The week in GRC: Activists to press JPMorgan on climate proposals, and many ESG funds have tech focus
– The Wall Street Journal reported that Xerox increased its offer to buy HP. The company said it met with some of HP’s largest shareholders before raising its bid. It said it expects to launch a campaign to buy shares directly from investors early next month. ‘The tender offer announced today will enable these stockholders to accept Xerox’s compelling offer despite HP’s consistent refusal to pursue the opportunity,’ Xerox said.
Xerox has said it plans to nominate 11 independent candidates to replace HP’s board at the company’s AGM this summer. HP has rejected Xerox’s previous offer, and did not respond to a request for comment.
– The US Department of Justice said it has indicted four members of China’s military for the 2017 cyber-attack against credit ratings agency Equifax, according to CNBC. The incident led to the loss of 145 million people’s personal information. ‘This data has economic value and these thefts can feed China’s... creation of intelligence-targeting packages,’ said Attorney General William Barr.
Deputy FBI director David Bowdich praised Equifax for its co-operation with the investigation, calling the company a ‘victim’ in the incident and emphasizing its transparency with law enforcement during the more than two-year probe.
– Reuters said dozens of climate activists invaded BlackRock’s office in central Paris on Monday, calling for the asset manager to pull out of fossil fuel investments. ‘This company has a lot of influence in many sectors and we are trying to convey what we are asking for – we want to change this capitalistic system,’ said Emilia, a 15-year-old member of Fridays for Future.
‘We condemn in the strongest possible terms the violent intrusion and acts of vandalism in our offices,’ BlackRock said in a statement. CEO Larry Fink warned company boards in January to step up efforts to tackle climate change or face increased pressure from investors concerned about the impact of unsustainable business practices on their future wealth. In his annual letter to CEOs, Fink said his firm would exit investments that presented high sustainability-related risk, including thermal coal producers.
– The SEC named Paul Montoya as associate regional director for enforcement in the agency’s Chicago regional office. He succeeds Robert Burson, who retired from the SEC in October 2019. Montoya will now oversee the Chicago office’s enforcement efforts in Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Ohio and Wisconsin along with fellow associate regional director Kathryn Pyszka.
– Reuters reported that US district judge Dolly Gee in Los Angeles rejected a request by Uber Technologies and courier services provider Postmates to block a California labor law from taking effect, saying the law’s public benefits outweighed the companies’ concerns. Gee said that although the companies had proven they could suffer a degree of irreparable harm due to the law, the potential risks to them were less important than the public interest in setting a living wage and regulating employment.
Gee did not rule on the merits of the case and her decision does not stop the lawsuit. Postmates said the judge’s decision was merely procedural and that the company looked forward to pursuing the case on its merits. It added that it was considering all legal options. Uber said it was reviewing the judge’s opinion and considering whether to pursue an appeal. The company called the California law ‘biased and overtly political’ by granting preferential treatment to an arbitrary group of industries.
– CNN reported that Edgewell Personal Care, which owns both Wilkinson Sword and Schick, said Monday it is no longer pursuing a $1.4 billion deal to buy Harry’s Razors. The move came a week after the Federal Trade Commission (FTC) filed a lawsuit to block the purchase, arguing the combination would eliminate competition. Edgewell said the FTC’s lawsuit had ‘no merit’ but that fighting it would be too costly and time-consuming.
‘After extensive consideration and discussion, and given the inherent uncertainty of a potential trial, the required investment of resources and time and the distraction that a continuing court battle would entail, we determined that proceeding with our stand-alone strategy is the best course of action for Edgewell and our shareholders,’ said Edgewell CEO Rod Little.
Harry’s co-founders and co-CEOs Jeff Raider and Andy Katz-Mayfield said in a statement: ‘We continue to be perplexed by the FTC’s process and disregard of the facts. We know the merger would have benefited consumers greatly. We believe we would have prevailed in litigation, and are disappointed by the decision by Edgewell’s board not to see this process to its conclusion.’
– According to the WSJ, SeaWorld Entertainment said it would pay $65 million to settle claims it violated securities laws by not being upfront with investors about the effect the critical documentary Blackfish had on its business. A class-action lawsuit in 2014 alleged that the theme-park company, its board and executives knew or were reckless in not knowing about the documentary’s effect on attendance.
The company said it is settling the lawsuit and a shareholder derivative lawsuit brought in 2014. ‘The proposed settlement does not include or constitute an admission, concession or finding of any fault, liability or wrongdoing by the company or any defendant,’ SeaWorld said. The company said the proposed settlement needs to be approved by the court.
– US district court judge Victor Marrero approved wireless carrier T-Mobile US’ takeover of Sprint Corp, rejecting a claim by states that said the deal would violate antitrust laws and raise prices, Reuters said. T-Mobile and Sprint argued at trial that the merger will better equip the new company to compete with top players Verizon Communications and AT&T, creating a more efficient company with low prices and faster internet speeds.
New York’s attorney general said the state is considering an appeal. California’s attorney general said the state is ‘prepared to fight.’
– According to the WSJ, funds marketed as sustainable investments are not always focused on companies tackling climate change, developing wind turbines or promoting diverse boards. Many of them look a lot like a portfolio of big technology stocks, the WSJ says. The five most commonly held S&P 500 stocks in actively managed sustainable equity funds last fall were Microsoft, Alphabet, Visa, Apple and Cisco Systems, according to an RBC Capital Markets analysis.
Companies focused on ESG issues such as renewable energy, clean water and racial and gender diversity are relatively under-represented among such funds. For instance, NextEra Energy is the world’s largest operator of wind and solar farms but it wasn’t on RBC’s list of widely owned stocks in ESG funds. This highlights a concern about socially conscious investing that there is no rulebook to determine what should go into ESG funds.
– Reuters reported that shareholder activists focused on climate change pledged to press proxy battles with JPMorgan Chase & Co, even though CEO Jamie Dimon has vowed to protect the environment. Activists including As You Sow, Trillium Asset Management and Boston Trust Walden said they had received notices that the bank has asked for SEC permission to exclude votes at its AGM on proposals such as reporting on greenhouse gas emissions tied to its lending.
JPMorgan’s position creates reputational risks at a time when clients and investors want banks to help tackle climate change, according to a joint statement from the activists. As You Sow president Danielle Fugere noted how, in correspondence with the SEC posted on the agency’s website, JPMorgan argued that her group’s request for an emissions report amounted to an attempt to ‘micromanage’ the company.
Asked about the matter, a JPMorgan representative referred to arguments it made in filings to the SEC. In addition to the micromanagement concern, JPMorgan, among other things, said the issues related to ‘ordinary business’ and that its board does not approve its proxy voting policy.
– According to the WSJ, utility PG&E Corp proposes to pay half of its $13.5 billion settlement with California wildfire victims in company shares, which would make victims its largest shareholders. As part of its plan to exit bankruptcy, PG&E would pay victim claims through a trust funded with equal parts cash and stock. The trust would own 20.9 percent of PG&E’s shares when the company emerges from Chapter 11, PG&E has said, and would gradually sell the stakes over several years to compensate individuals who lost family members and property.
The judge overseeing PG&E’s bankruptcy approved the settlement late last year, but fire victims and other creditors still have to vote on the company’s reorganization plan in the coming months. California regulators must also approve the plan before June 30. ‘Our focus is on getting victims paid and continuing to implement changes across our business to improve our operations for the long term,’ PG&E said in a statement.
– In a letter to California governor Gavin Newsom, Rep Jim Banks, R-Indiana, said CalPERS chief investment officer (CIO) Yu Ben Meng should be fired or at least investigated, citing what he claimed to be Meng’s ‘long and cozy’ relationship with Chinese authorities, Reuters reported. A US citizen born in China, Meng has twice worked for CalPERS, according to its website. In between those stints, he worked for three years as deputy CIO with China’s State Administration of Foreign Exchange, the website says.
CalPERS CEO Marcie Frost defended Meng in a statement: ‘This is a reprehensible attack on a US citizen. We fully stand behind our [CIO] who came to CalPERS with a stellar international reputation.’ A CalPERS spokesperson declined to provide a method to contact Meng, and had no further comment.
– The WSJ reported that Barclays said the UK’s Financial Conduct Authority (FCA) is investigating the professional relationship between CEO Jes Staley and Jeffrey Epstein, the financier and convicted sex offender who died in jail last year. The FCA is examining how Staley characterized his relationship with Epstein to Barclays, and how the bank described it to the regulator, Barclays said.
‘Mr Staley retains the full confidence of the board, and is being unanimously recommended for re-election at the annual general meeting,’ the bank said.
Staley told journalists on Thursday that his contact with Epstein went back to 2000, when he led JPMorgan Chase & Co’s private bank and the financier was a client. He said his contact with Epstein began to ‘taper off’ after he left JPMorgan in 2013 and the last time he had contact with him was in the ‘middle to fall’ of 2015. ‘I thought I knew him well and I didn’t,’ Staley said. ‘For sure, with hindsight, with what we all know now, I deeply regret having had any relationship with Jeffrey Epstein.’
– Reuters reported that Instructure said it will sell itself to Thoma Bravo after the private-equity firm twice increased its bid for the US educational software company within two days. The company’s board of directors accepted Thoma Bravo’s raised all-cash offer and said shareholders now have until February 25 to vote on the deal. ‘This best and final offer is a significant increase over the original bid, and at this stage in the process, it should be clear that this is the best path for the company and stockholders moving forward,’ said Josh Coates, executive chair of Instructure’s board.
Instructure’s shareholder base has shifted a degree since early December when Thoma Bravo first made its offer. For example, Jana Partners, an activist hedge fund firm that bought shares in the third quarter, sold its position in the fourth quarter, according to a new filing.
– According to the WSJ, former regulators say a White House proposal for the SEC to absorb the PCAOB faces long odds but it could reduce resources dedicated to regulating public-company audits if signed into law. President Trump’s proposed budget includes a provision to consolidate the responsibilities of the PCAOB under the SEC starting in 2022, essentially making it a department of the agency.
Democrats control the House, and spending bills in the Senate need bipartisan support, meaning that few expect the proposal to pass. But its chances of succeeding would increase if Trump is re-elected and Republicans win control of Congress.
Representatives for the SEC and the PCAOB declined to comment.