The week in GRC: BlackRock nominates Cisco chief as director and BP cuts CEO pay after shareholder vote

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

The New York Times reported that at a gathering of the nation’s top M&A lawyers and bankers, the consensus was that deal making should boom under the Trump presidency. Lower taxes and less regulation should contribute to strong stock prices, making companies more likely to strike big deals, the thinking goes. The pro-business Trump administration, most deal makers believe, is also likely to take a forgiving view on antitrust matters.

For years, many of the panelists at the Tulane University event argued that activist hedge funds trying to shake up companies were short-term investors and did not have the best interests of other shareholders at heart. Now, however, even the staunchest critics of these activist shareholders concede that the practice is here to stay.

– Facebook has attracted criticism over whether its workforce and board are too white and too male, and last year it started a new push on diversity in hiring and retention, the Times said. Now it is extending its efforts to the outside lawyers who represent the company. Facebook is asking that women and ethnic minorities account for at least 33 percent of law firm teams working on its affairs.

Under a new policy, law firms must also show they ‘actively identify and create clear and measurable leadership opportunities for women and minorities’ when they represent the company in litigation and other legal matters. Those opportunities ‘include serving as relationship managers and representing Facebook in the courtroom,’ said Colin Stretch, Facebook’s general counsel.

– The Financial Times reported that new rules on reporting gender pay had come into force in the UK in an effort to tackle workplace discrimination. But there are big gaps in the requirements imposed on UK companies that could stymie progress, according to Libby Lyons, director of Australia’s Workplace Gender Equality Agency.

Australia introduced similar but more sweeping rules in 2013 and these did much to raise awareness of gender equality and change attitudes, particularly at large organizations, Lyons said. Yet the Australian experience showed that cultural change did not ‘happen overnight,’ she added. To make further progress, companies should offer more flexible work options to men, as well as women, while men should take on a greater share of care work in the home, she said.

– The Wall Street Journal reported that the Federal Communications Commission (FCC) voted to reverse a stringent merger requirement on Charter Communications that would otherwise have compelled the company to build out internet service to 1 million households already being served by a competitor.

The vote overturned one of the toughest conditions the FCC, under the Obama administration, had imposed on Charter’s roughly $60 billion deal to buy Time Warner Cable and Bright House Networks last year. Under current chair Ajit Pai, the FCC voted to nullify the ‘overbuild’ requirement and simply compel Charter to build out to 2 million homes that don’t have broadband access.

– The FT said Daniel Tarullo, the Federal Reserve governor who has been supervising US banks, left the institution on Wednesday after eight years during which he gained a hardline reputation overseeing the rebuilding of US finance from the wreckage of the financial crisis. For the White House, the power to choose a new regulatory chief at the Fed presents a major opportunity. The Trump administration has vowed to roll back parts of post-crisis regulation, and it sees its power over appointments as a tool in reshaping the landscape amid the risk of legislative logjams in Congress. 

Reuters reported that, according to City of London Corporation’s policy chief Mark Boleat, the financial center should emerge largely unscathed from Brexit even though thousands of banking and insurance jobs could move to the continent. ‘If it was going to be Armageddon, we would have noticed it by now,’ Boleat said. ‘They are never all going to up sticks and leave... We expect the steady flow of new business coming in.’

This contrasts with harsher predictions, such as a report from EY consultancy forecasting a loss of 232,000 financial jobs in the UK as a result of Brexit, though with many of those losses in parts of the country outside London.

– The US Department of Labor’s Occupational Safety and Health Administration (OSHA) ordered Wells Fargo to pay $5.4 million to a former manager who said he was fired in 2010 after reporting to his supervisors and to a bank ethics hotline what he suspected was fraudulent behavior, the Times reported. The bank must also rehire him, OSHA said.

Wells Fargo said it would fight the ruling. ‘We disagree with the findings and will be requesting a full hearing of the matter,’ a spokesperson said. ‘This decision is a preliminary order, and to date there has been no hearing on the merits of this case.’

– Reuters reported that the US Senate Banking Committee voted to advance Jay Clayton's nomination as the next head of the SEC to the full Senate for approval. The committee voted 15 to 8, with some Democrats, including Massachusetts senator Elizabeth Warren and Sherrod Brown of Ohio, voting against him. They have concerns about his close ties to Wall Street from his career as a deal-making attorney for Sullivan & Cromwell.

‘While some have raised issues about his previous work creating conflicts, Mr Clayton is not new in this regard, nor will he be any less vigilant to ensure that he acts appropriately and ethically,’ said Senate Banking chair Mike Crapo, R-Idaho.

– UK lawmakers called for the government to ban companies from awarding lucrative and complex share-based pay schemes to top executives, saying they create ‘perverse’ incentives and encourage short-term decisions, according to The Telegraph.

A report by the Commons business select committee said long-term incentive plans (LTIPs) should be outlawed from next year as part of an overhaul of corporate governance rules. The cross-party group of MPs urged companies to replace LTIPs with simpler deferred stock options. Senior executives would be awarded shares that they would only be able to cash in years later, including after they have left their jobs.

– JPMorgan Chase chair and CEO Jamie Dimon backed President Donald Trump’s move to relax financial regulations, saying that the new rules put in place since the crisis have essentially ‘solved’ the problem of banks being ‘too big to fail,’ the FT said.

In his annual letter to shareholders, Dimon said the big US banks have ‘dramatically’ boosted capital, liquidity and risk controls in recent years, while taking a series of steps to ensure they could be safely wound down without burdening the taxpayer. The Dodd-Frank Act and other laws should not be thrown out entirely, but it was ‘appropriate to open up the rule book in the light of day’ and ‘rework’ parts of it that did not work as well as they could, he wrote.

– Republicans have been able to roll back a lot of regulations, but with a key deadline for using what’s known as the Congressional Review Act looming, plenty of other rules targeted for elimination are likely to be spared or fall into the longer, more laborious process of review by the administration, according to Bloomberg. Congress has until roughly the end of the month to act on 20 pending measures.

– The WSJ reported that BlackRock has nominated Cisco Systems leader Chuck Robbins as a director, a move that would make him the first technology CEO on the board of the world’s largest money manager. The expected election of Robbins at BlackRock’s May 25 annual meeting comes ahead of the firm’s expanded reliance on highly sophisticated technology. In one example, BlackRock has long commercialized an internal risk-management system known as Aladdin but is increasingly seeking new ways for its own investors and customers to use it.

– The WSJ reported that, according to people familiar with the matter, FCC chair Pai laid out preliminary plans to roll back the agency’s net neutrality rules during a meeting with trade associations.

The plans appear aimed at preserving the basic principles of net neutrality but shifting enforcement to the Federal Trade Commission, while undoing what Republican critics regard as the regulatory overreach of the FCC’s rules. FCC officials didn’t respond immediately to requests for comment.

– The Bank of England is concerned the City of London financial center is not doing enough to plan for a ‘no-deal’ Brexit and has set a July deadline for all financial services companies - including European ones - to get their houses in order, according to the FT.

Sam Woods, head of the BoE’s Prudential Regulation Authority, stressed in a letter to the industry that it must plan for the worst, particularly now that Article 50 has been invoked and there is a two-year deadline before Brexit is complete.

– Reuters said BP cut CEO Bob Dudley's 2016 pay package by 40 percent to $11.6 million, making BP the latest major UK company to rein in executive pay after a wave of shareholder revolts. The oil company has reduced Dudley's payout and introduced changes from this year that will lower executives' performance incentives. The cuts come after roughly 60 percent of shareholders opposed BP's pay policy at last year's annual general meeting.

‘We applaud the BP remuneration committee for being proactive in responding to the shareholder revolt last year and see this as a milestone in the engagement between companies and shareholders,’ said Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management.

‘I have consulted widely with shareholders and listened to and sought to act on their concerns, and have been sensitive to developments in the society in which we work,’ Ann Dowling, chair of BP's remuneration committee, said in the company's annual report.


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