The week in GRC: Shareholder proposals fail at ExxonMobil AGM, and activist investor takes Olympus stake
– The Financial Times reported that the UK Treasury and the Bank of England (BoE) are at odds over the future of financial regulation in the country following Brexit. Chancellor Philip Hammond wants to keep the UK close to the EU rulebook to ensure maximum access for London-based firms to the European market, while the BoE opposes any compromise that would leave it as ‘a rule taker’. The UK’s original proposal – a mutual recognition plan that would have given the BoE the regulatory autonomy it seeks – looks in doubt. It was declared dead at the outset by EU chief negotiator Michel Barnier.
A Treasury spokesperson said: ‘HM Treasury and the [BoE] are united in our aim to ensure the stability and prosperity of our economy, and we are working together to ensure the UK continues to remain the pre-eminent financial services center of the world. We agree the [UK] cannot be an automatic rule taker. We will start our first day outside the [EU] from a unique position with full alignment.’
– Reuters reported that UBS hired the UK’s former representative to the European Commission, Jonathan Hill, to advise corporate customers about Brexit. Hill was until July 2016 the European commissioner for financial stability, financial services and the capital markets union, working on the project to integrate Europe’s financial markets more closely. He resigned from that role after the vote for Brexit.
– According to The Wall Street Journal, major US food companies are rapidly getting rid of a generation of CEOs following years of bad sales in an industry that until recently had been relatively stable for half a century. Over the past two years, at least 16 major packaged-food and beverages industry CEOs have stepped down, a WSJ analysis found.
The outgoing executives have been dealing with a new era of US eating and grocery shopping habits driven by millennials and the internet. ‘You’ve got a lot of CEOs who are at their wits’ end trying to figure out growth,’ a now-retired CEO of a major food company said. Investors said the CEO moves are positive for the industry, particularly when a new executive is brought in from outside.
– Two Canadian banks reported that their customer accounts may have been breached, according to the WSJ. Bank of Montreal BMO said some personal and financial information for fewer than 50,000 customers may have been stolen. Simplii Financial, an online bank unit of the Canadian Imperial Bank of Commerce (CIBC), reported that information for roughly 40,000 customers may have been stolen.
‘We are working with the relevant authorities and are conducting a thorough investigation,’ a BMO spokesperson said. The bank said it is confident ‘exposures identified related to customer data’ have been closed off, and that it is contacting those who may have been affected. Simplii said there was no indication CIBC accounts were affected. The bank said it would return any money lost from Simplii accounts to clients affected by the fraud.
– Reuters reported that Samsung Life Insurance and Samsung Fire & Marine Insurance separately said their electronics affiliate’s policy of cancelling its own shares to raise the value of investors’ holdings risks pushing their own holdings beyond regulatory limits. Samsung Life and Samsung Fire & Marine said they would reduce their stakes in Samsung Electronics.
The announcements come at a time when regulators are questioning conglomerates’ cross-shareholding arrangements, saying the ownership structures undermine corporate governance by allowing founding families to control business groups with only direct minority stakes in key units.
– Claudius Modesti, director of enforcement and investigations at the PCAOB[one of CS’ permitted abbreviations], will leave this month after 14 years, according to the WSJ. Modesti’s announced departure follows those of other officials, including the board’s chief auditor and its head of inspections.
The PCAOB last month said it would assess its organization and direction: chair William Duhnke and the other four board members are all new to the body. In a speech earlier this month, Duhnke said the board would look at whether the design of its programs still meets its needs, and that ‘substantial opportunities exist for us to improve our policy making and our external engagement.’
Modesti said in a statement that it had been ‘the greatest honor and privilege of my professional career to be a part of the PCAOB.’
– The FT looked at the increasing pressure on Asia’s business families from their own shareholders. Shareholder activism has been increasing around the world, but in Asia – where founding families often run companies unopposed for generations – it is a relatively new phenomenon. In 2011 there were only 10 activist campaigns in Asia, according to JPMorgan. That accounted for 12 percent of all activism outside the US. Last year that number rose to 106, or 31 percent of non-US campaigns.
‘We will see more chaebol [family-owned conglomerates] restructuring deals in their succession process, and they will face stronger shareholder scrutiny,’ said Lee Won-il, head of Seoul-based Zebra Investment. ‘Investors will become much more aggressive in demanding better governance and shareholder returns.’
– According to the WSJ, at least 16 companies in the S&P 500 have changed 2016 reported pay figures by more than 10 percent for one or more executives, while 17 did so for 2015 pay. Many changes are errors caught after companies send proxies to shareholders and the SEC. Others reflect changes in how the company decides to present the perks it has provided. In at least one case, the revised figure was the result of a retroactive pay cut.
– State Street Global Advisors (SSGA) called for a review of the way European company directors are elected, Reuters reported. SSGA said the annual election of corporate directors was ‘key to effective governance’ as it gave investors the ability to hold directors to account for poor performance. It said German companies had the weakest accountability, with directors standing for election every five years. The UK, Ireland, Switzerland and the Nordic countries all had strong accountability, with one-year terms for directors, it said.
– The FT reported that US hedge fund firm ValueAct Capital has taken a $600 million stake in Olympus. ‘Olympus has an exceptional business model, market share, technology leadership and emerging markets presence in the global medical device industry,’ said Rob Hale, partner at ValueAct. ‘We think it’s an ideal company for our first investment in Japan. We look forward to working with the Olympus team.’ He didn’t elaborate on what changes the fund would seek from the Japanese company.
Olympus said: ‘We will continue to hold an active dialogue [with ValueAct] as one of many shareholders to bolster mutual understanding of our growth strategy.’ ValueAct’s investment comes as foreign activist funds have been encouraged by government efforts to urge Japanese businesses to engage with outside shareholders, deliver higher return on equity and introduce more diverse boards.
– The WSJ looked at Federal Reserve plans to ease the Volcker Rule. The proposal, known as Volcker 2.0, means major US banks would face fewer audits of individual securities and derivatives transactions. The banks wouldn’t have to spend as much time proving compliance, and traders would generally have more freedom to buy and sell securities.
Although financial firms have been seeking the changes for years, regulators said the proposal wouldn’t bring back the days before the financial crisis. But critics said the proposal gives banks too much leeway and could create loopholes that allow banks to engage in risky trading.
– CNBC reported that ExxonMobil faced pressure over worker rights and safety at its AGM, but prevailed against several shareholder demands. Investors voted against four resolutions, including a call for greater clarity around the oil giant’s political lobbying activities. Shareholders also approved executives’ pay packages, with nearly 73 percent of voters supporting the measure. More than 90 percent also voted to re-elect the members of the board.
The failure of any single shareholder resolution to attract enough support this year was a relief to the company, which last year failed to quell investors’ demands that the company report regularly on how global climate change initiatives will affect its business. In a statement, an Exxon spokesperson said: ‘Nothing is more important to our company than the safety of our employees, our contractors and the people who live and work around our operations. Safety is a core value for our company and we’re committed to continuous improvement.’
– According to the WSJ, the EU is rowing back a threat to force major clearinghouses in London to relocate to continental Europe after Brexit. But although the UK may welcome the shift, it is unlikely to assuage US regulators, which have warned that the EU’s proposals to increase its control over the clearing of euro-denominated securities and derivatives would impose new costs and burdens on US clearinghouses with EU customers.
– Facebook board members faced verbal criticism at the company’s AGM from shareholders worried about the company’s scandals concerning the data leak to Cambridge Analytica and interference in elections, according to the FT. One heckler was removed from the meeting room after she called for fellow shareholders to vote against the election of Mark Zuckerberg, Facebook founder and CEO, to the board. ‘Shareholder democracy is lacking at Facebook,’ she shouted.
Proposals put to shareholder votes included that Facebook establish a risk-oversight committee, and requests for it to issue reports on how it polices content on the site. All six proposals from shareholders were rejected, as Facebook management retains the majority of voting rights.
Zuckerberg struck a conciliatory tone, saying Facebook had developed a ‘broader view’ of its responsibility to its community and had ‘dramatically increased its investment in security.’