The week in GRC: Investors and companies discuss activist curbs, and Senate bill would regulate proxy advisers
– The Wall Street Journal reported that, according to a study based on principles from the United Nations, large companies in the resource extraction, agricultural and clothing industries are failing to demonstrate respect for human rights. The study, produced by the Corporate Human Rights Benchmark, tracks how companies perform across 100 indicators built on the UN Guiding Principles on Business and Human Rights, as well as additional industry-specific standards.
The study also uses publicly available information on issues such as forced labor, protecting human rights activists and the living wage to score companies on a percentage scale. Two thirds of companies scored less than 30 percent, with the average company at 27 percent. In the last edition of the index, released in 2017, the average score was 18 percent.
– Reuters reported that, when the Democrats take control of the US House of Representatives, they plan to investigate the Trump administration’s attempt to block AT&T from acquiring Time Warner, and whether officials sought to punish Amazon.com by prodding the US Post Office to raise shipping prices for the company.
Rep Adam Schiff, D-California, who is expected to be the incoming chair of the House Intelligence Committee, said Democrats will review whether President Donald Trump used the powers of the federal government to punish the companies. Rep Elijah Cummings, D-Maryland, the likely incoming chair of the House Committee on Oversight and Government Reform, said the committee ‘may want to look into’ whether the White House retaliated against Amazon and AT&T.
AT&T and Amazon.com both declined to comment. The White House did not comment immediately.
– According to the WSJ, Daniel Loeb’s Third Point backed off a bid to replace Campbell Soup Co’s entire 12-person board after the hedge fund firm rejected a settlement offer from the company for two seats. Third Point, which is engaged in a proxy battle with the soup maker, cut the size of its board slate to five nominees from 12. Third Point said in a letter sent to Campbell chair Les Vinney on November 9 that it has heard from shareholders that they would like to see a settlement in which some of Third Point’s nominees join the existing board.
It can be easier for an activist investor that isn’t seeking a majority of board seats to gain support from proxy advisers.
– Telecom Italia CEO Amos Genish was removed from his post following a strategy clash with investor Elliott Management, according to Bloomberg. Genish was at odds with Elliott over his plan to split off the carrier’s landline network, people familiar with the matter said. Genish and Telecom Italia’s largest shareholder Vivendi wanted the carrier to keep control of Telecom Italia’s landline grid, while Elliott is seeking to spin off more than 51 percent of the business.
The tenure of Genish, who was installed by Vivendi in September 2017, has been in question since Elliott won control of the board from Vivendi in May. Now Vivendi must decide whether to call for an election on a new board slate, to try to topple Elliott. Chair Fulvio Conti took over as CEO on an interim basis and the board will meet on November 18 to decide on a replacement.
‘It was a very cynical move and deliberately planned in secrecy, to create maximum destabilization,’ Vivendi said in a statement, criticizing that the decision was taken while Genish was in Asia on business. Elliott said it supports the board’s decision to remove Genish.
– The WSJ reported that healthcare software company athenahealth is selling itself to two private equity firms for $5.47 billion in cash months after an activist investor offered to take the business private. The two private equity firms – Veritas Capital and Elliott Management’s Evergreen Coast Capital – are going to combine the company with Virence Health Technologies. The company had announced in June that its board was going to start looking at strategic alternatives for the firm.
– Bloomberg reported that SEC member Robert Jackson said investment products that use derivatives to improve returns are threatening the reputation of the $3.6 trillion market for exchange-traded funds (ETFs). ‘The risk with levered ETFs is that the entire asset class will be painted with this brush,’ Jackson said, adding that he fears Americans will buy and hold these products in their retirement accounts, and then get a nasty surprise when they lose their money.
The SEC’s fixed-income market structure advisory committee recently proposed new terminology to differentiate these funds and notes from other types of exchange-traded products. The proposals make a lot of sense, but they may not be a complete solution, Jackson said.
– The WSJ reported that representatives of pension and investment funds are negotiating with public companies on ways to limit the role of activist shareholders. Discussions between the Council of Institutional Investors, the Business Roundtable and others are in the early stages. The talks are aimed at reining in the proxy balloting process that corporations complain has become unwieldy. The groups want to raise the thresholds for getting a shareholder proposal up for a vote at AGMs.
‘You should have to show you’re on the path to majority approval,’ said Maria Ghazal, senior vice president at the Business Roundtable, of the discussions. Companies argue that the current thresholds are too low and allow shareholders to repeatedly submit proposals that have little chance of winning approval. John Chevedden, an investor who routinely submits proposals, said raising thresholds would put up unnecessary barriers for small investors. The SEC, which held a meeting on the issue on Thursday, would have to approve any changes put forth by the groups.
– Six US senators introduced a bill that would require the SEC to directly regulate firms such as ISS and Glass Lewis, Reuters reported. The bipartisan bill comes as corporate lobbyists, including the US Chamber of Commerce and the National Association of Manufacturers, are campaigning to rein in proxy advisers, which they argue have too much sway over corporate democracy.
The Corporate Governance Fairness Act bill would require the SEC to regulate proxy advisers directly under the Investment Advisers Act. This would make the firms subject to periodic examinations, which would include a serious review of the firms’ conflicts of interest policies. The SEC and Glass Lewis did not immediately respond to requests for comment.
An ISS spokesperson said the company continues to believe additional federal legislation is not necessary. ‘If this bill were to pass... ISS will do what we always have done: we will comply in full with the law and with the highest standards of the proxy advisory industry,’ he said.
– Snap said the US Department of Justice (DoJ) and the SEC are investigating allegations the company misled investors ahead of its IPO last year, according to Bloomberg. ‘Snap has been responding to subpoenas and requests for information made by staff from the DoJ and the SEC,’ the company said. ‘It is our understanding that these regulators are investigating issues related to the previously disclosed allegations asserted in the class action about our IPO disclosures. While we do not have complete visibility into these investigations, our understanding is that the DoJ is likely focused on IPO disclosures relating to competition from Instagram.’
Snap investors allege in a securities lawsuit that, ahead of its IPO, Snap didn’t reveal how much competition from Instagram was hurting its growth in the second half of 2016. ‘We continue to believe the class action’s claims are meritless and our IPO disclosures were accurate and complete,’ Snap said.
– The WSJ reported that ISS recommended that Campbell Soup Co’s shareholders vote for all five of activist hedge fund firm Third Point’s director nominees. ISS’ nod toward Third Point will likely sway some votes in its direction or give it additional leverage in settlement discussions as it faces an uphill fight to gain influence over the company. Campbell said it disagrees with ISS’ conclusion.
Daniel Loeb’s Third Point is waging a high-profile proxy fight with Campbell, saying the board has done little to lift a slumping stock price and falling soup sales. But there is opposition from at least four descendants of the company’s founder – including three current board members – who together control roughly 41 percent of Campbell shares and plan to vote in favor of the company. Campbell has said it was already undertaking many of the actions Third Point has suggested before it revealed its stake.
– The WSJ reported that the turmoil over the terms of a Brexit agreement has spooked companies large and small, including some far from the UK. The prospect of the UK crashing out of the EU early next year without an agreement spelling out the terms of its exit is now being considered as a plausible scenario inside boardrooms.
‘We didn’t have many no-deal queries until about a month and a half ago,’ said Allie Renison, head of EU and trade policy at the Institute of Directors. With political uncertainty growing, ‘people are becoming much more aware of it,’ she said.
– The US Department of the Treasury has expanded an anti-money-laundering data program that requires title insurance companies to reveal the owners of shell companies buying luxury real estate, according to the WSJ. The changes lower the value threshold of potential acquisitions subject to the requirement and expands the coverage to five new cities.
Shell-company real estate deals are legal, but they’re attractive to money launderers because a deal can be made anonymously and the buyer doesn’t have to explain the origin of the funds used. The industry has largely avoided regulatory scrutiny over its risks of money laundering until recent years.