The week in GRC: Wells Fargo board said to eye shake-up, and AkzoNobel scores win in activist struggle

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

– The Financial Times reported that boards at the UK’s largest public companies have become more concerned about political risk after the June general election and as they face continuing uncertainty over the post-Brexit trading environment, according to research to be published on Monday.

The study by ICSA: The Governance Institute in conjunction with the FT found that two thirds of FTSE 350 corporate secretaries surveyed believed political risk was increasing, compared with 40 percent last December. Peter Swabey, ICSA policy and research director, said the most likely explanation was uncertainty around Brexit negotiations and any transitional arrangements that might follow.

– Trading in major stocks and derivatives may be thrown into turmoil by the EU’s Mifid II regulatory overhaul unless authorities give financial services firms full freedom to transact in foreign markets, according to Bloomberg. The European Commission is rushing to determine whether the rules in countries such as the US, Switzerland and Singapore are as tough as those that take effect in Europe on January 3. Without such equivalence decisions, Mifid II could disrupt trading on platforms in those countries, fracturing global markets and potentially driving up costs.

‘If it were interpreted overly rigidly, or equivalence didn’t come through, you’d have a form of financial nationalism on the part of the EU,’ said Tim Cant, counsel at Ashurst, about the effect on equity markets. ‘It’s a bit like fortress Europe and rolling back two or three decades of globalization.’

– According to The Wall Street Journal, Google’s new diversity chief Danielle Brown criticized the contents of an employee’s memo that went viral inside the company for suggesting Google has fewer female engineers because men are better suited for the job. Brown sent a letter to employees saying the employee’s memo ‘advanced incorrect assumptions about gender’ and is ‘not a viewpoint that I or this company endorses, promotes or encourages’, according to a copy of the statement published by Motherboard.

‘Given the heated debate we’ve seen over the past few days, I feel compelled to say a few words,’ Brown said in the statement. ‘Diversity and inclusion are a fundamental part of our values and culture.’

– The FT reported that financial institutions have paid more than a total of $150 billion in fines in the US relating to the financial crisis. But dealing with banks’ alleged misdeeds from that period remains unfinished business. The public outcry for accountability led to a period when the US government was willing to penalize financial institutions sharply, yet most crisis-related actions were civil rather than criminal. Much of the public remained unsatisfied because few bankers went to prison.

– Sticking with the enforcement theme, the WSJ reported that Wall Street regulators have imposed far less in penalties during the first six months of Donald Trump’s presidency than they did during the first six months of 2016. Penalties levied against firms and individuals by the SEC, Commodity Futures Trading Commission (CFTC) and Financial Industry Regulatory Authority (Finra) in the first half of 2017 were down nearly two thirds compared with the first half of last year, putting regulators on track for the lowest annual level of fines since at least 2010. Fines of $489 million in the first half of 2017 compared with $1.4 billion in the 2016 period.

Defense counsel said a shift to a business-friendly stance at regulatory agencies in the Trump administration is one of several reasons for the decrease. Other factors include delays resulting from the change in administration and the winding down of cases from the financial crisis. An SEC spokesperson said the agency doesn’t consider six months to be long enough to draw any lessons about its effectiveness, adding that the number of cases brought over the two periods was ‘relatively constant’. CFTC enforcement chief James McDonald said variations in penalty tallies from year to year are normal and ‘not an indication of any changes in our commitment to vigorously prosecute violations of our laws to preserve market integrity and protect customers.’ A Finra spokesperson said ‘vigorous enforcement is an essential part of our oversight.’

Bloomberg reported that Bank of England (BoE) deputy governor Sam Woods said the workload created by Brexit is likely to place a ‘material extra burden’ on the central bank and that it may have to make tough decisions on priorities as a result. Woods, who heads the BoE’s Prudential Regulation Authority (PRA), urged lawmakers to allow financial firms an implementation period to adjust after Brexit.

‘The authorization, and then the ongoing supervision, of a significant number of additional firms is likely to place a material extra burden on the PRA’s resources,’ Woods wrote. ‘It is incumbent on us to manage this burden but we may have to make some difficult prioritization decisions in order to accommodate it.’

Reuters reported that, according to the US Department of Justice, mortgage company PHH will pay nearly $74.5 million to resolve claims it generated defective loans that the federal government then insured and Fannie Mae and Freddie Mac bought. ‘This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,’ said Gregory Brooker, acting US attorney in Minnesota. The deal also involved the company’s PHH Home Loans, which operates in Edina, Minnesota.

PHH said it co-operated fully in the investigations that led to the settlement agreements since first receiving subpoenas in 2013. It said it had agreed to resolve the probes without admitting liability. ‘Adhering to high legal, regulatory and ethical standards is at the core of how we conduct business, and we remain committed to serving our customers and all of our stakeholders consistent with that principle,’ PHH said.

Reuters reported that the US Department of Labor will give wealth management firms more time to comply with the new fiduciary rule for brokers advising clients on retirement matters. Securities brokerages now have until July 1, 2019 to present retirement savers with new contracts that spell out the fees brokers make on certain investment products or transition them into accounts that charge a flat fee based on assets. Those are just two steps firms have said they are taking to meet the standards set out by the rule, which was originally set to take effect on January 1, 2018.

– According to the FT, Lego is replacing its CEO after only eight months in the job. Bali Padda, who began work as Lego’s first non-Danish chief executive in January, will be replaced on October 1 by Niels Christiansen, the former CEO of Danfoss, a Danish industrial group. Jorgen Vig Knudstorp, Lego’s chair – who was chief executive for 12 years until December 2016 – said Padda’s short tenure was not down to his performance. He said it was due to Padda’s age and the realization he could do the job for only a few years at most. 

‘It isn’t [a humiliation]. He’s definitely not disappointed us. Bali knew I would immediately look for a successor. Both Bali and I thought it would take a long time as it’s not a trivial matter. I was just very fortunate that, relatively early, we found the right person,’ Knudstorp said. Padda will stay on to help Christiansen settle in at the company and will then join Knudstorp as special adviser at the newly formed Lego Brand Group.

– The WSJ reported that, according to people familiar with the matter, the board of Wells Fargo is planning a shake-up that is likely to include Stephen Sanger stepping down as non-executive chair. Sanger is expected to go before the bank’s shareholder meeting next spring, one of these people said. Vice chair Elizabeth Duke, a former Federal Reserve governor, is then likely to take the top spot, some of these people said. Discussions about board changes have been under way for a few months, spurred by poor results at the bank’s shareholder meeting. Neither Sanger nor Duke responded to requests for comment.

– A Dutch court ruled AkzoNobel does not have to let shareholders vote on whether to dismiss its chair, giving the company another victory in its battle with activist investor Elliott Advisors, according to Reuters. Together with York Capital Management, Elliott had petitioned the court to force Akzo to convene an extraordinary shareholders’ meeting on chair Antony Burgmans’ dismissal, which Akzo had refused to do. AkzoNobel said it had taken note of the verdict and that it was looking forward to a September 8 shareholders’ meeting. Elliott said it expected to respond shortly.

Bloomberg said President Trump tapped Neil Chatterjee, who helped co-ordinate attacks against power plant emissions rules as a senior adviser to US Senate majority leader Mitch McConnell, to lead the Federal Energy Regulatory Commission. Chatterjee, who was named chair of the agency, said he will take over the reins on a temporary basis until Kevin McIntyre, Trump’s pick to head the agency, is confirmed.

– Benchmark Capital sued Uber Technologies’ former CEO Travis Kalanick in an effort to oust him from the board, the WSJ reported. The lawsuit alleges Kalanick defrauded directors into giving him more control over the board by hiding a range of ‘inappropriate and unethical directives’. The allegations center around a decision in June 2016 by Kalanick to expand the board to 11 seats from eight, in effect giving him control over the designation of those additional seats, the firm said.

Kalanick’s spokesperson said the lawsuit is without merit and ‘riddled with lies and false allegations’. He said Benchmark is attempting to deprive Kalanick of his rights as a founder and shareholder and silence his voice. Spokespeople for Uber and Benchmark declined to comment.



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