The week in GRC: Equifax shareholders re-elect directors, and Xerox CEO reverses exit decision

May 04, 2018
This week’s governance, compliance and risk-management stories from around the web

Bloomberg reported that two security consultant firms estimate energy companies, ranging from drillers and pipeline operators to utilities, invest less than 0.2 percent of their revenue in cyber-security. That’s at least a third less than the corresponding figure for banks and other financial institutions, according to Precision Analytics and the CAP Group. The lack of investment is even more worrisome because the number of hacker groups targeting the energy sector is soaring.

‘It’s scary,’ said Brian Walker, a former head of Marathon Oil’s global IT and now an independent consultant. Executives making funding decisions ‘aren’t necessarily millennials who intuitively understand’ how cyber-threats reach seemingly disconnected units, he said.

– Catherine Brenner, chair of AMP, resigned following revelations at a public inquiry that the Australian financial services company systematically overcharged customers and misled regulators, the Financial Times reported. Her departure follows that of Craig Meller, AMP’s CEO, 10 days earlier and intensifying pressure from investors for governance changes at AMP. ‘I am deeply disappointed by the issues at hand and am particularly concerned for the impact they have had on our customers, employees, advisers and shareholders,’ Brenner said in a statement. ‘The board has now accepted my resignation as chair as a step toward restoring trust and confidence in AMP.’

The Wall Street Journal reported that, according to people familiar with the matter, Samsung plans to simplify its ownership structure in the coming months, changing a set-up that has been criticized for benefiting the ruling Lee family at the expense of minority shareholders. Samsung officials have shared the plans with large South Korean and foreign investors in recent weeks, the people said.

The Samsung revamp marks a significant change in South Korea, where family-run conglomerates, or chaebols, have created complex ownership frameworks that were necessary to fuel business expansion after capital markets tightened following the 1997 Asian financial crisis.

– The US Supreme Court is expanding its scrutiny of class actions, having said Monday it would hear appeals in two separate cases that could curb remedies for alleged small harms that corporations caused for large numbers of individuals, according to the WSJ.

– The FT reported that more than 40 large companies have ignored calls to disclose more information on their labor practices despite being urged to do so by a coalition of institutional investors with more than $10 trillion in assets under management. Many companies also do not match their official policies in areas including ensuring fairer pay and greater diversity with concrete plans and systems to monitor their progress, according to a survey of 76 companies conducted by the Workforce Disclosure Initiative (WDI).

A group of 96 asset managers forms part of the WDI. Investors are paying more attention to companies’ labor practices in a bid to mitigate risk and as part of a broader push for improvements in areas such as gender diversity.

Reuters reported that, according to people familiar with the matter, KKR has set up a business to invest in growing companies that have societal or environmental benefits, marking the private equity firm’s move into dedicated so-called impact investing. The move highlights how buyout firms are seeking to offer products to investors that appeal to an ESG business agenda.

KKR’s new unit will seek investments in smaller and medium-sized companies focusing on areas such as renewable energy, education and environmental management, one of the people said. A spokesperson for KKR declined to comment.

– Managers of CalSTRS and the New York State Common Retirement Fund said they oppose divesting from controversial companies because it doesn’t change corporate behavior, according to Bloomberg. ‘Divestment hasn’t made the world a better place,’ said Christopher Ailman, chief investment officer (CIO) of CalSTRS. Ailman and Vicki Fuller, CIO of the New York fund, said they face increasing political pressure to divest from companies including those in oil and banking, as well as gun retailers and others.

They said the goal is to engage with companies to adopt corporate ESG policies because that’s the way to affect share values. ‘If we divest, we don’t have a place at the table and we don’t change behavior,’ Fuller said.

– The FT reported that Mark Mobius, the veteran emerging markets investor, has launched a new asset management boutique that will focus on companies with the potential to deliver improvements in ESG standards. Mobius Capital Partners received authorization this week from the UK’s Financial Conduct Authority. MSCI will supply ESG information to Mobius Capital Partners, which intends to supplement this advice with its own insights.

– Wynn Resorts called for its shareholders to vote in favor of three directors it has nominated, including the director its largest shareholder, Elaine Wynn, has sought to remove in her efforts to overhaul the board, the FT reported. She has been pressing Wynn Resorts to create a board comprising mostly new directors and improve its corporate governance. She also sued the company to compel it to produce all of the shareholder list materials she requested and to delay its annual shareholders meeting.

Wynn Resorts has appointed three independent female directors and agreed to provide Wynn with the lists she has requested. ‘The board acted quickly and decisively to do what is right for the company and its shareholders,’ Wynn Resorts said in a letter to shareholders.

– The WSJ reported that KKR announced it would convert to a corporation from a partnership, a structural change that many publicly traded private equity firms have been contemplating following US tax legislation. The partnership structure, with its multiple share classes and special tax-reporting requirements, has long limited the pool of investors willing or able to own shares of private equity firms. Firms were nonetheless reluctant to change their structure because of the tax advantages of being partnerships, but the corporate structure became more attractive following tax reforms.

– The WSJ reported that Equifax shareholders re-elected all of the company’s board members who were on the ballot, although several directors including the board’s chair received a significant number of votes against their re-election. The votes took place at the firm’s first annual shareholder meeting since the company disclosed its major data breach last September in which personal information on 147.9 million US consumers was compromised.

Board chair Mark Feidler, for whom there were several calls against re-election in the run-up to the meeting, received about 64 percent of the votes tallied in favor of re-election with about 35.5 percent voting against him and a tiny share abstaining. Equifax released a statement from Feidler saying that ‘while progress has been made since the cyber-security incident, there is still more work to do, and we will continue to be in regular contact with our shareholders.’

– Former Volkswagen CEO Martin Winterkorn was charged in the US in connection with a probe into the company’s cheating on diesel emissions testing, according to Bloomberg. Winterkorn, who stepped down days after the scandal became public, is accused of conspiring to defraud the US and violate the Clean Air Act. The March 14 indictment was unsealed by a Michigan federal court on Thursday.

The company admitted to rigging the emissions set-ups of around 11 million vehicles worldwide. Winterkorn is unlikely to face trial in the US. Germany’s Federal Ministry of Justice said he would not be sent to the US because the country doesn’t extradite its citizens to countries outside the EU. Winterkorn’s lawyer told Handelsblatt that he was ‘surprised’ by the charges.

‘Volkswagen continues to co-operate with investigations by the [US] Department of Justice into the conduct of individuals,’ the company said in a statement. ‘It would not be appropriate to comment on individual cases.’

– According to the FT, Xerox said its CEO Jeff Jacobson, who earlier in the week bowed to pressure from activist investors and agreed to step down, will now remain in his role. Jacobson and other members of Xerox’s board had agreed to leave their positions following a battle with investors Darwin Deason and Carl Icahn, who had fought to block the company’s sale to Fujifilm.

Late on Thursday, however, Xerox announced that its current board and management team, including Jacobson, would stay on because a settlement agreement it had reached with the dissenting shareholders had expired. It said this was because Darwin Deason had not dropped litigation against Xerox.

Xerox and its board directors were unavailable for further comment.

On Tuesday, Xerox struck a deal that said Jacobson would step down and that both Icahn and Deason would end their proxy fight against the company. After Xerox said that deal had expired, Icahn and Deason issued an open letter to Xerox shareholders, saying ‘the brazen self-interest of the Xerox board defies description.’ Xerox was not available for comment on the activist response.

Bloomberg said Elliott Management defeated Vivendi to take control of Telecom Italia’s board after shareholders supported the US activist investor’s call to improve its corporate governance and push for asset sales, which the French media company opposes.

The slate put forward by the New York-based hedge fund firm beat Vivendi’s proposal, attracting the support of 49.8 percent of votes at the Italian company’s extraordinary general meeting. The result means Elliott will name 10 directors and Vivendi can nominate the remaining five. Vivendi’s slate garnered 47.2 percent of the votes.

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