The week in GRC: Starboard pursues Newell Brands proxy fight, and BlackRock may use voting on guns

Apr 06, 2018
This week’s governance, compliance and risk-management stories from around the web

The Guardian reported that US privacy, civil liberties and human rights organizations launched a campaign calling on technology companies to take concrete steps to protect their users, following revelations about the harvesting and manipulation of Facebook data. In an open letter to the companies, the group, which includes the American Civil Liberties Union, Color of Change, Fight for the Future and others, calls on companies to commit to ‘to protecting their users’ data from exploitation and securing their users’ human rights, ensuring their products and services do not put human rights at risk.’

– According to Bloomberg, the Chinese government took a major step toward seeing Alibaba Group, Baidu and others list in its domestic market by announcing a trial program that would allow the technology companies to see their shares bought and sold in China.

A pilot of Chinese depositary receipts would apply to companies that went public overseas and have a market value of more than 200 billion yuan ($32 billion). Firms can use corporate structures that aren’t permitted on the mainland and monies raised can be moved offshore. Some private companies will also find it easier to list shares.

The Wall Street Journal reported that the Trump administration wants to limit the Consumer Financial Protection Bureau’s (CFPB) independence, the latest effort to roll back Obama-era oversight put in place after the financial crisis. Mick Mulvaney, acting director of the CFPB, asked Congress to pursue sweeping changes giving the executive and legislative branches control over the bureau’s regulations, leadership and budget.

Major CFPB rules would need congressional approval, for instance, and the CFPB’s director would answer directly to the president, instead of being fully independent. Its funding, which now comes from the Federal Reserve, would be handled by Congress.

‘The bureau is far too powerful, and with precious little oversight of its activities,’ Mulvaney said in a report on the CFPB sent to Congress. Supporters counter that the bureau was set up after the financial crisis to be insulated from politics.

– Four former Goldman Sachs employees have won the right to lead a class-action lawsuit over alleged sexual discrimination, more than seven years after two of them accused the bank of ‘systemically’ favoring men over women, according to the Financial Times.

A federal judge in Manhattan has now ruled that the part of the complaint that relates to gender discrimination can proceed to trial. A part of the complaint alleging Goldman fostered a ‘boys’ club’ atmosphere, where sexualization of women was endorsed and celebrated, was dismissed by the court.

‘We believe the claims have no merit and we don’t believe there is any basis for certifying a class. We will continue to contest them in court,’ a Goldman spokesperson said.

The New York Times looked at the findings of a group of economists that analyzed how US corporations spread their philanthropic wealth. Sifting through the donations to charity from 1998 to 2015 by foundations set up by companies in the Fortune 500 or the S&P 500, Marianne Bertrand of the University of Chicago’s Booth School of Business; Matilde Bombardini and Francesco Trebbi of the University of British Columbia; and Raymond Fisman of Boston University detected a pattern of contributions to 1,087 charities linked to 451 members of Congress.

Some of the charitable giving looks a lot like corporate lobbying, and because companies get a break for such giving, it amounts to political spending at taxpayers’ expense. ‘Firms deploy their charitable foundations as a form of tax-exempt influence seeking,’ the researchers write.

– The WSJ reported that activist hedge fund firm Elliott Management said it had accumulated more than $1 billion in shares in three listed affiliates of Hyundai Motor Group, signaling renewed interest in South Korea’s corporate governance reforms. The disclosure follows a move by the auto company to reorganize its corporate structure in line with South Korean regulatory guidelines. The efforts have been aimed at boosting transparency around the country’s large, family-owned conglomerates, known as chaebols.

Elliott called Hyundai’s plan an ‘encouraging’ first step toward ‘an improved and more sustainable corporate structure,’ but said more needs to be done and that it intends to have discussions with Hyundai’s management and offer recommendations on the group’s plan. Hyundai previously said the restructuring will ‘eventually benefit all stakeholders, including shareholders, employees, regulators and customers.’

– UK advertising company WPP hired a law firm to investigate an allegation of personal misconduct by CEO Sir Martin Sorrell, according to The Guardian. Sorrell ‘unreservedly’ denies the allegation, which is thought to involve improper use of company funds. ‘The board of WPP has appointed independent counsel to conduct an investigation in response to an allegation of personal misconduct against Sir Martin Sorrell, chief executive officer of WPP,’ the company said. ‘The investigation is ongoing. The allegations do not involve amounts which are material to WPP.’

‘WPP is investigating an allegation of financial impropriety by me, specifically as to the use of company funds,’ Sorrell said. ‘This allegation is being investigated by a law firm. I reject the allegation unreservedly but recognize that the company has to investigate it. I understand that this process will be completed shortly. Obviously, I shall play no part in the management of the investigation under way.’

– The FT reported that the UK Financial Reporting Council (FRC) is considering expanding auditors’ responsibilities by requiring them to examine the entirety of companies’ annual reports and accounts in an effort to boost shareholder confidence in the auditing process. The FRC plans to launch an internal consultation to scrutinize the work done by auditors to ensure the information contained in companies’ strategic reports, director reports and corporate governance statements are not materially misstated.

– The WSJ reported that activist hedge fund Starboard Value is not dropping its proxy fight at Newell Brands after the company struck a deal with another activist, Carl Icahn. Starboard, which owns a 3.8 percent stake in Newell, said in a filing that the agreement with Icahn isn’t sufficient to fix the company’s issues. Newell agreed to let Icahn nominate five of 11 directors and promised to explore selling more of its businesses.

Newell, which didn’t immediately respond to a request for comment, previously sent a letter to Starboard emphasizing that many of the changes being made appeared to be in line with Starboard’s demands, including a refreshed board of directors and new board leadership.

– Suffolk County Superior Court Judge Kenneth Salinger in Boston ruled that Massachusetts can move ahead with a lawsuit accusing credit reporting firm Equifax of failing to safeguard its databases or provide prompt notice of a breach that exposed the personal data of 147 million people, according to Reuters. Judge Salinger denied a motion by Equifax to dismiss a lawsuit Massachusetts attorney general Maura Healey filed after the breach was disclosed in September. Equifax declined to comment.

– The WSJ reported that private-equity firm Kimmeridge Energy Management has built up an 8.1 percent stake in Houston explorer Carrizo Oil & Gas and is calling on the company to sell assets or combine with a rival, the latest sign that activist investors are focusing more on the energy sector.

The New York investment firm said in a filing that it wants Carrizo to sell its south Texas drilling fields and use the proceeds to pay down debt, buy back stock or invest more in its prolific fields in the state’s western desert. The firm also said it wants Carrizo to explore the possibility of merging with rivals in west Texas. Carrizo didn’t respond to requests for comment.

– BlackRock, in a client update outlining its approach to the gun industry, said February's deadly shooting at a Florida high school has driven home for the firm the ‘terrible toll from gun violence’ in the US, something that ‘requires response and action from a wide range of entities across both the public and private sectors,’ according to CNBC.

That includes, it says, possibly voting against directors or against management on shareholder proposals. BlackRock said it has been working with customers to help them explore options for changing their investments to exclude gun industry stocks and is exploring ideas for new funds, including index funds that specifically exclude firearms makers and retailers.

– The WSJ reported that the two largest proxy advisory firms are recommending that General Electric (GE) fire KPMG as its auditor after 109 years, in light of accounting issues at the industrial company. ISS made the unusual move on Thursday, saying shareholders should vote against keeping KPMG because of ‘the apparent extent of GE’s previously-undisclosed liabilities and accounting issues.’ Glass Lewis published a similar recommendation on Tuesday.

Earlier this year, GE disclosed charges related to insurance operations, including a need to put $15 billion into reserves over seven years, and said the SEC is investigating some of its accounting practices. Representatives for GE and KMPG had no immediate comment.

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