The week in GRC: Bank group criticizes plans for corporate ownership registry and YouTube CEO steps down
– The Wall Street Journal (paywall) noted that a new SEC rule is aimed at removing loopholes that have allowed corporate insiders to hide behind their prearranged trading plans. For most US-listed companies, new disclosure requirements will take effect on April 1.
Among other elements, directors and officers will have to wait at least 90 days after starting or modifying a 10b5-1 plan before they can trade under the arrangement. The forms used to report their trades will include mandatory checkbox disclosures showing whether they were using such a plan, as well as the plan’s adoption date. Companies will also have to disclose the substance of 10b5-1 plans in their quarterly and annual reports.
‘Before the change occurred, you could have an executive utilize a $100 mn 10b5-1 plan, and there would be no trace in public disclosures that they were utilizing such a plan,’ said Daniel Taylor, an accounting professor at the University of Pennsylvania and co-author of a 2021 study on 10b5-1 abuses that was cited in the SEC’s final rule.
– According to Reuters (paywall), Lufthansa will start offering fares that already include the offsetting of flight-related carbon emissions. The ‘Green Fares’, which can be booked for connections in Europe and North Africa, are the first to provide 100 percent carbon-offsetting, Lufthansa executive board member Harry Hohmeister said.
The burden on the climate is offset 20 percent through the use of sustainable aviation fuel and 80 percent through the financing of climate protection projects, according to the airline. The option makes Lufthansa the first airline to offer such a fare as a complete package, in addition to tickets without offsetting, Hohmeister said.
– Some large law firms, citing economic challenges and slowing demand, are tightening their belts by reducing their attorney ranks and eliminating professional staff, according to the WSJ. The decline in demand for legal work last year came after years of growth driven by M&A activity, which led to hiring sprees. ‘The work has fallen off a cliff,’ said consultant Peter Zeughauser. ‘The firms that were really red-hot and significantly over-hired are the first movers to lay people off.’
– CNBC reported that Tesla employees in New York started a campaign to organize a union with Workers United Upstate New York. The union, Tesla Workers United, would be the first for the company if it is formed. The campaign sets up a labor battle with CEO Elon Musk, who has expressed his opposition to unions in the past.
‘We want Tesla to be the company we know it can be,’ the workers wrote in the release. ‘Our union will further Tesla’s principles and objectives, including by helping to serve as the conscience of the organization and by ensuring and deepening our culture of trust and respect.’
Tesla and Musk did not immediately respond to requests for comment.
– The SEC named Cicely LaMothe as deputy director of disclosure operations with the division of corporation finance. She has been in that role on an acting basis since August 2022. LaMothe has held a variety of senior leadership roles in the division since joining the agency in 2002, including program director of the disclosure review program, associate director of the office of assessment and continuous improvement, and associate director of disclosure operations.
– According to Reuters, oil and gas producer Capricorn Energy called off its planned merger with Israeli gas group NewMed Energy after months of shareholder pressure. Activist investor Palliser and some of Capricorn’s biggest shareholders had publicly opposed the tie-up and major proxy advisers also recommended rejecting the deal. Earlier this month, almost the entirety of Capricorn’s board, including its CEO, were replaced by new directors proposed by Palliser. The new directors announced a strategic review.
‘Based on its work to date in respect of the strategic review and taking into consideration the views expressed by shareholders on the NewMed transaction, the board has resolved to advise shareholders to vote against the NewMed transaction,’ Capricorn said in a statement. ‘This action is necessary to enable the consideration of all potential strategic options for the company, including the material return of capital to shareholders and potential engagement with respect to alternative options.’
NewMed said in a statement that the two companies had ‘mutually agreed’ to terminate the transaction. A vote by Capricorn shareholders on the deal planned for February 22 will no longer take place, Capricorn said.
– The American Bankers Association (ABA) was a major proponent of a new corporate ownership registry, saying it hoped the project would help cut regulatory costs, but on Tuesday it did an about-turn, criticizing the US Department of the Treasury over how it plans to manage a key part of the database, the WSJ reported.
The ABA in a letter said a proposal by the Treasury’s Financial Crimes Enforcement Network (FinCEN) related to who will have access to the database was ‘fatally flawed’ and should be withdrawn. Due diligence on customers can be a tricky process for banks, and the ABA and its members said the group had hoped a new ownership registry would provide easy access to reliable information about the owners of corporate entities. But the group said the restrictions placed around banks’ access to the registry were too great.
‘The proposal creates a framework in which banks’ access to the registry will be so limited that it will effectively be useless, resulting in a dual reporting regime for both banks and small businesses,’ the ABA wrote.
FinCEN declined to comment.
– Reuters noted that, according to a report from Insightia, companies that have been spending in pursuit of growth opportunities will be the main targets of activist investors in the first half of the year. In the current economic climate, activist investors will ask companies to focus more on margins and the quickest path to profitability, the report said. In the second half of 2023, as the US Federal Reserve possibly eases off on raising interest rates and the M&A market improves, companies with significant declines in share prices will see more activists push for a sale, according to the report.
– Reuters also reported on a study that found companies that finance US commercial lawsuits in exchange for a cut of any recoveries increased their investments last year to $3.2 bn. That represents a 16 percent rise in capital committed to new US litigation funding deals, marking the largest annual increase in the past three years, Westfleet Advisors said in its report.
Westfleet CEO Charles Agee said there are likely several factors driving the growth, including a rush to bring cases that were delayed due to the Covid-19 pandemic. He also pointed to ‘inflation’ from higher law firm billing rates and litigation expenses.
– The Guardian reported that YouTube CEO Susan Wojcicki will be stepping down after nine years in the role. YouTube’s chief product officer, Neal Mohan, will be the new head of YouTube, she said. Wojcicki was previously a senior vice president for ad products at Google and became CEO of YouTube in 2014. Before Google, Wojcicki worked at Intel and Bain & Company.
‘Today, after nearly 25 years here, I’ve decided to step back from my role as the head of YouTube and start a new chapter focused on my family, health and personal projects I’m passionate about,’ Wojcicki said. She added she would stay with YouTube temporarily to help in the leadership transition and in the longer term has agreed with CEO Sundar Pichai to take an advisory role across Google and Alphabet.
– The China Securities Regulatory Commission released its long-awaited rules on companies’ overseas listings, the WSJ reported. The move follows calls from the country’s top leadership to normalize the policy environment, part of an attempt by the government to shift focus back toward economic growth. The commission published the guidelines having released a draft version for public consultation in December 2021.
The rules, which will take effect on March 31, require all mainland Chinese companies planning share sales outside the domestic A-share market to inform the regulator beforehand.
The final guidelines appear to have simplified some procedural requirements for how share sale registrations should be filed. They also encourage Chinese companies to issue yuan-denominated shares overseas to help broaden the currency’s international circulation.