The week in GRC: Shareholder proposals attract more backing, and more firms train boards on compliance, survey finds
– The Wall Street Journal reported that David Solomon would succeed Lloyd Blankfein as CEO of Goldman Sachs, setting up a high-profile transition. Solomon will take over from Blankfein, who has run Goldman since 2006, on October 1. Blankfein will remain chair of the board until the end of the year, when Solomon will take the title. ‘David is the right person to lead Goldman Sachs,’ Blankfein said in a statement, praising his successor’s track record of developing new businesses and working to improve the firm’s culture.
– Ajit Pai, head of the Federal Communications Commission (FCC), expressed ‘serious concerns’ over Sinclair Broadcast Group’s $6.6 billion acquisition of Tribune Media, a deal that sought to consolidate local television stations in the US, the Financial Times reported. Pai said he would refer the Sinclair deal to an administrative law judge for a review of some of the station sales the companies had proposed.
‘The evidence we’ve received suggests certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,’ Pai said. Sinclair has argued that the acquisition of Tribune would help ‘shore up’ the local television market, which it said had been ‘buffeted by well-known economic challenges.’
Sinclair said it was ‘shocked and disappointed’ by the FCC statement. It had been transparent with the commission about the structure of the sales and was prepared to resolve any issues to complete the acquisition, it added. Tribune did not respond to a request for comment.
– The WSJ reported that, according to a Gibson Dunn & Crutcher report, shareholder proposals have fallen in number but are better at hitting the mark. Investors lodged 788 proposals during this year’s proxy season, down 5 percent from 2017, the report noted, and proposals on social and environmental topics remained the most frequently submitted this year. Governance proposals are in second place. The average support for proposals that came to a vote rose to 32.7 percent, up from 28.7 percent in 2017.
– Representatives Jeb Hensarling, R-Texas, and Maxine Waters, D-California, reached a compromise on a plan for dialing back financial rules, according to Bloomberg. The legislative package is largely aimed at making it easier for companies to raise money by lowering barriers to invest in startups and simplifying regulations for businesses to go public.
Most of the 32 bills included making minor, incremental changes to existing rules. Others have already been adopted by federal agencies such as the SEC. The package does not include contentious changes Republicans sought, such as tweaking the Volcker Rule or overhauling the Consumer Financial Protection Bureau.
– The WSJ looked at the new corporate governance rules released by the UK’s Financial Reporting Council on Monday. The revamp of the Corporate Governance Code applies to 862 companies listed in the premium segment of the London Stock Exchange, and requires a vesting and holding period of five years or more for shares awarded to executives under a company’s long-term incentive plans. The new rules also ask companies to explain cases where their chair’s tenure exceeds nine years, urges boards to scrutinize company culture and presses management to respond to any corporate governance-related issues.
– The EU imposed a €4.3 billion ($5 billion) antitrust fine on Google and ordered the company to change the way it puts search and web-browser apps onto Android mobile devices, according to Bloomberg. The penalty is higher than any other dished out by US, Chinese or other antitrust authorities. Google was given until mid-October to stop what the EU called ‘illegal practices’ on contracts with handset manufacturers that push its services in front of users.
Google said it would challenge the ruling at the EU courts. An appeal wouldn’t change its need to comply with the EU order, unless it gets judges to allow ‘interim measures’ that halt the European Commission findings. Google CEO Sundar Pichai said the EU decision ‘rejects the business model that supports Android, which has created more choice for everyone, not less.’
– The SEC issued final rules to amend Securities Act Rule 701, which provides an exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements. As mandated by the Economic Growth, Regulatory Relief and Consumer Protection Act, the amendment increases from $5 million to $10 million the threshold in excess of which the issuer is required to deliver additional disclosures to investors.
The SEC is also soliciting comment on possible ways to modernize rules related to compensatory arrangements in light of changes in both the types of compensatory offerings and the composition of the workforce.
– The WSJ said that according to a new report from S&P Global, the large amounts of money flooding into passive investments can swing stock prices, but fears of widespread market disruptions are overblown. Investors taking cash out of index-tracking strategies exacerbated sharp declines in early February, when stocks plunged and volatility surged, according to the report.
Strategies that mimic the S&P 500, including mutual and exchange-traded funds (ETFs), may have accounted for as much as one third of the benchmark’s almost 3.8 percent decline on February 8, according to the report. But the researchers also concluded that the money moving in and out of ETFs, in particular, is unlikely to cause widespread price disruptions.
– The SEC adopted amendments to Regulation ATS to enhance operational transparency and regulatory oversight of alternative trading systems (ATSs) that trade stocks listed on a national securities exchange. ‘I agree that promoting greater transparency in order interaction, matching and execution will help empower investors and their intermediaries to find those trading venues that best meet their trading and investing objectives,’ said SEC chair Jay Clayton in a statement.
Certain ATSs will be required to file detailed public disclosures on new Form ATS-N. The disclosures are intended to allow market participants to assess potential conflicts of interest and risks of information leakage arising from the ATS-related activities of the ATS’ broker-dealer operator and its affiliates. The disclosures will also inform market participants about how the ATS operates.
– According to the FT, Elliott Management demanded that thyssenkrupp elect an external CEO and distance itself from comments made by Ulrich Lehner, the company’s chair who resigned this week. Lehner had criticized the tactics of ‘activist investors’ targeting thyssenkrupp.
Elliott, the activist fund firm run by Paul Singer, published a letter it sent to the German company denouncing the comments as ‘categorically untrue’. It said any reasonable reader would take them to be an attack on Elliott, which disclosed a small stake in the company in May, and Cevian Capital, the activist fund that has become thyssenkrupp’s second-largest shareholder.
Lehner said he had stepped down to bring attention to what was going on at the company, warning that ‘the loss of many jobs’ was a possibility if it was pushed to break up. Elliott said in its letter that it had never called for a ‘dismantling of thyssenkrupp’ but rather a ‘structural evolution.'
– Reuters reported that a federal appeals court approved the US Department of Justice’s request for an expedited schedule for the appeal of a judge’s ruling that allowed AT&T to buy Time Warner. The department has said it would appeal a federal judge’s approval of the $85.4 billion acquisition. The court approved the department’s request that legal briefs must be completed by October 18, with oral arguments ‘as soon as practicable.’
AT&T CEO Randall Stephenson has said the original court decision was well reasoned. ‘We think the likelihood of this thing being reversed or overturned is really remote,’ he said.
–The WSJ said that according to a poll of ethics and compliance professionals, more organizations are requiring their board members to receive compliance training, prompted in part by the focus on workplace harassment brought by the #MeToo movement: 73 percent of respondents to the NAVEX Global survey said they now train their boards, up from 44 percent who said they did so last year and 58 percent who said they did in 2016. The numbers refer to compliance training in general, not specifically to sexual harassment training.
But the survey also found that 44 percent of respondents said their organization’s directors never received training on workplace harassment; 25 percent had no training on the code of conduct nor on cyber-security; 23 percent didn’t get trained on conflicts of interest; and 20 percent failed to receive training on bribery or corruption.