The week in GRC: SEC wants individuals investing in private companies, and Campbell’s issues plans amid activist pressure

Aug 31, 2018
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that, according to people familiar with the matter, President Donald Trump’s antagonistic stance toward international institutions at foreign summits this summer has deterred some European officials from supporting the candidacy of a top Federal Reserve official to chair the Financial Stability Board (FSB). Randal Quarles, the Fed’s vice chair for bank supervision, had emerged as a front-runner this spring to lead the FSB, which monitors and advises governments on financial regulation.

Officials in several western European capitals have now argued that an American shouldn’t be rewarded with the position after Trump criticized both the G7 summit in June and the Nato summit in July. A White House official said the US maintains a strong relationship with Europe and that the administration believed Quarles’ candidacy had broad international backing. An FSB spokesperson declined to comment.

Reuters looked at the potential regulatory and legal implications following Tesla CEO Elon Musk’s decision to abruptly abandon a plan to take the electric car maker private. Explaining his reversal in a blog post on August 24, Musk said taking the company private ‘would be even more time-consuming and distracting than initially anticipated’ and that ‘most of Tesla’s existing shareholders believe we are better off as a public company.’

Musk and Tesla are facing investor lawsuits and an SEC investigation into the truthfulness of the CEO’s August 7 tweets, according to an August 8 WSJ report. The SEC declined to confirm that report to Reuters. A Tesla spokesperson declined to comment.

– According to Reuters, a coalition of trade groups representing companies including Alphabet, Facebook and Amazon.com urged a US appeals court to reinstate landmark net neutrality rules adopted in 2015. In a legal filing, the Internet Association, the Entertainment Software Association, the Computer & Communications Industry Association and the Writers Guild of America West urged the reversal of the Trump administration decision to overturn the rules.

‘Rules regulating the conduct of (internet providers) continue to be needed to protect and promote an open internet,’ the groups wrote in a brief filed with the US Court of Appeals for the District of Columbia. Twenty-two states and the District of Columbia recently asked the same appeals court to reinstate the prior rules.

– The US Federal Communications Commission’s (FCC) inspector general concluded that there was no evidence of impropriety relating to the proposed, and now defunct, merger of Sinclair Broadcast Group and Tribune Media, finding that FCC chair Ajit Pai had not shown bias in favor of the deal, according to Reuters. Pai said in a statement he was pleased with the finding, adding that the suggestion he favored any one company was ‘absurd’. He could not be immediately reached for comment beyond the statement.

CNBC reported that ousted Papa John’s founder John Schnatter made accusations against CFO Steve Ritchie, claiming he caused the company’s poor performance. In a letter addressed to franchisees, Schnatter’s allegations blame Ritchie for ‘bad financial decisions, insufficient management skills to correct them, a toxic senior management culture and serious misconduct at the top levels of our leadership.’ Schnatter also claimed he had discussed Ritchie’s performance with the company’s board, which agreed and asked the founder to become executive chair.

A Papa John’s spokesperson said Schnatter’s claims were unfounded. ‘Once again, John Schnatter is making untrue and disparaging statements in a self-serving attempt to distract from the damaging impact his own words and actions have had on the company and our stakeholders,’ the spokesperson said in a statement. ‘At no time has the board asked John Schnatter to become executive chairman. In fact, the company has taken multiple steps to separate itself from him. John Schnatter also publicly supported Steve Ritchie’s appointment as CEO at the end of last year.’

– According to Reuters, the SEC urged stock and options exchanges to work together with industry members to complete a long-overdue trading database – the consolidated audit trail (Cat) – that the agency needs to police the market. The SEC ordered the exchanges and the Financial Industry Regulatory Authority (Finra) to create the Cat six years ago. It will allow the agency to track all trades from their inception, pinpointing buyers, sellers, exchanges and brokers involved.

Due to numerous delays, the project is now expected to be rolled out in phases starting in November and ending in November 2022, well after the original timeline of November 2017 to November 2019. A representative of the exchanges and Finra working on the project was not available for comment immediately.

– The WSJ said UK lawmakers are conducting a review of the Bribery Act of 2010, with plans to examine the impact of deferred prosecution agreements (DPA) on corporate conduct. Although the sample of DPAs is small, lawyers and non-government organizations said the tool and the Bribery Act have helped raise corporate awareness about the risks of engaging in corrupt practices. But there are questions about the lack of prosecution of individuals in bribery cases, particularly in those where the companies reached a DPA, according to lawyers and others who study policy.

– The Commodity Futures Trading Commission (CFTC) is set to be at full strength for the first time since 2014 after the Senate confirmed two new members, Bloomberg reported. The new additions are Republican Dawn Stump and Democrat Dan Berkovitz, whose arrival may prompt new policy making at the agency. Chair Christopher Giancarlo has said he prefers a full commission for moving ahead on a long-delayed rule to restrict speculation on oil and other commodities. The CFTC’s agenda also includes completing a swap dealer registration rule and a plan to revamp regulations of swap-execution facilities.

Reuters reported that, according to a person familiar with the matter, the German authorities are backing Irish woman Sharon Donnery as the next chief of the European Central Bank’s (ECB) banking watchdog. The ECB is looking for a banking expert to replace the head of the Single Supervisory Mechanism, Danièle Nouy, when her term expires at the end of this year and to oversee a sector weighed down by bad loans and shrinking profit margins.

Donnery, the deputy governor of the Central Bank of Ireland, already leads an ECB taskforce charged with reducing the eurozone’s problem of soured credit inherited from the financial crisis. A spokesperson for the German finance minister declined to comment. A spokesperson for Chancellor Angela Merkel did not immediately offer a comment.

– According to CNBC, Microsoft will start requiring business partners and suppliers to offer employees paid family leave. The company’s US suppliers will have to offer a minimum of 12 weeks’ paid parental leave at up to $1,000 per week. The requirement will apply only to suppliers with more than 50 employees and ‘covers supplier employees who perform substantial work for Microsoft.’

‘We have long recognized that the health, well-being and diversity of our employees helps Microsoft succeed,’ said Microsoft general counsel Dev Stahlkopf. ‘We also know we rely on a wide array of other companies to supply us with goods and services that reflect their core competencies, and that the people who work for our suppliers are critical to our success.’

WSJ said Basler Kantonalbank reached a DPA with US authorities, admitting that it helped Americans avoid their tax obligations. The Basel bank admitted that from 2002 to 2012 it conspired with its employees, external asset managers and clients to defraud the US on taxes, commit tax evasion and file false federal tax returns, prosecutors said.

Basler Kantonalbank agreed to pay a total of $60.4 million in penalties in striking the agreement. Prosecution against the bank will be deferred for three years to allow it to demonstrate good conduct. A spokesperson for Basler Kantonalbank declined to comment. In a statement, the bank said those working for the bank involved with the conspiracy are no longer with the firm. ‘We worked hard on this solution,’ said CEO Guy Lachappelle. ‘We learned our lessons from this case and fundamentally restructured the bank.’

– SEC chair Jay Clayton said the agency wants to make it easier for individuals to invest in private companies, the WSJ reported. Clayton said the commission wants to give more individual investors a shot at companies that have been out of their reach because they haven’t gone public.

For decades, regulators have typically kept most private deals from smaller investors, who must meet income and net-worth requirements to participate because of the added risk that private investing holds. Clayton said the SEC is now considering a major overhaul of rules intended to protect retail investors, with the goal of opening up new options for them.

– The Campbell Soup Company said it plans to sell its international and fresh refrigerated-foods units, and left open the possibility of putting the whole company up for sale, following a months-long review and pressure from a hedge fund to sell itself, according to Reuters.

It is not clear whether the plan will appease activist investor Dan Loeb, whose Third Point announced a 5.65 percent stake on August 9 and immediately pressed for a sale of the entire company to a competitor. If dissatisfied, Loeb could escalate his attack into a proxy fight and nominate a slate of directors within the next few weeks to be voted on at Campbell’s annual meeting later this year, according to people familiar with the matter. Third Point declined to comment.

Campbell’s interim CEO Keith McLoughlin said the board considered the option of a complete sale during its review and ended the process ‘with a completely open mind.'

– The WSJ reported that, according to people familiar with the matter, New York-based hedge fund firm King Street Capital Management has proposed new independent directors at Japanese conglomerate Toshiba. The relationship between Toshiba and its non-Japanese shareholders could be an indicator of how shareholder activism is changing company management in Japan. Prime Minister Shinzo Abe’s government has called for shareholder-friendly management and better corporate governance, which has drawn the interest of foreign investors.

A King Street representative declined to comment. Toshiba representatives didn’t respond to requests for comment.

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