The week in GRC: Mastercard linking exec bonuses to ESG and SEC said to look into Spac arrangements

Mar 26, 2021
This week’s governance, compliance and risk-management stories from around the web

– The SEC launched a new page on its website bringing together the agency’s actions and the latest information about ESG investing. ‘Our all-of-SEC approach looks at how climate and ESG intersect with our broader regulatory framework to get investors the information they need to plan for their financial future,’ said acting SEC chair Allison Herren Lee in a statement.

CNBC reported that Canadian Pacific Railway said it has agreed to buy Kansas City Southern for $25 bn in a deal to create the first rail network connecting the US, Mexico and Canada. It is the biggest M&A deal launched in 2021.

Kansas City Southern’s board has approved the bid and the two companies have notified the US Surface Transportation Board to seek the agency’s required approval. Canadian railroad operators’ attempts to buy US rail companies have met with limited success because of antitrust concerns. The deal comes amid expectations of an increase in US-Mexico trade following Joe Biden’s replacement of Donald Trump as president.

– Mark Branson, the head of Switzerland’s financial markets regulator, is to become president of Germany’s finance watchdog BaFin, Reuters reported. German finance minister Olaf Scholz, whose ministry oversees BaFin, said Branson, a banker-turned-regulator, will help give BaFin ‘more bite.’

The Wall Street Journal noted that scores of US fund managers are being required to comply with new EU rules on climate and other sustainable-finance issues, meaning they have to disclose the potential harm their investments could do to the environment and society. ‘There are many issues to be resolved; it is causing anxiety,’ said Rick Lacaille, global lead for ESG investing at State Street.

In the US, the Biden administration is taking the first tentative steps toward imposing similar rules. The SEC is already focusing on climate-related disclosures by companies. Europe’s new Sustainable Finance Disclosure Regulation requires banks, private equity firms, pension funds, hedge funds and other asset managers to comply with a range of ESG requirements. The regulation applies to all funds, even if they don’t sell themselves as sustainable.

Reuters reported that Hartford rejected a $23.24 bn takeover offer from Chubb. Hartford said its board had determined that entering into talks about a deal would not be in the best interests of the company and its shareholders. A deal between Hartford and Chubb would be the biggest in the industry since Aon’s $30 bn bid to buy Willis Towers Watson last year.

– Fox Corp said Nicholas Trutanich, a former US attorney for Nevada, would become the company’s new chief ethics and compliance officer, according to the WSJ. Trutanich’s expertise in gambling regulation was one reason for the appointment, according to Fox general counsel Jeff Taylor. Fox is one of several broadcasters to have made a push into the sports gambling business.

‘Nick is an experienced trial lawyer, a proven leader and an adviser with impeccable integrity,’ said Taylor in a statement. ‘He is an ideal fit for our already strong team, and his expertise in gaming regulation will be invaluable as Fox continues its push into sports betting.’

Fox added that Taylor, who joined the company as chief litigation counsel in 2019, had been promoted to general counsel alongside the appointment of Trutanich.

– The SEC adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Holding Foreign Companies Accountable Act (HFCA Act).

Among other things, the HFCA Act amended Section 104 of the Sarbanes-Oxley Act to require the SEC to identify each ‘covered issuer’ that has retained a registered public accounting firm to issue an audit report where that firm has a branch or office located in a foreign jurisdiction, and the Public Company Accounting Oversight Board has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction.

A release on the interim final amendments adoption seeks comment on this requirement.

– According to the Financial Times, senior City of London executives have warned the UK government not to ‘gold plate’ US-style corporate governance rules. Ministers recently unveiled reforms to clamp down on fraud and encourage greater boardroom responsibility following a series of corporate failures.

Sir Win Bischoff, former chair of Lloyds Banking Group, warned against gold plating the Sarbanes-Oxley regulation that has worked well in the US. These rules – which add greater director liability for fraud and accounting errors – are similar to the new UK government proposals. ‘What is proposed looks like going further in that, [in effect], attestation is made by all board members with personal liability,’ Bischoff said.

Anne Richards, CEO of Fidelity International, worried that holding non-executive directors personally liable for accounts ‘risks putting off quality potential candidates who simply feel it is not worth the risk.’

Reuters reported that, according to people familiar with the matter, the SEC has opened an inquiry into the rush of blank-check acquisitions and is seeking information on how underwriters are managing the risks involved. The SEC in recent days sent letters to Wall Street banks seeking information on their special purpose acquisition company (Spac), the people said. The letters asked the banks to provide the information voluntarily and, as such, did not rise to the level of a formal investigative demand, two of the people said.

The SEC, which declined to comment, has previously said it was monitoring the Spac boom

– According to CNBC, General Motors (GM) is adding former Hewlett Packard executive Meg Whitman and National Basketball Association COO Mark Tatum to its board, effective immediately. They bring GM’s board to 13 members, 12 of whom are independent directors. GM CEO and chair Mary Barra is the only company representative on the board.

‘Our diverse board of directors is a competitive advantage for GM as we work to deliver a better, safer and more sustainable world,’ Barra said in a statement. ‘Mark and Meg will bring unique experiences to the board – especially in technology, brand building and customer experience – that will help us drive value for shareholders and other GM stakeholders now and in the future.’

Reuters reported that Mastercard CEO Michael Miebach said in a note on the payment processor’s website that it will link bonuses for its senior executives to ESG initiatives. The company will link compensation for executive vice presidents and above to helping Mastercard achieve its goals of cutting its carbon use and improving financial inclusion and gender pay parity.

‘The purpose of our incentive compensation programs is to encourage and reward performance that helps us achieve our goals – financial goals, of course, as well as strategic goals,’ Miebach said.

Reuters reported that the UK government launched a public consultation on a proposal to require big companies to disclose the risks they face from climate change as soon as 2022. If introduced, it would make the UK the first major economy to make such disclosures mandatory. The Department for Business, Innovation and Skills said disclosures should be in line with recommendations from the global TCFD.

‘To support our transition to net-zero, the government considers it important to ensure that companies with a material economic or environmental impact or exposure assess, disclose and ultimately take action against climate-related risks and opportunities,’ the ministry said.

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