The week in GRC: SEC says Amazon must allow facial recognition proposals, and PG&E overhauls board
– Bloomberg reported that Hertz Global Holdings is demanding that ex-CEO Mark Frissora and other former senior managers return at least $70 million of incentive compensation for their roles in an accounting scandal five years ago. The company accused the former executives of pressuring employees to use fraudulent accounting techniques to inflate income and earnings, according to a March 25 lawsuit. The alleged misconduct led to a federal investigation and prompted Hertz to restate several years of financial results.
Hertz’s policy allows it to claw back compensation from any employee whose gross negligence, fraud or willful misconduct contributed to a financial restatement, according to a regulatory filing.
Hertz filed the lawsuit after Frissora, ex-CFO Elyse Douglas and former general counsel Jeffrey Zimmerman refused to return incentive compensation tied to the erroneous results. ‘I strongly disagree with the allegations,’ Frissora said in a statement. ‘I am proud of my record of integrity and transparency in business, and I am confident these claims will be shown to be untrue.’ An attorney for Douglas declined to comment. A lawyer for Zimmerman didn’t reply to a request for comment.
– According to the Financial Times, a steep increase in the number of shareholder lawsuits against public companies is putting pressure on insurers that provide liability cover for corporate directors and executives. There were more than 400 federal securities actions in the US in both 2017 and 2018, according to Cornerstone Research, more than double the average number of the preceding decade. The increase reflects how #MeToo issues and data privacy are adding to the risks boards and management must address.
Joanna Page, partner at Allen & Overy, said there had been a rising number of suits claiming directors had failed to ‘instill a culture that stops sexual harassment’, prevent data security breaches or warn of drug side effects. ‘This can come out of left field for the board,’ she said. The number of cases that directly target executives and officers, as opposed to the board, is also rising, Page added.
– Saudi Arabia for the first time revealed details to investors that show its national oil company is the world’s most profitable business, according to The Wall Street Journal. With $111 billion in net income in 2018, Saudi Aramco had bigger returns last year than Apple and ExxonMobil combined. The financial information was disclosed in a prospectus for a planned bond sale of at least $10 billion to help fund the acquisition of a $69.1 billion stake in Saudi Arabia’s national petrochemicals firm.
Some Saudi officials hope that by disclosing Aramco’s profits and other detailed financial information they will quell any doubts about their determination to list Aramco publicly by 2021, in what would likely be the biggest ever IPO.
– Reuters reported that the Federal Reserve, Federal Deposit Insurance Corp and Office of the Comptroller of the Currency proposed a rule that, if approved, would discourage large banks from heavily investing in debt issued by other large banks by requiring them to hold additional capital against such investments. The proposal is intended to make sure banks do not end up holding large amounts of total loss-absorbing capacity (TLAC) debt from other banks. Banks must issue TLAC debt under rules established after the financial crisis that were designed so that banks can quickly access more equity if pushed to bankruptcy.
– Bloomberg said global socially responsible investments grew by 34 percent to $30.7 trillion over the past two years, boosted by Japanese pension funds, retail investors globally and growing concern about climate change. Europe remains the biggest region for sustainable investors with about $14 trillion devoted to such strategies, up 11 percent from 2016, according to the biennial report from the Global Sustainable Investment Alliance. Other markets are smaller but growing faster. Japan saw the biggest jump, with assets in sustainable strategies up fourfold to $2.2 trillion.
Money managers around the globe said clients were increasingly asking for sustainable strategies and that climate change became a leading issue for investors this year. Retail investors bought up more ethical funds, according to the report, and now account for about 25 percent of assets, up from 20 percent in 2016.
– Paul Jacobs, who was removed as a Qualcomm director a year ago, has abandoned efforts to take the company private, deciding to focus on his networking start-up, according to the WSJ. The long-shot takeover plan had threatened to pit the former chair and CEO against the company, but Jacobs said he is putting his energy into the wireless-technology startup XCOM Labs, of which he is CEO. It recently made its first acquisition.
Jacobs had begun gathering financing but decided late last year that Qualcomm’s valuation relative to its earnings had become less attractive. ‘As Qualcomm’s position changed, the conditions weren’t right to take it private,’ he said.
Qualcomm declined to comment.
– Reuters reported that Uber co-founder Travis Kalanick and the company’s directors won the dismissal of a lawsuit by investor Lenza McElrath that sought to hold them liable for a fight over trade secrets that slowed Uber’s push into autonomous vehicles. A lawyer who represented McElrath declined to comment. An Uber spokesperson said the company was ‘pleased with the court’s decision to dismiss this meritless complaint.’
– CNN reported that Blue Apron’s Brad Dickerson, who became president, CEO and a board director of the meal-kit delivery company in 2017, is stepping down this week to ‘pursue new opportunities,’ the company said. Dickerson will be replaced by Linda Findley Kozlowski. She will become president and CEO and join the board of directors on Monday.
Dickerson will be a company adviser for an undisclosed period of time. He joined the company as its CFO in 2016, before replacing co-founder Matt Salzberg in the top role. Salzberg is chair of Blue Apron’s board. Ilia Papas, Blue Apron’s co-founder and chief technology officer, is also leaving for new opportunities, the company said.
– According to CNBC, the SEC has given ExxonMobil permission to block a shareholder proposal that would have required the company to set targets to substantially reduce its greenhouse gas emissions. The proposal called for the company to disclose greenhouse gas targets aligned with the 2015 Paris Climate Agreement.
Exxon had argued that the resolution was misleading and would interfere with management responsibilities. The SEC said in its decision letter that the requirement would ‘micromanage’ the company and ‘impose specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors.’
Exxon did not immediately respond to a request for comment. Church Commissioners for England and New York State, which submitted the non-binding proposal and other climate-change resolutions to Exxon, said they will continue to push the company on climate change.
– The WSJ reported that former Nissan Motor Co chair Carlos Ghosn was arrested again in Tokyo over new suspicions of financial misconduct. Prosecutors said he was arrested on suspicion of breach of trust, meaning abuse of his position at Nissan for personal gain. They said they suspected that on several occasions between 2015 and 2018, Ghosn arranged for a company he personally controlled to receive a portion of money that Nissan sent to an overseas distributor.
‘My arrest this morning is outrageous and arbitrary,’ Ghosn said in a statement. ‘Why arrest me except to try to break me? I will not be broken. I am innocent of the groundless charges and accusations against me.’ Earlier in the week, a lawyer for Ghosn said of the allegations: ‘There is nothing here that can be criticized. These are normal payments linked to business.’ Ghosn has previously denied any wrongdoing.
– California utility PG&E, which recently filed for bankruptcy protection, named William Johnson as its new CEO, according to CNN. Johnson was previously president and CEO of the Tennessee Valley Authority for six years. PG&E pointed to the Tennessee Valley Authority’s safety record and reduction in coal generation and carbon emissions under Johnson. The utility said half of Johnson’s incentive compensation will be tied to PG&E’s safety performance and metrics.
PG&E also said it is adding 10 new members to its board of directors. The new members will join three existing PG&E directors on the board, and seven members will step down. ‘The significant changes in leadership reflect PG&E’s focus on strengthening its safety culture and operational effectiveness and successfully navigating the company’s Chapter 11 process,’ the company said in a statement.
– Reuters reported that the SEC rejected efforts by Amazon.com to stop its investors from considering two shareholder proposals about the company’s sale of a facial recognition service. Decisions including one on Wednesday by officials at the agency followed an appeal by Amazon to block the non-binding proposals from being voted on at the company’s upcoming AGM.
One proposal, if approved, would require Amazon to cease offering facial recognition to governments unless the company’s board determined sales did not violate civil liberties. A second would call for an audit to examine the harm to rights and privacy, if any, that might result from the service.
Amazon declined to comment on the SEC decisions.
– According to the WSJ, a federal judge told Elon Musk and the SEC to reach a compromise that would avoid the need to determine whether the Tesla CEO violated a court order governing his communications on social media. US District Judge Alison Nathan told the two sides at a New York court hearing to ‘put their reasonableness pants on’ and report back to her after two weeks.
The step could save Musk from harsher restrictions on his use of Twitter and from the possibility of heavier financial penalties. Asked later whether he could reach an agreement with the SEC within two weeks, he said: ‘Most likely.’ Lawyers for the SEC declined to comment after the hearing.