The week in GRC: Avon faces activist investors, and companies hit by growing number of class actions
– The Wall Street Journal reported that lawmakers are moving to crack down on the flow of US technology to foreign investors, creating potential problems for a number of US companies seeking to partner with China. The Senate and House of Representatives, with the backing of the White House, are working on bipartisan legislation that would broaden the authority of the Committee on Foreign Investment in the US (CFIUS), which has oversight of deals that could lead to the transfer of sensitive technology to rival countries.
At present, CFIUS can recommend that the president block foreign entities from buying majority stakes in US companies. The new bill would let the committee make similar recommendations for deals involving minority investments and joint ventures, along with transactions that it determines involve ‘emerging technologies.'
– US President Donald Trump has eliminated fewer regulations than his administration’s rhetoric suggests, according to the Financial Times. The looseness of Trump’s claims makes them hard to test, experts say. The clearest change is arguably the Federal Communications Commission’s move to sweep away the net neutrality rules. But similar cases of an active regulation being taken off the books are few. From banking to the environment to labor rules, the administration has been hemmed in by legal constraints and the federal bureaucracy.
– The WSJ reported that, although CEO searches generally last three to six months, the maker of Samuel Adams beer has been seeking its next leader for almost a year. Jim Koch, founder and chair, said finding a replacement for the current CEO, Martin Roper, has been a challenge. Roper ‘remains fully engaged and committed to leading the business as CEO until a successor is found and a seamless transition is completed,’ a spokesperson said. The company is using executive search firm Korn/Ferry International. Although the search is taking a while, Koch said he remains hopeful.
– Bloomberg reported that, according to two people familiar with the matter, the SEC has privately signaled it’s open to at least considering whether companies should be able to force investors to settle disputes through arbitration, an often closed-door process that can limit the bad publicity and high legal costs triggered by litigation. Such a move would be part of the SEC’s determination to reverse a long slump in the number of US stock listings. Allowing companies to shield themselves from shareholder lawsuits would almost certainly enrage investor advocates and Democratic lawmakers. An SEC spokesperson declined to comment.
– CNN reported that easyJet CEO Johan Lundgren is taking a pay cut in the name of gender equality. Lundgren, who joined the budget airline in December, will see his annual salary cut by £34,000 ($48,000) to £706,000 – the last salary earned by Carolyn McCall, his predecessor in the role. EasyJet said in a statement that the new CEO’s remuneration would be identical to McCall’s in all other respects.
‘At easyJet we are absolutely committed to giving equal pay and equal opportunity to women and men,’ Lundgren said. ‘I want that to apply to everybody at easyJet and to show my personal commitment.’
– A study by NERA Economic Consulting found that the number of class action lawsuits in the US accusing companies of fraud and other securities law violations soared in 2017, even as the value of settlements plunged, according to Reuters. There were 432 shareholder lawsuits accusing companies of making false or misleading statements or concealing bad news about their businesses or mergers, up 44 percent from 300 in 2016, the study found. That number is the highest since the Private Securities Litigation Reform Act, which was designed to curb frivolous lawsuits, took effect in 1995, without taking into account ‘laddering’ cases related to initial public offerings.
– MetLife said the SEC was looking into the insurance company’s failure to pay some workers’ pensions, Reuters reported. MetLife said the SEC’s enforcement staff has inquired about payments the insurer failed to make for people who receive a type of annuity benefit from the company via its retirement business. Less than 5 percent of 600,000 people are affected, the company has said.
In December MetLife said it failed to pay pensions to possibly tens of thousands of people and would have to strengthen its reserves because of the costs of finding and repaying them. ‘To date, MetLife is not aware of any intentional wrongdoing in connection with this matter,’ the company said on Monday, adding that it was responding to the SEC’s questions.
– The WSJ reported that a group of activist investors are joining together to call on Avon Products to seek a buyer, which may set up a fight for the company’s board. Shah Capital, Barington Capital Group and NuOrion Partners believe a years-long effort to reshape the company has run out of time and requires new ownership and leadership, according to a letter they plan to send to the board that was reviewed by the WSJ.
‘Avon’s board of directors and management team are committed to delivering value for all shareholders and will continue to take actions to improve performance,’ a spokesperson said, pointing to a CEO search as being on schedule and saying the company values shareholder input. ‘We are confident the changes we are undertaking will strengthen and grow the business.’
– James Wates, who chairs one of the UK’s largest family-owned construction companies, will head a government panel charged with developing a corporate governance code for private companies, according to the FT. The Department for Business, Energy & Industrial Strategy (BEIS) said Wates would develop new guidelines on transparency and accountability, and that these would signal a ‘step change’ in the way large private companies are run.
Wates will work with the Financial Reporting Council, the Institute of Directors, the Trades Union Congress and others to draw up the principles, which would be voluntary. BEIS also said the government would introduce new laws this year requiring all large companies to show their ‘responsible business arrangements.’
– According to the WSJ, Stephen Cutler, a longtime top lawyer and senior executive at JPMorgan Chase, is leaving the bank to join Simpson Thacher & Bartlett as a partner in New York later this year. Cutler has spent 11 years with JPMorgan, the majority of those as general counsel. He left the general counsel role at the end of 2015 and was succeeded by Stacey Friedman. Cutler has since served as vice chairman, working on a range of issues including policy, corporate governance and anti-money laundering. He is a former head of enforcement at the SEC.
– Reuters reported that the Court of Appeals for the District of Columbia upheld the structure of the Consumer Financial Protection Bureau (CFPB), determining it is constitutional to bar the US president from firing its director at will, even as the Trump administration works to weaken the regulator.
The fight over the agency’s structure is part of a continuing lawsuit between the agency and a mortgage servicer, PHH Corporation. Republican critics of the CFPB, arguing it is too powerful, called for the case to head to the Supreme Court. PHH was non-committal in a statement and a company spokesperson said the firm is evaluating its next steps. A CFPB representative said the agency was also analyzing the decision.
– According to the FT, the EU is threatening sanctions to stop the UK government undercutting the bloc’s economy after Brexit, including ‘tax blacklists’ and penalties against state-subsidized companies. The measures, outlined in a presentation, show the EU wants unprecedented safeguards after the UK leaves to preserve a ‘level playing field’ and counter the ‘clear risks’ of the UK slashing taxes or relaxing regulation.