The week in GRC: Xerox pauses HP campaign amid Covid-19 outbreak, and Icahn ramps up Occidental fight
– The Wall Street Journal reported that Elizabeth Duke resigned as chair of Wells Fargo’s board of directors, days before she was due to testify at a congressional hearing on the bank’s 2016 fake-account scandal. Charles Noski, who joined the board in June 2019, took over as chair. James Quigley also resigned from the board. Maxine Waters, D-California, who chairs the House Financial Services Committee, had called on Duke and Quigley to step down, saying they neglected their duties in dealing with regulators.
‘Out of continued loyalty to Wells Fargo and ongoing commitment to serve our customers and employees, we recommended to our colleagues on the board that we step down from our leadership roles and they have accepted our resignation from the board,’ Duke and Quigley said in a statement. ‘We believe our decision will facilitate the bank’s and the new CEO’s ability to turn the page and avoid distraction that could impede the bank’s future progress.’
– The WSJ also reported that Twitter and activist investor Elliott Management reached a truce. The agreement calls for Twitter to appoint two new board members, with a promise to search for a new independent director, and make $2 billion in share repurchases, according to the company. The buyback is to be funded in part by a $1 billion investment from Silver Lake.
The agreement doesn’t include the removal of Jack Dorsey, CEO and co-founder of Twitter, which had been part of Elliott’s campaign. Dorsey divides his time between Twitter and Square, which he also co-founded and for which he serves as CEO.
– According to Reuters, activist hedge fund firm Teleios Capital Partners wrote to the board of French furniture and home decor company Maisons Du Monde calling for it to seek support from major shareholders before any appointments to the board are announced. Teleios said in the letter that it had repeatedly raised concerns with the company regarding its operating performance, investor communication and corporate governance.
Officials at Maisons du Monde could not be reached for comment.
– The Consumer Brands Association – which represents brands and companies including Colgate-Palmolive, Coca-Cola, General Mills and Clorox – wrote a letter to Attorney General William Barr urging him to take action on sellers taking advantage of the coronavirus outbreak to ramp up prices of hand-sanitizer, masks and other items, according to CNBC.
‘If price gouging continues over the coming months, more and more Americans will become unwilling and/or unable to pay excessive prices for these products,’ writes Bryan Zumwalt, executive vice president of public affairs for the Consumer Brands Association. ‘This will decrease the likelihood that individuals will take recommended and necessary preventative actions.’
The US Department of Justice has had a department focused on fraud surrounding a disaster since the aftermath of Hurricane Katrina.
– Reuters reported that the Financial Industry Regulatory Authority (FINRA) said it would temporarily waive some of its rules in order to allow traders to operate from home as the coronavirus spread in New York. FINRA said traders could work remotely and recognized that firms may need to implement alternative supervisory systems to make that possible.
‘In such cases, FINRA would expect a member firm to establish and maintain a supervisory system that is reasonably designed to supervise the activities of each associated person while working from an alternative or remote location during the pandemic,’ the self-regulatory organization said in a notice. FINRA added that its scheduled on-site inspections of branch offices may need to be temporarily postponed.
– In other Covid-19 news, CNN said global banks are working to split their workforces to reduce the risk that large numbers of employees fall ill, and testing backup sites to ensure they can continue doing business even if they cannot access Wall Street or central London locations. For example, JPMorgan Chase has started dividing its sales and trading teams between separate offices, telling employees that this is a ‘precautionary measure’ to make sure the bank can continue to run smoothly.
By the time Hurricane Sandy hit, most large financial firms had disaster recovery sites within 50 to 100 miles of New York City, said Damian Handzy, chief commercial officer at Style Analytics. The Securities Industry and Financial Markets Association said it tests every year the industry’s ability to operate through a significant emergency using backup sites, recovery facilities and alternative communications.
– Facebook announced that Nancy Killefer and Tracey Travis are joining the company’s board of directors, increasing female representation to 40 percent, according to CNBC. Killefer was a long-time director at McKinsey & Company and has held various US government roles. Travis is Estée Lauder’s CFO and served on the board at Accenture. Travis will serve as a member of the audit and risk oversight committee of the board.
‘We have a lot we need to get done in the coming years and I think their experience is going to be very valuable,’ Facebook CEO Mark Zuckerberg said. ‘They’re both very accomplished business leaders and I’m looking forward to working with them.’
– The WSJ reported that the Consumer Financial Protection Bureau (CFPB) proposed a whistleblower program that would award those who voluntarily provide original information on possible violations of consumer financial laws. The agency said it has submitted the proposal to Congress and that the proposed program would incentivize employees to report wrongdoing, particularly those related to fair-lending practices.
‘We also want to incentivize whistleblowers to contact us if they believe their employer is not complying with the law,’ said CFPB director Kathleen Kraninger in a statement.
– According to CNBC, roughly 150 public companies have warned investors of the threat Covid-19 poses to their businesses, with several anticipating they’ll miss guidance in the March quarter. ‘The backdrop right now is different,’ said Quincy Krosby, chief market strategist at Prudential Financial. ‘We don’t know in this pyramid of uncertainty under the coronavirus what happens to the economy, what happens to consumer spending, what happens to [capital expenditures].’
The travel industry is among the hardest hit, with JetBlue, United, American and Delta all saying they will not provide guidance for the fiscal year due to the uncertainties related to the coronavirus.
– Reuters reported that new Wells Fargo CEO Charles Scharf testified that major change was underway at the bank as lawmakers questioned him about its remediation efforts and contingency plans related to Covid-19. ‘We are putting a substantially different group of people in charge of these issues,’ he told members of the House Financial Services Committee.
Since taking over the bank late last year, Scharf has shaken up its leadership and overhauled the bank’s business lines, winning over some regulators. The Office of the Comptroller of the Currency recently said it was encouraged by the new leadership. Many lawmakers were cautiously optimistic that Scharf was the right person for the job but said righting the bank would be a challenge.
– Reuters reported that Prudential, the UK’s largest insurer, said it plans to float a minority stake in its US business amid demands from Third Point for a full break-up. The US hedge fund firm last month said it had bought roughly 5 percent of the company and called on Prudential to sell off its US business Jackson and cut its London head office.
Prudential was planning a minority IPO of Jackson, CEO Mike Wells said. ‘In order to diversify at pace, Jackson will need access to additional investment,’ he said, adding that he had first signaled the need for outside capital for Jackson in August and that the company had ‘undertaken significant work with our advisers to prep the US business.’
A Third Point spokesperson declined to comment on the IPO plan.
– United Parcel Service (UPS) CEO David Abney is stepping down and will be succeeded by board member Carol Tomé, the first outsider to run the company, according to the WSJ. Tomé, a long-time UPS director and former Home Depot CFO, will take over as UPS CEO on June 1. Abney, who also serves as board chair, will become executive chair on that date and retire from the board on September 30. UPS said William Johnson, its lead independent director and former CEO at HJ Heinz, will become non-executive chair on September 30.
Abney took over as CEO in September 2014.
– According to the WSJ, Carl Icahn has beefed up a fight to take control of Occidental Petroleum by buying more shares of the oil and gas producer in recent days. The activist investor said he now owns almost 10 percent of Occidental. Icahn has been loudly criticizing Occidental’s $38 billion acquisition of Anadarko Petroleum Corp and campaigning for the removal of CEO Vicki Hollub, the main architect of the deal.
Icahn is seeking to replace Occidental’s entire board, which includes Hollub, at its AGM this spring. Occidental had no immediate comment.
– Reuters reported that Bow Street Capital called for the removal of Mack-Cali Realty Corp CEO Michael DeMarco and has nominated four directors to the real estate investment trust’s board in a bid to take control. Bow Street is agitating a year after it won four board seats. The firm feels that those directors were unable to sway legacy directors when big decisions needed to be made. ‘The time has come for a change in leadership,’ Bow Street’s managing partners Akiva Katz and Howard Shainker wrote to shareholders.
The company did not immediately respond to a request for comment. DeMarco was not available for comment.
– The WSJ reported that Xerox Holdings said it is putting its campaign to take over HP on hold, postponing additional presentations, interviews with the press and meetings with HP shareholders. ‘In light of the escalating Covid-19 pandemic, Xerox needs to prioritize the health and safety of its employees, customers, partners and affiliates over and above all considerations, including its proposal to acquire HP,’ Xerox vice chair and CEO John Visentin said. The company said it doesn’t consider the market decline since it put out its bid or the temporary suspensions of HP shares in recent days as a result of market-wide circuit breakers as a failure of any condition to acquire HP.
HP has rejected Xerox’s $35 billion bid to take over the company, arguing that a combination would disproportionately benefit Xerox shareholders and that Xerox doesn’t have the right operational experience.
– Warren Buffett said Berkshire Hathaway’s AGM will be held without shareholders present because of the coronavirus pandemic, according to CNBC. He said the May 2 meeting will be streamed online by Yahoo Finance. ‘I very much regret this action; for many decades the annual meeting has been a high point of the year for me and my partner, Charlie Munger,’ Buffett said in a letter to shareholders.
– The SEC said Kyle Moffatt, chief accountant and disclosure program director in the division of corporation finance, will leave the agency in March after nearly 20 years. As chief accountant of the division, he has led the staff in providing technical accounting and reporting support to the division’s disclosure review program and has overseen the division’s oversight of public companies’ disclosure of financial information.
‘Kyle’s effective leadership and expertise resulted in him filling multiple roles within the division – often at the same time,’ division director Bill Hinman said in a statement. ‘His contributions in leading our office of chief accountant went beyond the day-to-day tasks and included significant work streamlining the Regulation SX rule set.’