The week in GRC: OCC warns of cyber-threats facing banks, and Redstone said to seek CBS board revamp
– The Financial Times reported that the number of US companies hosting virtual-only shareholder meetings rather than face-to-face events increased almost 40 percent last year, as firms used technology as a way to make their annual events more accessible to investors globally. At least 212 companies held online-only meetings in the US last year, up from 155 in 2016, according to data from Broadridge. In 2016, 21 of the companies were Fortune 500 businesses, including Ford and Intel.
That number is still a small percentage of the 3,600 public companies in the US, according to Wilshire Associates. But the shift to online-only meetings is set to become a big corporate governance battleground in 2018, with investors and proxy advisers pledging to fight companies that attempt to scrap the traditional physical event.
– Sam Woods, a deputy governor of the Bank of England (BoE) and head of the Prudential Regulation Authority, told UK lawmakers that a free trade deal with the EU that includes financial services could be completed in three years, according to Bloomberg. The BoE is pushing back against a narrow view of the Brexit talks set out by the EU’s chief negotiator.
‘It does strike me as plausible that a detailed free trade agreement covering the sorts of things I was just talking about – financial services – could be agreed within a three-year period from now,’ Woods said. ‘We’re fortunate in starting this discussion in [a] unique position in terms of having completely aligned rules and strongly aligned supervision.’
– The New York Times reported that efforts in Congress to loosen post-financial crisis rules are somewhat bipartisan. A group of Senate Democrats has joined Republicans to support legislation that would mark the first major revision of the Dodd-Frank Act. The bill would allow hundreds of smaller banks to avoid certain elements of federal oversight, including stress tests. Under existing law, banks with assets of $50 billion or more are considered systemically important financial institutions and therefore governed by stricter rules. The bill would raise that threshold to institutions with assets of $250 billion or more.
But hurdles remain. The House of Representatives has already passed its own far more sweeping deregulatory effort. And progressive Democrats who warn that the legislation would return Wall Street to its more reckless past are mobilizing in hopes of derailing the legislation.
– Less than three months before a deadline for reporting the pay gap between men and women, UK companies are holding off releasing data, reluctant to be the first to reveal potentially embarrassing information, according to Bloomberg. Fewer than 600 of the 9,000 companies required to report have done so as many seek to avoid scrutiny, says Rupert Younger, director of Oxford University’s Centre for Corporate Reputation. One concern is that while pay for equal roles may be comparable, aggregate salary numbers will show large gaps because men often outnumber women in senior positions.
– The FT reported that BlackRock CEO Larry Fink warned companies they must contribute to society and deliver financial performance or risk losing the support of the asset manager. In a letter to large companies predominantly in the US, the UK, France and Germany, Fink said public expectations had never been greater. The ‘time had come for a new model of shareholder engagement,’ he wrote. ‘To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate.’
BlackRock said it would pay close attention to the strategy, board make-up and purpose of companies in the years to come.
– A council formed by Singapore’s central bank released a consultation paper revising its recommendations for corporate governance in an attempt to boost investor confidence in the city-state’s capital markets and support innovation, according to Bloomberg. The Code of Corporate Governance – which was last reviewed in 2012 – is focused on strengthening efficiencies at the board level of corporations by enhancing diversity and encouraging board renewals, the Corporate Governance Council said.
– The FT said Citigroup has become the first big Wall Street bank to disclose internal data on gender pay, bowing to an activist shareholder that last year launched an unsuccessful campaign against six of the largest US financial institutions. The disclosure is selective, including only employees in the US, the UK and Germany, and adjusting for factors including job function, level and geography. Arjuna Capital, which waged the disclosure campaign, declared victory and dropped a resolution for the bank’s next shareholder meeting that had called for Citi to be more transparent and to produce policies to reduce the gap.
‘Citigroup is stepping into a leadership role on the gender pay gap that we have not seen from any of its US financial peers,’ said Natasha Lamb, managing partner at Arjuna.
– According to Reuters, a group of 21 US state attorneys general filed suit to challenge the Federal Communications Commission’s (FCC) decision to do away with net neutrality, while Democrats said they needed just one more vote in the Senate to repeal the FCC ruling. The state attorneys filed a petition to challenge the action, calling it ‘arbitrary, capricious and an abuse of discretion’ and arguing that it violated federal laws and regulations.
The petition was filed with a federal appeals court in Washington as Senate Democrats said on Tuesday they had the backing of 50 members of the 100-person chamber for repeal, leaving them just one vote short of a majority. Even if Democrats could win a majority in the Senate, a repeal would also require winning a vote in the House of Representatives, and would still be subject to a likely veto by President Donald Trump.
– Bloomberg reported that, according to Microsoft, rapid advancements in artificial intelligence (AI) will require a new field of law and new regulations governing the growing pool of businesses involved. Companies making and selling AI software will need to be held responsible for potential harm caused by ‘unreasonable practices’ – if a self-driving car program is set up in an unsafe manner that causes injury or death, for example, Microsoft said.
In addition, as AI and automation boost the number of laborers in the gig economy or on-demand jobs, Microsoft said technology companies need to take responsibility and advocate for protections and benefits for workers, rather than passing the buck by claiming to be ‘just the technology platform’ enabling all this change.
– The FT reported that the US Department of Justice (DoJ) filed criminal charges against Robert Bogucki, US head of foreign exchange trading at Barclays, for allegedly defrauding Hewlett-Packard by front-running a £6 billion ($8.3 billion) options order ahead of HP’s takeover of Autonomy. The Barclays banker has been on leave from the company since November 2016.
The bank said: ‘Barclays has been co-operating fully with the DoJ. This incident involved a single transaction from 2011 and predates the extensive improvements to the conduct and controls procedures we have made since 2012. Barclays condemns any behavior that violates our strict rules around client confidentiality and our client-centric approach.’ Bogucki did not respond to a request for comment.
– The WSJ reported that, according to people familiar with the matter, Shari Redstone is advocating for new blood on the board of CBS as sh renews her push to merge the company with Viacom. CBS is planning to propose replacing several of its board members at its annual meeting in May, and Redstone is gathering names of possible candidates, people familiar with the matter said. Redstone, vice chairman of CBS and Viacom, is also dissatisfied with succession planning at CBS and has suggested there is a general lack of long-range strategic planning at the company, the people said.
– Bloomberg reported that, according to the Office of the Comptroller of the Currency (OCC), US banks are facing a growing threat from cyber-attackers and are making defense against them more complex by relying on third-party firms for support. More sophisticated hackers are finding ‘back doors into client businesses’ through firms they do business with, the OCC said in its semi-annual risk report. Attackers are stealing customer information and intellectual property, and are misappropriating funds, the bank regulator said.
– The US government and MetLife said they would jointly seek to dismiss an appeal over whether the insurance company should face stricter oversight as a key part of the financial system, according to Reuters. MetLife and the Financial Stability Oversight Council (FSOC) filed a joint motion to dismiss an earlier FSOC appeal, the company announced in a statement.
– Bloomberg reported that Hong Kong is set to create a new framework to oversee auditors of listed entities. Proposed legislation will boost the Financial Reporting Council (FRC) by giving it the independence to investigate and discipline auditors, according to a government statement. It will also empower the FRC to oversee ethics and standards in the industry.
‘The bill will enhance the existing regulatory regime for auditors of listed entities, allowing it to be independent from the audit profession, thereby providing better protection to investors,’ said James Lau, secretary for financial services and the treasury. ‘This is crucial to strengthening Hong Kong’s status as an international financial center and capital market.’