The week in GRC: Vanguard steps up board diversity push, and BlackRock increases opposition to CEO overboarding
– The Guardian reported that a group of more than 30 US corporate leaders – including the heads of outdoor clothing brand Patagonia, The Body Shop owner Natura, Unilever unit Ben & Jerry’s and Danone’s US business – took out a full-page advert in The New York Times to push for a more ethical way of doing business. The advert is aimed at members of the Business Roundtable (BRT), which represents 181 of the US’ biggest companies.
The letter is designed to capitalize on the BRT’s recent landmark decision to change its definition of the ‘purpose of a corporation’ from making money for shareholders to include broader goals such as caring for staff and the environment. The group, a B Corp organization, describes itself as a ‘global movement of people using business as a force for good’. Member companies commit to focusing as much on social and environmental concerns as they do on profits.
– According to Bloomberg, shoe company Cole Haan, which is owned by private equity, is preparing for an IPO. ‘Our management team is confident in the opportunities we have created for the Cole Haan brand and our business globally,’ CEO Jack Boys said in a statement. ‘Based on the momentum we have generated in the business and the opportunities we believe are before Cole Haan, we have determined that now is the time to prepare for an initial public offering of the company’s shares.’ The timing of a possible offering wasn’t disclosed. Cole Haan was acquired in from Nike 2013 by private equity firm Apax Partners.
– Reuters reported that, according to people familiar with the matter, Third Point has gained a stake in Ray-Ban maker EssilorLuxottica. Third Point has met with Leonardo Del Vecchio, EssilorLuxottica’s executive chair and owner of about a third of the company, according to two of the people. Third Point has a track record of calling for operational improvements at companies where their stock could be buoyed by a different strategy, although is not clear what stance the hedge fund firm will adopt in regard to EssilorLuxottica.
EssilorLuxottica and Third Point declined to comment. A representative for Delfin, Del Vecchio’s holding company, also declined to comment.
– CNN reported that Rob Lynch, formerly president of sandwich chain Arby’s, was named CEO of Papa John’s. He succeeds Steve Ritchie, the veteran Papa John’s executive who took over following the departure of founder and former CEO John Schnatter.
Activist investing firm Starboard Value took a $200 million stake in the pizza company earlier this year and Starboard CEO Jeffrey Smith took over as Papa John’s chair. ‘I am thrilled to welcome Rob to Papa John’s at this pivotal moment in the company’s history,’ Smith said in a statement. ‘His proven record of transforming organizations and realizing the growth potential of differentiated brands is ideally suited to Papa John’s as the company sets forth on its next chapter.’
– BlackRock is increasing its opposition to US CEOs sitting on more than one corporate board beside their own, arguing that working as a director takes increasingly more time, according to Reuters. BlackRock cast votes against 94 CEOs running for re-election to corporate boards outside of their own in this year’s proxy season, up from 32 last year, according to a report from the asset manager.
This change reflects BlackRock’s concerns about CEOs over-extending themselves. It also represents a shift in its actions. Under its previous guidelines, the asset manager had considered two external director positions beyond the CEO’s own board as manageable. This is the first year the firm is more strictly enforcing its new policy by voting against CEOs.
‘It sounds fine to sit on multiple boards, but what happens when something goes wrong at a company?’ BlackRock vice chair Barbara Novick said. ‘More and more companies are limiting how many outside boards their CEOs can sit on.’
– The Wall Street Journal reported that an Oklahoma judge ordered Johnson & Johnson to pay $572 million for contributing to the state’s opioid-addiction crisis, which may point to other findings of liability for drug companies as similar cases work through courts across the US.
In a widely anticipated ruling, Oklahoma state court Judge Thad Balkman said the state proved Johnson & Johnson launched a misleading marketing campaign to convince the public that opioids posed little addiction risk and were appropriate to treat a range of chronic pain. ‘The increase in opioid addiction and overdose deaths following the parallel increase in opioid sales in Oklahoma was not a coincidence,’ Judge Balkman wrote. He ordered Johnson & Johnson to pay for just one year of abatement, not the 20 or more years the state requested.
Johnson & Johnson said it would appeal the judgment and that the judge’s conclusions disregard the company’s compliance with federal and state laws. ‘The company here made medicines that are essential for patients who suffer from debilitating harm,’ an attorney for Johnson & Johnson said after the ruling. ‘They did it responsibly.’
– Reuters reported that Norges Bank, the manager of Norway’s $1 trillion sovereign wealth fund (SWF), said it should have more freedom to invest in unlisted equities, a proposal that could help the fund better capture the growth of US technology companies.
Norway’s SWF at present can invest in unlisted equities only if a listing is imminent. The fund’s management has complained in the past about being unable to invest in companies early on in their growth, particularly US tech firms, because companies have tended to seek a listing late on in their growth process.
‘The bank is of the opinion that the wording of the current regulation that the board must have expressed an intention to seek a listing should be amended,’ Norges Bank wrote in a letter to the finance ministry. ‘To date, we have interpreted this mandate regulation as requiring a concrete board resolution to apply for listing in the near future.’
– The WSJ said that, according to people familiar with the matter, OxyContin maker Purdue Pharma and its owners the Sackler family are in talks with state and local governments to resolve more than 2,000 opioid cases in a deal valued at between $10 billion and $12 billion. The discussions, which are part of a mediation to end the mounting litigation that seeks to blame Purdue for fueling the opioid crisis, have been happening for more than a year and remain in flux, the people said.
The latest proposal would put Purdue into bankruptcy and have it emerge as a public benefit trust corporation, with proceeds going toward the governments bringing the lawsuits, the people said. The Sackler family would cede ownership as part of the bankruptcy reorganization.
Purdue and the Sacklers have broadly denied the allegations in the opioid cases. ‘The people and communities affected by the opioid crisis need help now,’ Purdue said in a statement when asked about the settlement discussions. The company said it ‘believes a constructive global resolution is the best path forward’ and ‘is actively working with the state attorneys general and other plaintiffs to achieve this outcome.’ Representatives for the Sacklers didn’t immediately return a request for comment.
– The WSJ reported that, according to people familiar with the matter, Saudi Arabian Oil Co (Aramco) is considering a plan to split the world’s largest IPO into two stages, debuting a portion of its shares on the Saudi stock exchange later this year then launching an international offering in 2020 or 2021. The company is leaning toward Tokyo as the venue for the second phase of its proposed plan, the people said, because political uncertainty in the UK and China reduces the appeal of the London and Hong Kong markets.
Aramco’s press office said the ‘company continues to engage with the shareholder on IPO readiness activities.’ It ‘is ready and timing will depend on market conditions and be at a time of the shareholder’s choosing,’ it added. A spokesperson for the London Stock Exchange declined to comment. The Hong Kong exchange didn’t respond to a request for comment.
– MarketWatch said Deere & Co has named John May as its CEO, effective November 4. May, who has served as COO at the company since April 2019, will replace Samuel Allen, who is stepping down. Allen will continue to be chair of the board.
– According to the WSJ, the SEC is increasingly questioning public companies about compliance with US sanctions as the government’s blacklist of individuals and entities grows. The agency has slowly ramped up comment letters to companies seeking more details about disclosures related to dealings in countries targeted by US sanctions, according to an analysis of regulatory filings and data compiled by Audit Analytics.
At least 42 companies received letters from the SEC last year regarding activity in areas subject to sanctions enforced by the US Department of Treasury’s Office of Foreign Assets Control. That matches the 2017 total, which is up from an average of roughly 33 during the three years ending in 2016, according to Audit Analytics. The SEC doesn’t play an active role in penalizing companies for potential sanctions violations, but it does keep tabs on companies’ disclosures to ensure adequate reporting on business risks.
– Reuters said Vanguard Group will ask companies about the gender, age and race of their directors, adding to the already growing pressure on US companies to diversify their boards. Vanguard gave the guidance in its annual stewardship report. ‘We are expanding our focus to more explicitly urge boards to seek greater diversity across a wide range of personal characteristics, such as gender, race, ethnicity, national origin and age,’ Vanguard wrote. The firm also asked boards to spell out their views on diversity, to broaden their search for minority candidates, and ‘to prioritize adding diverse voices to their boards.’
Vanguard stopped short of seeking director-by-director details from companies, saying it wants descriptions ‘at least on an aggregate basis,’ which a spokesperson called sufficient. Some companies have gone further and detailed the specific race and gender of directors in their proxy statements.
– The Financial Industry Regulatory Authority (FINRA) announced the retirement of executive vice president Cam Funkhouser after more than 35 years of service at the self-regulatory organization. Funkhouser has led FINRA’s office of fraud detection and market intelligence – including the insider trading and fraud surveillance units, FINRA’s complaint center and FINRA's whistleblower program – since its creation 10 years ago. He will remain in his position until the end of the year.
‘We are deeply grateful to Cam for his many contributions over his remarkable career at FINRA, in particular his leadership in building a new office singularly focused on identifying and investigating fraud,’ FINRA president and CEO Robert Cook said in a statement.
– The SEC said its divisions and offices that oversee companies, accountants, investment advisers, mutual funds, brokerage firms, transfer agents and other regulated entities and investment professionals were closely monitoring the impact of Hurricane Dorian on investors and capital markets.
They will evaluate the possibility of granting relief from filing deadlines and other regulatory requirements for those affected by the storm. It encouraged entities and investment professionals affected by Hurricane Dorian to contact SEC officials with questions and concerns.