The week in GRC: BlackBerry CEO warns of quantum-computing threats, and Campbell asks shareholders for support on board vote
– California became the first state to require companies based within its borders to put female directors on their boards, adding to the growing pressure on companies across the US to give more women director seats, according to The Wall Street Journal. California Governor Jerry Brown signed a bill that will require all publicly traded companies with headquarters in the state to have at least one woman on their boards by the end of next year. By 2021, companies with at least five directors would need to have two or three female directors, depending on the size of the board, under the new law.
‘It’s high time corporate boards included the people who constitute more than half the persons in America,’ Brown said in a letter to the California state Senate announcing his decision. Although the law would immediately affect a limited number of companies, its passage warns Silicon Valley start-ups to include women on their boards as part of any plans to go public.
– Bloomberg reported that General Electric (GE) ousted CEO John Flannery just over a year into his tenure. Larry Culp, who won Wall Street’s praise for transforming manufacturer Danaher Corp, took over on Monday. GE declined further comment and had no conference call planned.
Culp, who joined the board in April, became the first outsider named as GE CEO in the company’s 126-year history. Thomas Horton, the former CEO of American Airlines who also joined GE’s board this year, was named lead director. ‘We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency,’ Culp said in a statement.
– Reuters said the US Department of Justice (DoJ) filed suit after California Governor Jerry Brown signed legislation to restore net neutrality protections in the state. The Trump administration repealed the rules nationally in December 2017. US Attorney General Jeff Sessions said in a statement that ‘states do not regulate interstate commerce – the federal government does. Once again the California legislature has enacted an extreme and illegal state law attempting to frustrate federal policy.’ California’s net neutrality law is set to take effect on January 1, but the DoJ in a court filing sought a preliminary injunction to block it from taking effect.
California Attorney General Xavier Becerra said the Trump administration was ignoring ‘millions of Americans who voiced strong support for net neutrality rules.’
– The New York Times reported that Elon Musk reached a deal with the SEC to resolve securities fraud charges. Under the settlement, Musk will step aside as Tesla chair for three years and pay a $20 million fine, but he will be able to continue as CEO. The SEC announced the deal two days after it sued Musk for allegedly misleading investors over his post on Twitter that he had ‘funding secured’ for a buyout of the electric car company.
Tesla, which is also settling with the SEC, will pay a $20 million penalty. The company was not charged with any fraud. Musk and Tesla agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other things, the settlements require Tesla to appoint a total of two new independent directors to its board. The company did not immediately comment on the settlement.
– CNBC reported that, according to a study by researchers at Columbia University and the University of Florida, so-called activist arbitrageurs on average create an extra, risk-adjusted 5.7 percent rise in the shares of acquirers in the 20 days following the activists’ disclosures. On an annualized basis, the average gain in the period after the deal announcement of a resolution to an activist fight is roughly 5.5 percentage points higher than what shareholders in an acquirer would see without activist intervention, according to the researchers.
‘Our evidence indicates that activist M&A arbitrage serves as a governance remedy for acquiring firms’ shareholders, as well as a profitable investment strategy for the activists themselves,’ the authors wrote.
– According to Bloomberg, Jack Ma is quietly giving up control over the legal entities that control Alibaba Group Holding in a move aimed at reassuring shareholders of their rights in China’s most valuable company. Ma, who said he plans to retire from Alibaba next year, is surrendering control over the variable-interest entities that hold the company’s business licenses. Those licenses will be distributed among the company’s top executives, spreading authority more broadly and decreasing the risks that one or two people would have undue influence over the business.
‘We are in the process of enhancing the structure we use to hold our variable-interest entities so that we can better ensure the stability and proper governance,’ the company said in a July securities filing.
– The UK’s Financial Conduct Authority (FCA) imposed a £16.4 million ($21.4 million) penalty on Tesco Bank for what it said was a failure to protect clients from a cyber-attack in November 2016, the WSJ reported. It is the first time the FCA has taken enforcement action related to a cyber-attack.
The ‘sophisticated criminal fraud attack’ didn’t lead to the compromise of clients’ personal data, Tesco Bank said in a statement. Instead, the criminals performed 34 transactions through debit cards and disrupted service to a large number of clients.
The FCA said the attack was ‘largely avoidable’ had the bank been more diligent with the design of its debit cards and financial crime controls. Following the attack, Tesco Bank invested in improving its financial crime systems and the skills of individuals operating them, the regulator said. The bank co-operated fully with regulators and quickly redressed losses incurred by its clients, the FCA said.
– The Guardian reported that, according to a survey by the Center for Political Accountability and the Zicklin Center for Business Ethics Research at the Wharton School at the University of Pennsylvania, more US companies are making efforts to fully disclose their political donations.
The survey found 57 companies in the S&P 500 received scores for political disclosure and accountability of 90 percent or above, up from 50 last year and double the 28 companies that received that grade in 2015. Three companies received a 100 percent disclosure score, up from one last year. More S&P 500 companies also had disclosure and accountability policies and practices that scored in the first and second tiers (100 percent to 60 percent), a total of 196 compared with 174 in 2015.
– According to the WSJ, the activist investor in Papa John’s International wants the pizza company’s leaders to stop feuding with its founder. ‘We want to get back to the business of selling pizza and away from the business of dealing with controversy,’ said Ted White, a managing director of Legion Partners Asset Management.
White and a person familiar with the company said Legion has talked with the firm in recent weeks about adding board members with restaurant experience, restoring the morale of franchisees and employees and cutting costs. Legion also wants Papa John’s leaders to avoid continuing their dispute with founder John Schnatter, who remains on the board and owns a 29 percent stake in the company.
– CNBC reported that Campbell has set November 29 as the date on which its shareholders will meet to vote on the company’s board as it faces a proxy war with activist fund Third Point. In September, Third Point announced its intention to try to replace the entire Campbell board, unhappy with the results of the firm’s three-month critical review.
The soup company on Thursday reiterated its support for its own band of board nominees. Of Third Point’s campaign, Campbell said in a letter to shareholders that the ‘New York-based hedge fund that only recently became a Campbell shareholder and held material short positions in Campbell stock for most of 2017 is attempting to deprive shareholders of the future value potential of Campbell by forcing a sale of your company while we are executing on our strategic plan to create value.’
Third Point, meanwhile, made public its request for Campbell’s board records. It also made public a letter to Campbell’s corporate secretary, in which it said the strategic review process was a ‘sham.’
– The WSJ reported that BlackBerry CEO and executive chair John Chen said quantum computing is years from being commercialized, but that the time to worry about security implications is now. Security threats will arise when quantum computers become commercialized and have the capacity to crack today’s commonly used encryption methods – and it’s not too soon to be investing in technology to reduce that risk, Chen said.
He announced a so-called library of algorithms that are resistant to quantum-computing attacks, which can be integrated into cars, medical devices, satellites and electrical grids. The algorithms were developed with quantum-computing security experts who estimate that within eight to 10 years, a large-scale quantum computer will be capable of breaking today’s commonly used encryption methods.
– The New York Times said Unilever responded to shareholder criticism of an initiative to simplify the company’s organization, giving up on plans to close its London headquarters. The company had said it would make Rotterdam in the Netherlands its sole headquarters. ‘We recognize that the proposal has not received support from a significant group of shareholders and therefore consider it appropriate to withdraw,’ the company said in a statement.
For nearly a century, the company has had headquarters in both London and the Netherlands. Some investors have pushed Unilever to eliminate the dual structure. ‘The board continues to believe that simplifying our dual-headed structure would, over time, provide opportunities to further accelerate value creation and serve the best long-term interests of Unilever,’ said Marijn Dekkers, Unilever’s chair, in a statement.
– According to the WSJ, new cyber-security rules will give Chinese authorities broad powers to inspect companies’ information technology and access proprietary information – and in doing so are likely to deepen concerns among foreign businesses about their China operations.
Starting November 1, police officers will have the authority to physically inspect businesses and remotely access corporate networks to check for potential security loopholes, according to the regulations. Police will also be authorized to copy information and inspect records that ‘may endanger national security, public safety and social order,’ the rules noted.