The week in GRC: Vatican launches ‘inclusive capitalism’ initiative and Tesla publishes its first diversity report
– The Wall Street Journal reported that ExxonMobil faces the threat of a proxy fight from a new activist investor with a sustainability focus. Engine No 1 was preparing to send a letter to Exxon’s board urging the company to focus more on investments in clean energy while cutting costs elsewhere to preserve its dividend. The letter identifies four people the firm plans to nominate to Exxon’s 10-person board.
Engine No 1 calls for Exxon to make four primary changes: add independent directors with diversified energy-industry experience; reduce capital expenditures, particularly on projects that are unlikely to break even with sustained low oil and gas prices; devise a plan to invest in growth areas such as renewable energy; and realign management incentives.
‘Without having seen the letter, we will decline to comment,’ an Exxon spokesperson said.
– Tesla published its first diversity report, CNBC reported. The report stated that Tesla has a ‘majority minority’ US workforce overall, but that 83 percent of employees in leadership roles are men and 59 percent are white. Tesla’s inaugural diversity, equity and inclusion impact report offers fewer details than diversity reports from major tech companies. But Tesla makes cars, software and energy products and it is therefore difficult to compare it with peers in tech or autos.
According to research by the Boston Consulting Group, companies with more diverse leadership teams report higher innovation revenue. Public companies face growing pressure to disclose more information about the makeup of their workforce, and to add people from diverse backgrounds to their boards.
Tesla laid out in its report plans for keeping its workforce at least as diverse as it is today or making it more diverse and inclusive.
– The WSJ noted that companies may be required to disclose more information on carbon emissions, diversity and other sustainability metrics in the coming years if the incoming Biden administration carries through on its election promise. President-elect Joe Biden campaigned on requiring companies to provide more detail on environmental risks and greenhouse gas emissions within their operations and supply chains, as part of a broader effort to combat climate change.
Under existing SEC rules, public companies must disclose ESG information only if they deem it material to investors’ perception of the business. ‘There’s a growing pressure for mandatory disclosures of public companies about climate change risk,’ said Amy Borrus, executive director of the Council of Institutional Investors.
Biden’s transition team didn’t immediately respond to requests for comment.
– Argonaut Capital said the proposed takeover of Siltronic by Taiwan’s GlobalWafers was unfair for the German company’s minority shareholders, Reuters reported. Siltronic said last month that it was in advanced talks to be bought by GlobalWafers in a €3.75 billion ($4.55 billion) deal it described as ‘appropriate and attractive.’
‘Siltronic minority shareholders are being corralled into selling out at a cyclical bottom in the semiconductor wafer industry,’ wrote Barry Norris, CEO and fund manager at Argonaut, in an open letter to Siltronic chair Tobias Ohler.
Siltronic did not respond to a request for comment.
– According to the WSJ, the PCAOB intends to change the way it picks audits for inspection and conducts its evaluation as part of efforts to assess the impact of remote working on the quality of audits. The PCAOB is increasing ‘significantly’ the percentage of public company audits it selects randomly for inspection in 2021, PCAOB board member Megan Zietsman said.
When selecting audits for inspections, the PCAOB usually looks for those that may pose a difficult or complex issue. Despite the higher proportion of random audits next year, the total number of audit inspections conducted will remain about the same, Zietsman said.
– The SEC said Robert Stebbins will conclude his tenure as general counsel in early January having spent more than three and a half years as the agency’s chief legal officer. Stebbins leads the office of the general counsel, which includes more than 150 professionals and is responsible for supporting a range of functions, including: advising on all rulemaking, guidance and other commission and staff policy matters; advising on all commission enforcement actions; and litigating non-enforcement matters and appeals. Michael Conley, currently the SEC’s solicitor, will serve as acting general counsel following Stebbins’ departure.
– Starbucks said Mellody Hobson will serve as the next non-executive chair of its board, CNBC reported. Hobson will replace Myron Ullman, the former CEO of JC Penney, in March. Ullman, who is retiring, has been on Starbucks’ board since 2003 and has been chair since 2018. Hobson, who is also the co-CEO of Ariel Investments, has been on Starbucks’ board for 15 years. She currently serves as a director for JPMorgan Chase and has previously been on the boards of Estée Lauder and DreamWorks Animation.
At a recent appearance at The Economic Club of New York, Hobson talked about developments from US companies to address racism and racial inequality: ‘I’ve been saying we need less lip service, and we need more elbow grease, and so I think this time will be different because we live in a society that is holding us accountable... I think there is no way to escape actually having real results now: people are watching.’
– CNN reported that dozens of states and the US federal government sued Facebook in twin antitrust lawsuits, alleging that the company has abused its dominance in the digital marketplace and engaged in anti-competitive behavior. The Federal Trade Commission is seeking a permanent injunction in federal court that could, among other things, require the company to divest assets, including Instagram and WhatsApp. The states are also calling for the company to be broken up, if necessary.
‘For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition,’ New York Attorney General Letitia James said. ‘By using its vast troves of data and money, Facebook has squashed or hindered what the company perceived to be potential threats.’
‘People and small businesses don’t choose to use Facebook’s free services and advertising because they have to – they use them because our apps and services deliver the most value,’ said Jennifer Newstead, vice president and general counsel at Facebook, in a statement. ‘We are going to vigorously defend people’s ability to continue making that choice.’
– According to CNBC, corporate boards opted for stability in leadership as the coronavirus pandemic upended the economy in the second quarter of this year, leading to CEO turnover being at its lowest level in years. A study from The Conference Board shows that only 71 companies within the Russell 3000 Index announced CEO changes in that period, 11 percent lower than the average turnover in the two previous years. Additional data from staffing firm Challenger Gray & Christmas shows that the second quarter was the lowest quarter for CEO turnover since 2008, as far back as its data goes.
‘If you’re a board member, your agenda is pretty full: cash flow, figuring out work from home,’ said David Larcker, director of the Corporate Governance Research Initiative at the Stanford Graduate School of Business. ‘The last thing you need is having a bunch of people at the top leave.’
– The WSJ reported that a coalition of more than 30 CEOs from companies including Merck, IBM and Nike are backing a startup that will connect employers with black workers. The startup, called OneTen, aims to create 1 million jobs for black Americans over the next 10 years and has so far recruited more than 35 company backers and raised more than $100 million in seed funding.
Merck CEO Ken Frazier, one of the startup’s founders, said the non-profit organization will focus on helping black Americans without four-year college degrees, but with high school diplomas and other certifications, find and retain ‘family-sustaining jobs’ or jobs earning $40,000 or more, depending on the region.
– The Vatican and some of the world’s largest investment and business leaders launched a new partnership known as the Council for Inclusive Capitalism with the Vatican. In an announcement, the council says the move ‘signifies the urgency of joining moral and market imperatives to reform capitalism into a powerful force for the good of humanity.’ It invites companies of all sizes to ‘harness the potential of the private sector to build a fairer, more inclusive and sustainable economic foundation for the world.’
The council is led by a core group of global leaders who will meet each year with Pope Francis and Cardinal Peter Turkson, who leads the dicastery for promoting integral human development at the Vatican. The business leaders represent more than $10.5 trillion in assets under management, companies with more than $2.1 trillion in market capitalization and 200 million workers in more than 163 countries.
– The WSJ reported that the Financial Crimes Enforcement Network (FinCEN) issued new guidance on how financial institutions can share personally identifiable information about their customers if they believe it is tied to a suspicious transaction. The guidance is intended to help clarify the limits to what officials have called a key tool in identifying potential instances of money laundering and terrorist financing, said FinCEN director Kenneth Blanco.
The Patriot Act has encouraged some financial institutions to work together in recent years to more effectively identify suspicious transactions that could be tied to an illicit activity affecting US national security. But questions have remained about the legal limits to such information-sharing partnerships, causing them to be under-used, according to practitioners.
– The SEC said division of enforcement director Stephanie Avakian will finish her tenure by the end of the year, having led the division over the last four years as co-director and then director. Under her leadership, the division recommended and the commission brought more than 3,000 enforcement actions, obtained more than $17 billion in financial remedies, returned roughly $3.6 billion to harmed investors and paid awards of around $595 million to whistleblowers. Deputy director Marc Berger will serve as acting director following Avakian’s departure.
‘I am incredibly proud of what the women and men of the division of enforcement have accomplished under Stephanie’s leadership. Her focus on the vigorous pursuit of quality cases, using the recourses of the division to maximum effect, has resulted in a program that is tough on violators, enhances the integrity of our markets and puts the interests of our Main Street investors first,’ SEC chair Jay Clayton said in a statement.