The week in GRC: SEC eyes revamping exempt-offering framework, and investors urge compliance with CDP reporting

Jun 21, 2019
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that auction house Sotheby’s agreed to be taken private by art collector and media entrepreneur Patrick Drahi in a $2.7 billion deal. ‘After more than 30 years as a public company, the time is right for Sotheby’s to return to private ownership to continue on a path of growth and success,’ Sotheby’s chair Domenico De Sole said. Drahi founded European telecommunications company Altice and is the controlling shareholder and board chair of the company’s operations in the US.

– According to Reuters, US industrial manufacturer Crane Co said it continues to prefer a ‘negotiated transaction’ with CIRCOR International’s board, weeks after making an $894 million hostile bid for the smaller firm. Earlier this month, Crane said it was willing to adjust its offer for CIRCOR if its board was willing to engage in talks.

On Monday Crane began a tender offer for all outstanding shares of CIRCOR and called on CIRCOR shareholders to act on the opportunity. CIRCOR in response said its board will review and evaluate Crane’s tender offer, and shareholders do not need to take any action at this time.

– KPMG agreed to pay a $50 million penalty to settle SEC allegations that former staffers used stolen information to alter some of the firm’s previous audit work and cheated on training exams, Reuters reported. KPMG admitted to the agency’s allegations and agreed to hire an independent consultant to assess the firm’s ethics and integrity controls, as well as its compliance related to abuse of the exams issued by the PCAOB, according to the SEC.

According to the WSJ, a KPMG spokesperson said: ‘We have learned important lessons through this experience and we are a stronger firm as a result of the actions we are taking to strengthen our culture, our governance and our compliance program. As we move forward, we are committed to delivering the highest quality and fulfilling our important role in the capital markets.’

The New York Times reported that business owners were trying to persuade the Trump administration not to impose tariffs on an additional $300 billion worth of Chinese goods, but that most expected to be disappointed. Following several previous hearings where company officials testified against tariffs but then saw them go into effect, many business leaders are becoming resigned to the idea that President Donald Trump will do what he wants, regardless of their concerns.

The administration says tariffs are necessary to change China’s track record of violating international trading rules and forcing US companies to hand over valuable technology.

– A group of roughly 85 investors representing a combined $10 trillion in assets is asking companies to comply with the reporting process managed by CDP, a UK non-profit research group that solicits and scores corporate environmental disclosures, Bloomberg reported. Investors and interested observers need ‘consistent, comparable information collected in one place so they can benchmark performance and use the data to inform their decisions,’ said Emily Kreps, global director of investor initiatives at CDP.

The initiative targets companies the group says have failed to disclose such information for years at a time. Investors participating in the CDP efforts ‘are active managers or asset owners who have a sophisticated understanding of the ESG disclosure they need from companies for their investment processes,’ Kreps said. ‘We would expect to work with more investors on this in the future, especially as demand for corporate environmental data continues to rise.’

Reuters noted that senior Bank of England (BoE) policymaker Anil Kashyap warned that a state-backed cyber-attack could secretly corrupt the records of UK financial institutions over a period of months, creating a risk that banks would probably struggle to guard against on their own. Banks have focused mainly on avoiding service outages, but the falsification of transaction records and other data was an even bigger danger, Kashyap told lawmakers.

UK security services have warned about the risk of cyber-attacks by Russia and other countries, and the BoE has urged banks to increase their preparedness to avoid disruption to one of the world’s largest financial centers. But firms might not be able to guard against this type of attack on their own, Kashyap said. Attacks on bank records would be particularly damaging as it would not be easy to identify which records were accurate and which had been corrupted.

– The Association of Governing Boards of Universities and Colleges named Henry Stoever, chief marketing officer at the National Association of Corporate Directors, as its next president and CEO, effective July 1, 2019. He will succeed Rick Legon, who is retiring after a 13-year tenure as president.

– The SEC launched a concept release seeking feedback on ways to simplify, harmonize and improve the exempt-offering framework. The agency says it is seeking to expand investment opportunities and promote capital formation while maintaining appropriate investor protections.

The SEC is looking for comment on whether changes should be made to improve the consistency, accessibility and effectiveness of its exemptions for both companies and investors, including identifying potential overlap or gaps within the framework. It is looking at, among other things, whether the limits on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities.

– The SEC also adopted amendments to the auditor independence rules relating to the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client. ‘The commission has become aware of circumstances where the existing rules capture relationships that otherwise do not bear on the impartiality or objectivity of the auditor,’ officials wrote in a statement.

– The WSJ reported that, according to people familiar with the matter, CBS is preparing to make an offer for sister media company Viacom in the coming weeks, following a meeting of CBS directors at which a potential deal was discussed. Representatives of CBS and Viacom have had preliminary discussions about the outlines of a deal, one of the people said. A deal is far from certain and faces hurdles such as determining the price for a stock transaction and picking a new leadership team.

– Workplace-messaging firm Slack went public using a direct listing, CNBC noted. Spotify was the first large company to use the method. At the time there were two concerns: direct listings do not have an initial price that is sold to investors, so it was not clear where the stock would open; and most of the shares are immediately available for trading in a direct listing, meaning that insiders might dump the stock en masse on the first day, creating chaos. But neither concern proved to be a major issue and those anxieties are much less evident now.

Reuters reported that Renault, which is looking to preserve and strengthen its alliance with Nissan, said it would vote in favor of a move by Nissan to grant Renault’s representatives a seat on the committees of the Nissan board. ‘Groupe Renault welcomes Nissan’s decision to grant Renault’s representatives a seat on the committees of the Nissan board, which will be presented to the general shareholders’ meeting on June 25,’ the French company said in a statement.

‘The agreement reached on Renault’s presence in Nissan’s new governance confirms the spirit of dialogue and mutual respect that exists within the alliance,’ Renault added.

– According to Reuters, Delta Air Lines bought a small stake in Korean Air Lines’ parent company and said it wants to increase it to 10 percent, giving a boost to the management of the South Korean company that is trying to thwart a local activist fund’s challenge. Korean Air said it believes Delta’s 4.3 percent stake buy intends to ensure the ‘stable management’ of the company and support for its leadership.

If Delta increases its stake to 10 percent, the airline’s founding family and its allies will have a total stake of 39 percent, versus the 16 percent stake held by the activist fund, Korea Corporate Governance Improvement (KCGI). KCGI proposed that Delta work together to eliminate inefficiencies and improve management transparency at the parent, Hanjin Kal Corp.

– The WSJ reported that the auditing standards board of the American Institute of Certified Public Accountants (AICPA) proposed an overhaul of the rules governing audit evidence for private companies to better define the role of new technologies in audits. The AICPA proposed expanding the framework auditors use when gathering and assessing evidence used to form their opinions of financial statements.

The standards at present focus on the accuracy and completeness of that information. But as new technologies increase auditors’ ability to gather evidence, auditors can assess that information with a more critical eye. Under the proposed rules, auditors would have to assess the risk of bias associated with the information they use to substantiate their audit opinion and consider the authenticity of the information being gathered.


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