The week in GRC: BlackRock adds new board members, and US blocks Broadcom bid for Qualcomm
– The Wall Street Journal reported that Dow Chemical head Andrew Liveris plans to step down next month, ending a nearly 14-year tenure that culminated with the chemical company’s combination last year with DuPont. Liveris will relinquish the role of executive chair of the combined company on April 1, it announced. Co-lead director Jeff Fettig will assume that role at the company, now known as DowDuPont. Liveris will remain a director on the combined board until July 1.
– The UK’s Financial Conduct Authority (FCA) used essays to propose that bank executives had a responsibility to develop a culture based on ethics, rather than a tick-box compliance mentality, according to Bloomberg. The FCA said it wants to ‘ask the provocative questions, encourage discussion, strengthen current consensus and speed up the pace of change for cultural transformation in financial services.’
‘Supervisors don’t just trust the rule book, and neither should boards,’ said John Sutherland, a senior adviser to the FCA.
– The WSJ looked at how US workers at large US companies are for the first time discovering how much they earn compared with their CEOs. For the first time, this year US publicly traded firms are required to divulge their median employee pay in addition to CEO pay, and the ratio between the two. The disclosure was mandated by the Dodd-Frank Act in the wake of the financial crisis, with the aim of helping shareholders better understand and challenge executive-compensation practices at major US companies.
Advocates say it is high time corporations divulged such metrics about the makeup of their workforces and compensation. Critics call the pay ratio a blunt instrument that offers little real insight.
– The WSJ reported that Sempra Energy said its president and CEO Debra Reed is retiring in May and that the firm is expanding its board from 13 directors to 14. Reed will retire from the president and CEO roles May 1, but stay on as board chair until December 1. She has spent about 40 years working in Sempra companies. Jeffrey Martin, the company’s CFO, will be the company’s new CEO starting May 1. He will also join its board.
– According to Reuters, the Chinese government is merging its banking and insurance regulators, giving new powers to policymaking bodies such as the central bank and creating new ministries in the biggest government revamp in years. The overhaul is a cornerstone of President Xi Jinping’s agenda to put the leadership of the ruling Communist Party at the heart of policy with Xi himself at the core of the party.
‘The biggest news is still about the merger of the financial regulators. The central bank will be in charge of the macro supervision side, while the merged regulators will be responsible for the more concrete part of things,’ said Zhou Hao, senior emerging markets economist at Commerzbank. The China Securities Regulatory Commission will remain a separate entity.
– Irish Central Bank deputy governor Ed Sibley warned that many financial services firms are still unprepared for Brexit as the UK and the EU remain at odds on their future relationship, Bloomberg reported. ‘There’s a full spectrum of preparedness,’ said Sibley, who is responsible for leading the supervision of credit institutions, insurance firms and fund managers. ‘From the get-go, we have some firms that have been very comprehensive in working on contingencies. And we’ve had some that have their heads in the sand.’ Ireland is viewed as a favored destination for financial firms based in the UK that want to retain passporting rights, which allow them to do business within the EU.
– The WSJ looked at President Donald Trump’s decision to block Broadcom’s $117 billion hostile bid for Qualcomm, reflecting officials’ concerns about an intensifying arms race between the US and China over advanced technologies. Although Broadcom is a Singapore-based company, the US panel that vets foreign deals said the bid could have had implications for the US’ broader technological competition with China.
Broadcom, which launched its hostile bid for Qualcomm in November in what could have become the technology industry’s biggest deal, was working to redomicile in the US, but the presidential order in effect ended its acquisition hopes. Broadcom said late Monday it was reviewing the order. ‘Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,’ it said in a statement.
‘This decision is based on the facts and national security sensitivities related to this particular transaction only,’ said Treasury secretary Steven Mnuchin, who chairs the Committee on Foreign Investment in the United States.
– The FT later reported that Broadcom withdrew its offer to purchase Qualcomm, bringing to an end a months-long battle between the two companies. Broadcom said it would still move its official base from Singapore to the US and would hold its special stockholder meeting on March 23. ‘Although we are disappointed with this outcome, Broadcom will comply with the order,’ the company said in a statement.
– Bloomberg reported that, according to people familiar with the matter, the SEC is examining the business practices of a cadre of hedge funds set up to invest in crypto-currencies and initial coin offerings. Hedge funds manage money for outside investors so the agency wants to make sure firms are appropriately valuing holdings and keeping clients’ assets safe.
As part of its review, the SEC recently sent a number of requests to crypto-focused funds asking how they price digital investments and seeking information on their compliance with rules meant to prevent the theft of investors’ cash, the people said. An SEC spokesperson declined to comment.
– Foreign affiliates of KPMG, Deloitte Touche Tohmatsu and BDO agreed to pay a total of roughly $390,000 to settle SEC allegations they improperly used other firms to help them audit a South African company, according to the WSJ. The SEC said KPMG’s South African affiliate and BDO’s Canadian affiliate were the principal auditors of an unidentified South Africa-based company incorporated in Canada, but the two firms relied upon Deloitte and KPMG firms in Zimbabwe to audit the majority of the company’s assets and revenue.
The Zimbabwe firms weren’t registered with the PCAOB so there wasn’t full proper regulatory oversight of the audits, the SEC said.
Deloitte said the firm was ‘pleased to have resolved this matter’ and is ‘committed to operating in accordance with the highest professional standards and in full compliance with regulatory requirements.’ KPMG said that ‘following identification of the matter by KPMG quality controls, KPMG South Africa reported the matter timely to the SEC in May 2016.’ BDO didn’t have any immediate comment. The firms settled without admitting or denying wrongdoing.
– The WSJ reported that Theranos CEO Elizabeth Holmes agreed to a settlement with the SEC that strips her of voting control, bans her from being an officer or director of any public company for 10 years and requires her to pay a $500,000 penalty.
The SEC accused Holmes, the company and a former Theranos president of raising more than $700 million from investors while deceiving them about the capabilities of the company’s technology. Holmes and Theranos neither admitted nor denied wrongdoing. In a statement, the company said it and Holmes ‘fully co-operated with the SEC throughout its investigation.’ Theranos’ independent directors said the company ‘is pleased to be bringing this matter to a close and looks forward to advancing its technology.’
The SEC filed separate civil fraud charges against Theranos’ former president and COO Ramesh Balwani but didn’t reach a settlement. Balwani’s lawyer said in a statement: ‘Sunny Balwani accurately represented Theranos to investors to the best of his ability. He believed in the potential and mission of the company and its technology to promote transparency and benefit people by empowering them with access to their own healthcare information at a low cost.’
– Jun Ying, who had been chief information officer of Equifax’s US Information Solutions unit, was indicted on criminal insider-trading charges over claims he sold shares in the company after finding out about its large data breach last year, days before it was made public, according to the WSJ. Ying also faces civil charges from the SEC. Attorneys for Ying declined to comment.
Equifax said it informed authorities of Ying’s trading once the company became aware of it and has co-operated with the government’s investigation. ‘We take corporate governance and compliance very seriously, and will not tolerate violations of our policies,’ Equifax said.
– The FT said that, according to people familiar with the matter, Randal Quarles, the Federal Reserve governor who supervises big banks, is being discussed in the Trump administration as a candidate to head the Financial Stability Board (FSB), which oversees international financial regulation. If his candidacy to take over as chair of the FSB were to gain traction it would mark a significant change of gear from the regime of Mark Carney, the Bank of England governor who has overseen the body’s efforts to tighten post-crisis regulation since 2011.
Quarles’ deregulatory instincts contrast with some of the work pushed by the FSB following the financial crisis. The body has led efforts to strengthen big banks’ loss-absorbing capacity and end taxpayer bailouts of banks.
– CNBC reported that Larry Thompson, vice chair of the Depository Trust & Clearing Corporation, said forcing different standards on banks and other financial services across the globe could lead to the next financial crisis. On Thursday, the US Senate passed new rules to soften the Dodd-Frank Act, while in Europe brokers have had to split their research from their trading operations under the Mifid II reforms. These opposing moves on regulation are a ‘bad thing,’ Thompson said. ‘There should be standards that are cross-nation, there should be harmonization of all of those rules.’
– Bloomberg said that, according to a statement to the Australian Securities Exchange, The Hydroponics Co’s chair, Ian Mutton, and three other directors were removed from the six-person board in votes supported by more than 68 percent of shareholders. Alan Beasley, director and former chair of the Australian medical cannabis company, had sought to remove the directors, citing a lack of transparency and issues with governance as reasons, according to company filings. Mutton, in a February 8 statement to shareholders, said most of Beasley’s allegations in the notice were untrue.
Mutton later said his leadership was consistent with the company’s goal to grow, manufacture and market medicinal cannabis products in Australia and Canada. But ‘shareholders have taken a decision that they wanted a change of board, or wanted to revert to a board as it was. I respect that decision,’ he said.
– According to the WSJ, BlackRock is adding a slate of new board members as it tackles two key aspects of its growth strategy: technology and international operations. The firm has named Margaret Johnson, executive vice president of business development at Microsoft; William Ford, CEO of private equity firm General Atlantic; and UK insurer Aviva CEO Mark Wilson as directors, a spokesperson said.
The three new members are the most BlackRock has added at one time. The additions come as several of the firm’s board members have left recently under its age policy for directors.