The week in GRC: Shutdown curbs exclusions of AGM proposals, and Jana Partners to focus on activism
– The Wall Street Journal reported that the UK home secretary and chancellor will jointly chair a new task force that will work with the financial services industry to combat economic crime. The task force, called the Economic Crime Strategic Board, will include the CEOs of Barclays, Lloyds Bank and Banco Santander, as well as trade group leaders and senior regulatory and law enforcement officials. It will meet twice a year, direct resources and scrutinize performance against the threat of financial crime.
The Home Office will commit £3.5 million in 2019 and 2020 to support work to overhaul the UK suspicious activity report (SAR) regime. The announcement came less than a week after the National Crime Agency said it had received a record number of SARs between April 2017 and March 2018.
– According to the WSJ, Ashland Global Holdings, locked in a proxy fight with an activist investor, reached a deal with a different, typically quiet investor to add two new directors and make other changes. Ashland CEO Bill Wulfsohn and Neuberger Berman Group agreed to a plan in which the specialty chemicals company will find and add two new directors after its AGM, refresh leadership of its board committees and have a longtime director step down.
Cruiser Capital Advisors nominated four directors to Ashland’s board in October, seeking to oust four existing directors, including one who will step down as part of the new plan. Cruiser also urged shareholders not to re-elect Wulfsohn as chair at Ashland’s AGM scheduled for early next month.
Cruiser said in a statement that it will evaluate Ashland’s announcement. ‘However, on the surface we believe no responsible shareholder would want to vote for nearly 20 percent of the company’s independent directors without knowing who they are – this sounds like poor corporate governance,’ it said.
– Reuters reported that Jana Partners, founded by Barry Rosenstein, is closing two stock-picking hedge funds and will focus instead on its main strategy of investing in a handful of companies and pushing management teams to improve their performance. According to a letter to its investors, the firm will focus solely on its Jana Strategic Investment (JSI) Fund and later this year will also launch its Jana Impact Capital Fund, which will focus more on social activism. ‘We will transform into a firm solely dedicated to our core competency of shareholder engagement,’ Rosenstein and his team said in the letter.
‘This is where we have delivered our best returns for investors, developed a real competitive advantage and made our mark on numerous industries, and where we see our future and the richest opportunity set.’ Among activists, Jana has a reputation for working collaboratively and often behind the scenes. It has run only one proxy contest.
– According to the WSJ, publicly traded companies may have to put to a shareholder vote proposals that they oppose if the government shutdown doesn’t end soon. The reason is that the SEC must sign off on requests by companies to exclude proposals from a vote at AGMs, and the agency is operating with a skeleton staff.
‘Companies are stuck in limbo right now,’ said Tom Quaadman, executive vice president at the US Chamber of Commerce. ‘They are going to become more vocal if the shutdown continues.’ The SEC often strikes proposals from ballots. This can happen if measures have been voted on before by a company’s shareholders, because they are deemed not to be economically relevant to a company’s performance or if they don’t relate to a company’s core business activities, among other reasons.
Apple, for example, recently received SEC permission to exclude a shareholder proposal from its March 1 AGM that would have established a board of directors committee on social and environmental issues. Apple’s request was approved before the government shutdown.
– US authorities charged a suspected Ukrainian computer hacker and several traders with scheming to trade on market-moving corporate earnings news stolen from the SEC’s Edgar database, Reuters reported. Authorities said Oleksandr Ieremenko and Artem Radchenko, both of Kiev, used a Lithuanian server to hack into Edgar and obtain thousands of ‘test filings’, including 157 earnings announcements, and shared their findings with traders.
The US Department of Justice said conspirators sent fake emails to SEC employees that appeared to be from other employees, enabling Ieremenko and Radchenko to steal filings through phishing attacks and by installing malware on SEC computers. The SEC filed related civil charges accusing six individuals and two companies in the US, Russia and Ukraine of reaping the $4.14 million of gains from May to October 2016.
None of the defendants could immediately be reached for comment, and their lawyers could not immediately be identified.
– Bloomberg reported that Citigroup gave an uncharacteristically blunt assessment of the pay gap between men and women in its global workforce, revealing that female employees earn 29 percent less than men do. The disclosure – a comparison of median total compensation – offers a more complete picture of pay, compared with the figures Citigroup and other big banks released last year under pressure from shareholders in the US and regulators in the UK. The bank also reported that, among its US employees, people of color earn 7 percent less than their white colleagues.
‘The numbers are difficult,’ said Sara Wechter, Citigroup’s global head of human resources. ‘We should obviously be at 100 percent parity, and that’s what we’re striving for.’ In an effort to close the gaps, Citigroup has committed to increasing representation at the assistant vice president to managing director levels to at least 40 percent for women and 8 percent for black employees in the US by 2021.
– Reuters said Wednesday that, according to people familiar with the matter, Sears Holdings chair Edward Lampert prevailed in a bankruptcy auction for the department store chain with an improved takeover bid of roughly $5.2 billion, allowing the company to keep its doors open. Lampert’s bid prevailed after weeks of back-and-forth deliberations that culminated in a days-long bankruptcy auction held behind closed doors. The billionaire’s proposal, made through his hedge fund ESL Investments, will save up to 45,000 jobs and keep 425 stores open.
There remains a chance the deal could fall apart, as it must still be documented and approved by a US bankruptcy judge. A hearing was expected to be scheduled for later this week. Spokespeople for Sears and ESL did not immediately return requests for comment.
– Climate and environmental issues dominate a ranking of top global risks produced by the World Economic Forum (WEF) ahead of its annual summit in Davos, Switzerland, according to CNN. Business leaders and experts surveyed by the WEF said extreme weather, migration caused by climate change and natural disasters are the three risks they’re most likely to face in 2019.
‘There is more investor pressure and more requirements on companies,’ said John Drzik, president of global risk and digital at insurance broker Marsh. ‘They have already been facing pressure from consumers to make their products more climate-friendly, but the amplified investor pressure is new.’
– According to Reuters, the US government shutdown is threatening President Donald Trump’s campaign pledge to make rules easier to navigate for banks and corporations. The Trump administration has outlined plans to ease bank rules, overhaul corporate governance and boost financial innovation. But with Democrats now in control of the House of Representatives and the 2020 presidential campaign expected to stymie policymaking, industry lobbyists are concerned the shutdown will further limit the narrow window for the new rules to be implemented.
Lobbyists and regulatory sources say there is particular concern about what happens to rules being penned by regulators to implement changes, passed by the Republican Congress last May, that relaxed restraints imposed on banks after the financial crisis. At the SEC and Commodity Futures Trading Commission, less than a 10th of staff continue to work in areas such as law enforcement, market surveillance and investor protection, while all non-emergency rule-making is suspended.
– Bloomberg reported that a group of activist shareholders is proposing that Amazon.com stop selling facial recognition software to government agencies until its board determines that the technology doesn’t threaten people’s civil rights. The investors, including the Sisters of St Joseph of Brentwood, a member of the Tri-State Coalition for Responsible Investment, filed a resolution on the subject to be voted on at Amazon’s AGM later this year.
Amazon Web Services CEO Andy Jassy said in November that Amazon is working to educate government officials about how to use the software, and said it is used only as a tool in investigations, not as the sole factor considered in identifying suspects.
– John Bogle, founder of Vanguard Group and a crusader for investors’ rights for more than three decades, died in Bryn Mawr, Pennsylvania, on Wednesday at age 89, the WSJ reported. Bogle, known as Jack, almost singlehandedly made index funds a practical and popular option for institutional and individual investors alike. He created the first mutual fund tied to an index in 1975.
‘Jack Bogle made an impact on not only the entire investment industry but also, more importantly, on the lives of countless individuals saving for their futures or their children’s futures,’ said Vanguard CEO Tim Buckley in a statement.
– According to The Guardian, more than 170 UK business leaders gave their backing, in a letter, to the campaign for a second referendum on Brexit. It is a step designed to indicate growing support for a ‘people’s vote’ after Prime Minister Theresa May suffered the heaviest parliamentary defeat in the modern era over her Brexit plan. The business leaders, together representing more than £100 billion ($129 billion) in annual contributions to the UK economy, warned that a bad Brexit deal or the country leaving without any deal at all could damage the economy.
– Reuters reported that a federal appeals court said it would not delay oral arguments set for February 1 on the Trump administration’s decision to repeal the 2015 landmark net neutrality rules governing internet providers. The Federal Communications Commission (FCC) had asked the court to delay the arguments over its December 2017 repeal, citing the partial government shutdown. The court denied the request. The FCC had no immediate comment on the decision.
A group of 22 state attorneys general and the District of Columbia have asked the court to reinstate the Obama-era internet rules and block the FCC’s effort to pre-empt states from imposing their own rules guaranteeing an open internet.
– The WSJ reported that Nissan Motor Co and Mitsubishi Motors said Carlos Ghosn, the former chair of both companies, improperly received almost $9 million from a Dutch entity the car makers jointly owned. Both companies removed Ghosn from his position as chair soon after his arrest because of alleged financial misdeeds. Until Friday, they had declined to provide specific information in public beyond the criminal allegations made by Japanese prosecutors.
Mitsubishi CEO Osamu Masuko said Ghosn’s actions were inappropriate and the payments occurred without his knowledge. Although the payments aren’t part of the criminal charges faced by Ghosn, both Nissan and Mitsubishi said they will pursue ways to recover the money from him.
A spokesperson for the Ghosn family declined to comment. A lawyer for Ghosn in Japan didn’t respond to requests for comment Friday. He previously declined to comment on the allegations about the Dutch entity money.