responding to the onset of the global pandemic, Bill and his team in corporation finance have greatly improved our regulatory framework for investors as well as small, growing and established businesses,’ said  SEC chair Jay Clayton in a statement.

When Hinman steps down, Shelley Parratt will serve as acting director. She is currently deputy director of the division.

– The WSJ reported that Anthony Albanese, who has led the NYSE’s in-house regulatory unit since 2016, is leaving the exchange for a job advising venture capital firm Andreessen Horowitz on crypto-currency regulation. Albanese will join the Silicon Valley firm as its chief regulatory officer in mid-November. His work will involve outreach to regulators and helping to shape strategy for Andreessen Horowitz’s crypto-currency projects, according to a blog post the firm released. Before becoming the NYSE’s chief regulatory officer, Albanese led the New York State Department of Financial Services.

– Bloomberg reported that a new coalition of institutional investors and advisers overseeing more than $3 trillion in assets is pressing US companies to disclose the racial makeup of their boards in an effort to increase the diversity of directors. The Diversity Disclosure Initiative, headed by Illinois State Treasurer Michael Frerichs and Connecticut State Treasurer Shawn Wooden, wants Russell 3000 Index companies to voluntarily reveal the racial and ethnic composition of their boards. Many members of the initiative already have or are considering policies to vote against the members of nominating committees that don’t report board racial or ethnic makeup in their annual proxy statements.

In a letter to all the members of the index, the group said it is calling for more disclosure in the wake of the Black Lives Matter protests that followed the police killing of George Floyd earlier this year. The group wants companies that don’t divulge board racial, ethnic and gender data in proxy statements to do so in future filings, starting in 2021. Few companies currently make that information public.

– The WSJ reported that the CEOs of the largest social media companies tangled with US senators over their role in public discourse amid bipartisan criticism of the companies’ policies. Facebook CEO Mark Zuckerberg, Twitter CEO Jack Dorsey and Sundar Pichai, CEO of Google and YouTube owner Alphabet, have since the 2016 election been rewriting their policies and taking a more active role in moderating online speech. But the Senate Commerce Committee hearing reflected discontent with social media platforms’ power and deep divisions about how to tackle it.

Republicans want to update part of a 1996 law known as Section 230 that helps shield internet platforms from liability for user-generated content, claiming it has been misused to censor conservative views. Democrats also want to review Section 230 but on Wednesday raised differing concerns, such as asking whether the companies are taking adequate steps to guard against disinformation campaigns in what could be a chaotic aftermath to next Tuesday’s election.

– The WSJ also noted that the political rancor of the US presidential election is putting pressure on companies and their compliance officers to engage proactively with employees on ethical behavior and use of social media. Companies are increasingly sensitive to reputational risks, and experts say it would behoove corporate leaders to remind employees about codes of conduct and social media policies before an issue arises.

The task of tackling these risks falls at least partly on the shoulders of compliance officers. In addition to the election, they are having to consider navigating the social unrest created by the coronavirus pandemic and a turbulent year that saw widespread protests on racism and police brutality.

‘Compliance officers are becoming almost the moral or ethical guardians of the company rather than simply regulatory compliance officers,’ said Mary Shirley, the senior director of ethics and compliance at Fresenius Medical Care.

– Linda Lacewell, superintendent of the New York State Department of Financial Services, set expectations for banks and other firms to prepare for risks arising from climate change and the transition away from fossil fuels, the WSJ reported. ‘Financial risks from climate change are unprecedented,’ Lacewell wrote in a letter sent to New York-based banks.

Lacewell pointed to two dangers analysts say banks and other financial companies face from climate change: physical risks and transition risks. Physical risks are those arising from severe weather caused by climate change, while transition risks arise when banks are too reliant on fossil-fuel financing jeopardized by government policies and changing energy habits. More than half of all syndicated lending at major US banks is exposed to significant climate-change risk, which could lead to more than $100 billion in losses, according to a report by Ceres.

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