The week in GRC: Citi reaches info-sharing agreement with activist, and US shutdown threatens IPOs
– The Guardian reported that Barclays is being threatened with a boardroom shake-up after an activist investor announced plans for a shareholder vote on the bank’s leadership. Edward Bramson, who has built a 5.5 percent stake in the bank through his investment vehicle Sherborne Investors, told his own shareholders that a vote was necessary, given that ‘consistent engagement’ with Barclays had failed to yield results.
He wants Barclays to scale back its investment banking business and believes more resources should instead be funneled toward the bank’s ‘attractive’ consumer operations. ‘It seems increasingly likely that, for any progress to be made on our concerns, we will be required to seek a shareholder vote to make changes in the composition of the board,’ Bramson said in his letter to investors.
Barclays declined to comment.
– On her first trip to Iowa as a likely presidential candidate, Senator Elizabeth Warren, D-Massachusetts, highlighted her anti-Wall Street populism and could set the tone for the field of Democrats expected to seek their party’s nomination for the 2020 election, according to Bloomberg. Warren harshly criticized a Washington, DC political culture she called ‘corrupt’ and ‘beholden to giant corporations.'
– Carlos Ghosn called the allegations against him ‘meritless and unsubstantiated’ in his first public statement since his arrest more than a month ago, according to The Wall Street Journal. The former Nissan Motor Co chair entered a Tokyo courtroom and proceeded to deliver a point-by-point rebuttal of the accusations that have upended his career. He said he properly reported his compensation – rejecting charges that he hid tens of millions of dollars in deferred pay – and said he had Nissan pay money to a friend for business services, not because the friend guided him through a personal financial problem.
‘I have been wrongly accused and unfairly detained based on meritless and unsubstantiated allegations,’ Ghosn said in a statement. His alleged co-conspirator, former Nissan representative director Greg Kelly, was released on bail on Christmas Day. Kelly has denied wrongdoing.
– CNN said a group of banks, brokerages and market makers on Monday unveiled plans to launch their own trading venue called the Members Exchange (MEMX). The launch of the new exchange highlights long-standing frustrations with the current system. In particular, brokerages and market makers are upset with the costs that leading exchanges charge for access to the data feeds used to monitor stock prices.
MEMX aims to disrupt the exchange business. The goal is to simplify and lower fees by boosting competition and increasing transparency. Founding members include Charles Schwab, E*Trade, Morgan Stanley and TD Ameritrade. MEMX does not plan to compete with the NYSE and Nasdaq on the separate business of listing stocks.
NYSE declined to comment on the launch of MEMX. ‘We welcome competition to our transparent, highly regulated equity markets,’ a Nasdaq spokesperson said. ‘[But] with dozens of equity trading venues already in operation in the [US], we are keen to learn more about the value proposition of a new exchange.’
– According to the WSJ, MetLife president and CEO Steven Kandarian is turning over the reins to top lieutenant Michel Khalaf as he sets April 30 for his retirement, although Khalaf will not take Kandarian’s chair title. MetLife said it is creating the position of non-executive chair, and the post will be held by its current independent lead director, Glenn Hubbard, dean of the Graduate Business School at Columbia University.
‘In Michel, we are fortunate to have a leader who has excelled across a wide range of markets, businesses and cultures,’ Hubbard said in prepared remarks. Hubbard is slated to step down as dean at Columbia on June 30.
– The WSJ reported that Edward Lampert will get a last chance to keep Sears Holdings from closing down, after the company agreed to let its longtime leader compete in a bankruptcy auction. Sears, which filed for Chapter 11 protection in October, plans to hold a court-supervised auction on Monday that will determine whether what is left of the company is liquidated or left in Lampert’s control. The retailer’s independent board members and creditors want to wind down the business, but Lampert wants to keep 425 stores open.
The company’s board and its creditors prefer a plan that would close all the remaining Sears and sister Kmart stores and raise as much cash as possible by selling off whatever Kenmore appliances, DieHard batteries, Wrangler jeans and other inventory is left on the shelves. Lampert has offered an alternative bid that would allow him to keep control of the business and keep most of its remaining stores open.
– Bloomberg reported that Goldman Sachs CEO David Solomon wrote in a memo to staff on Wednesday that Greg Palm is retiring as the firm’s co-general counsel. Palm was due to leave last year but his departure got pushed back, according to people familiar with the matter. Karen Seymour will become the sole leader of the firm’s legal group, Solomon said.
A company spokesperson declined to comment on Palm’s behalf.
– According to the WSJ, the government shutdown is threatening to cause difficulties for the IPO pipeline this year. The partial closure of the SEC is forcing companies that were seeking to list shares in January to push back their plans, according to bankers and lawyers. It now looks likely that no major company will tap the US IPO market this month.
As part of the shutdown, the SEC has furloughed thousands of employees and stopped reviewing and approving all new and pending corporate registration statements, including proposed IPO filings, according to the agency’s shutdown plan and other notices on its website. Dozens of SEC accountants and lawyers who review IPO paperwork are barred from reading email or calling deal lawyers seeking to discuss complex disclosure questions.
An SEC spokesperson declined to comment.
– The WSJ reported that, according to an analysis of nearly 100 filings by mutual insurance company FM Global, CFOs around the world could do a better job communicating the risks their companies face from natural disasters. Climate change exacerbates the need for CFOs to spell out the risks for their company’s operations, future cash flow and market valuations, said Eric Jones, global manager for business risk consulting at FM Global. ‘CFOs really need to think about how vulnerable their business is,’ he said.
CFOs at companies with a large, international footprint should take a two-to-five year view when assessing their potential exposure to disasters and the effects of climate change, and think about ways to protect their operations against fire, flooding and other events, FM Global said.
– CNN looked at a report from job placement firm Challenger Gray & Christmas that found a record number of CEOs left their jobs last quarter. The number who departed their posts in 2018 is the highest annual total since 2008, when the financial crisis hit. The high level of departures is in part a result of companies being concerned about the outlook for the economy and markets, according to Andrew Challenger, the firm’s vice president. ‘Boards are anticipating a changing environment and putting leadership in place that is capable of succeeding in it,’ he said.
In the final three months of 2018, US companies changed 425 CEOs, according to the report. That’s almost 45 percent higher than the 294 US CEOs who left in the final quarter of 2017. It’s the highest quarterly total since the firm started keeping tabs in 2002. More than 1,450 US CEOs left their jobs last year, the report said. That is a 25 percent jump on 2017.
– According to the WSJ, Citigroup has agreed to give activist investor ValueAct Capital Partners greater insight into its strategy, governance and operations without giving it a board seat. The bank said it has entered into an information-sharing and engagement agreement with ValueAct Capital, which will give the hedge fund firm access to confidential information and the ability to work directly with members of Citi’s management team and board.
Under the agreement, ValueAct is required to support the management and the board throughout the term of the agreement, which ends in December 2019. The bank said ValueAct won’t be pursuing a board seat at this time.
– The Guardian reported on Friday that prosecutors indicted Carlos Ghosn on two new charges of financial misconduct, days after the former Nissan chair insisted he had been wrongly accused. Ghosn was charged with aggravated breach of trust and for understating his pay by ¥4.3 billion ($40 million) for three years through March 2018, the Tokyo district court said. He had already been charged for underreporting his earnings by around ¥5 billion between 2010 and 2015.
The third charge, of aggravated breach of trust, relates to allegations that he transferred ¥1.85 billion in personal investment losses to Nissan in 2008. Ghosn has repeatedly denied the allegations. His lawyers said they would apply for their client to be released on bail, but conceded he was likely to remain in detention.
– The WSJ reported that, according to people familiar with the matter, Slack Technologies is planning to go public through a direct listing, potentially making it the second-biggest tech company after Spotify Technology to bypass a traditional IPO. In a direct listing, a company bypasses the traditional underwriting process, which involves lining up investors ahead of time and selling shares at a set price, and instead lets the open market play a greater role in setting the price. No money is raised for the company and for that reason direct listings are rare. Slack currently expects to do a direct listing, though its plans could change, the people said.
For companies that can do without the cash, the benefits of a direct listing include avoiding underwriting fees and lockups that prevent insiders from selling shares for a set period.