The week in GRC: SEC proposes whistleblower rule changes and BlackRock names new risk chief
– The Wall Street Journal reported that as the Biden administration prepares a wave of new regulations, it is sparking resistance campaigns from business lobbyists representing financial services, agribusiness, medical-device makers and others. The White House’s newly installed chiefs at regulatory agencies are rolling out a lengthy list of new rules. For example, financial regulators are advancing measures seeking to address climate change and workplace diversity, crack down on Wall Street profiteering and reduce credit-card and banking fees for consumers.
‘There’s growing concern within the business community that there has been a rush to regulate without fully factoring in the negative effects on industry and the economy,’ said Ken Spain, founding partner of Narrative Strategies and a strategist helping to co-ordinate the industry defense. ‘With the election year upon us and the administration’s agenda stalling, the pace is expected to accelerate.’
Bharat Ramamurti, deputy director of the White House National Economic Council, said the administration is following the standard rulemaking process and seeking public input. ‘Nothing is being rushed,’ he said. ‘These regulations are going to protect middle-class families and put our economy in a stronger position. It’s not being motivated by any punitive, anti-corporate agenda.’
– Frontier Airlines and Spirit Airlines, the two largest US low-cost carriers, agreed to merge in a deal valued at $6.6 bn, creating what will become the fifth-largest airline in the country, CNBC reported. ‘This transaction is centered around creating an aggressive ultra-low fare competitor to serve our guests even better, expand career opportunities for our team members and increase competitive pressure, resulting in more consumer-friendly fares for the flying public,’ said Ted Christie, president and CEO of Spirit, in a statement.
The boards of both companies approved the deal. The companies didn’t announce the new name of the combined carrier, its CEO or location of its headquarters. Those questions will be answered by a committee after the transaction closes, which is expected in the second half of the year, pending regulatory and shareholder approval.
– CNN reported that Peter Thiel, one of Facebook’s longest-serving board members, plans to step down from the company’s board later this year. Thiel, an early investor in Facebook, has served on the board of the company, now known as Meta, since 2005. He will sit on the board until Meta’s AGM, at which point he will not stand for re-election. The company has not yet announced a date for the meeting, which usually occurs in May.
In the past two years, Meta has added two Silicon Valley start-up founders – Dropbox’s Drew Houston and, more recently, DoorDash’s Tony Xu – to its board, as it seeks to invest in e-commerce and virtual and augmented reality technologies.
– The WSJ reported that Peloton Interactive co-founder John Foley, who has led the company for its entire 10-year existence, is stepping down as CEO and will become executive chair. Barry McCarthy, the former CFO of Spotify Technology and Netflix, will become CEO and president and join Peloton’s board. The company will also cut roughly 2,800 jobs, affecting 20 percent of its corporate positions, to help cope with a drop-off in demand and widening losses.
Activist investor Blackwells Capital recently called for Peloton to fire Foley and explore a sale of the company. It reiterated its call on Tuesday, saying Foley should leave the company rather than become executive chair.
‘We are open to exploring any opportunity that could create value for Peloton shareholders,’ Foley said in an interview before Blackwells’ Tuesday release. He declined to comment further.
– The SEC proposed new rules and amendments under the Investment Advisers Act of 1940 intended to enhance the regulation of private fund advisers and protect private fund investors by increasing transparency, competition and efficiency. The proposed rules would increase transparency by requiring registered private fund advisers to provide investors with quarterly statements including certain information regarding fund fees, expenses and performance.
The proposed rules would also prohibit private fund advisers, including those not registered with the SEC, from providing certain types of preferential treatment to investors in their funds and all other preferential treatment unless it is disclosed to current and prospective investors. The proposed changes would further create new requirements for private fund advisers related to fund audits, books and records and adviser-led secondary transactions.
‘Private fund advisers, through the funds they manage, touch so much of our economy. Thus, it’s worth asking whether we can promote more efficiency, competition and transparency in this field,’ said SEC chair Gary Gensler in a statement.
– The WSJ reported that according to an employee memo, BlackRock has named Ed Fishwick as its chief risk officer (CRO). Fishwick will succeed BlackRock co-founder Ben Golub, who will transition to a senior adviser role, according to the memo. Fishwick, who has been global co-head of BlackRock’s risk and quantitative analysis team for more than 15 years, will become CRO at the end of the month.
Golub has been CRO since 2009, is a member of the firm’s global executive committee and serves as co-head of the risk and quantitative analysis team with Fishwick. The memo cited Golub’s efforts to modernize risk management at BlackRock and said he ‘moved the asset management business in new directions and forever changed how we thought about the portfolios we manage.’
– Companies will no longer be able to force employees and customers into arbitration proceedings to address claims of sexual assault and harassment under legislation passed by the Senate, the WSJ reported. The legislation will now go President Joe Biden’s desk for his signature. The White House said in a statement earlier this month that Biden strongly supports the bill and wants to work with Congress to pass legislation addressing mandatory arbitration more broadly, including on claims regarding racial discrimination, wage disputes and labor practices.
Mandatory arbitration clauses block consumers and employees from raising claims in court. The companies that put such clauses in their contracts say arbitration is more efficient, but consumer advocates say the confidential system helps businesses evade public accountability.
‘We know that for decades, big corporations forced women to arbitration when they brought actions for sexual assault. That is repulsive,’ said Senator Elizabeth Warren, D-Massachusetts. ‘I hope it is the first step in banning other compulsory arbitration practices on issues such as racial discrimination.’
– Reuters reported that activist investment firm Macellum Advisors said it is seeking to take control of Kohl’s board and has nominated 10 directors. Macellum, led by Jonathan Duskin, has argued that Kohl’s has not done enough to improve its business and has publicly called for the company to consider putting itself up for sale. He also criticized the company for rejecting two takeover offers and for having adopted a poison pill to prevent a hostile takeover.
‘Any directors that support such patently anti-shareholder maneuvers cannot be trusted to credibly evaluate potentially value-maximizing alternatives versus management’s perpetually ineffective plans,’ Duskin wrote in a letter.
Kohl’s said ‘Macellum’s effort to take control of the board is unjustified and counterproductive’ and called the hedge fund firm’s claim that the board isn’t able to review sales opportunities ‘groundless.’ It also said Macellum’s comments on the shareholder rights plan are ‘misleading.’
– The SEC proposed rule changes to reduce risks in the clearance and settlement of securities, including by shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date, known as T+2, to one business day after the trade date. It said the proposed changes are designed to reduce the credit, market and liquidity risks in securities transactions faced by market participants and US investors.
– The SEC proposed two amendments to the rules governing its whistleblower program. The first proposed change concerns award claims for related actions that would otherwise be covered by an alternative whistleblower program. The second affirms the commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award but not to lower one.
‘These amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the commission,’ Gensler said in a statement. ‘The first proposed rule change is designed to ensure that a whistleblower is not disadvantaged by another whistleblower program that would not give [him/her] as high an award as the SEC would offer. Under the second proposed rule change, the SEC could consider the dollar amounts of potential awards only to increase the whistleblower’s award. This would give whistleblowers additional comfort knowing that the SEC could consider the dollar amount of the award only in such cases.’