The week in GRC: SEC approves Reg SK changes, and Storebrand divests over corporate lobbying
– The Wall Street Journal reported that, according to data provider MyLogIQ, 87 percent of companies in the S&P 500 opted for a virtual AGM this year compared with 23 percent of meetings held remotely in 2019. Companies are finding virtual AGMs to be cheaper and less time-consuming, but some shareholders complain they don’t get as much time to ask their questions.
Remote investor events held by companies in the S&P 500 this year ran for an average of 32 minutes, seven minutes shorter than in-person shareholder meetings in 2019, according to a recent study of more than 90 annual meetings by the Hebrew University of Jerusalem. Executives allocated less time for business updates and for answering shareholders’ questions compared with in-person meetings in 2019, the study noted.
– TikTok said it planned to file a lawsuit on Monday against US President Donald Trump’s executive order prohibiting transactions with the short video app and its Chinese parent ByteDance, Reuters reported. TikTok said it had tried to engage with the US administration for nearly a year but faced ‘a lack of due process’ and that the government paid no attention to the facts.
Trump issued an executive order on August 14 that gave ByteDance 90 days to divest the US operations of TikTok. ‘To ensure the rule of law is not discarded and that our company and users are treated fairly, we have no choice but to challenge the executive order through the judicial system,’ the company said in a statement.
A representative for the White House did not respond immediately to a request for comment.
– The Guardian reported that Nordic hedge fund firm Storebrand has dropped its stock in some of the world’s biggest oil and mining companies for lobbying against climate change action. Storebrand made the divestments as part of a new climate policy targeting companies that use their political clout to block green policies. The asset manager is one of many major financial institutions divesting from polluting industries but is thought to be the first to drop shares in companies that use their influence to slow the pace of climate action.
Storebrand CEO Jan Erik Saugestad said corporate lobbying activity designed to undermine solutions to ‘the greatest risks facing humanity’ is ‘simply unacceptable.’
– CNBC said that, as Wall Street firms prepare for more traders and bankers to return to offices next month, JPMorgan Chase is making a change that could have lasting implications for the industry. Workers in the firm’s corporate and investment bank will cycle between days at the office and days at home, keeping the ability to work remotely on a part-time basis, according to Daniel Pinto, head of the division and co-president of the bank.
‘We are going to start implementing the model I believe will be more or less permanent, which is this rotational model,’ Pinto said. ‘Depending on the type of business, you may be working one week a month from home, or two days a week from home, or two weeks a month.’ The announcement by JPMorgan could pressure other financial firms to offer similar arrangements.
– Five US regulatory agencies have warned that banks and financial institutions need to assess money-laundering risks and conduct appropriate due diligence when dealing with foreign public officials and their families or associates, according to the WSJ. People who are considered politically exposed may pose higher risks because their funds may be the proceeds of corruption or other illicit activities, the regulators said in a joint statement. But they added that risks associated with politically exposed individuals vary and not all of them are automatically higher risk.
‘The risk depends on facts and circumstances specific to the customer relationship,’ said the statement issued by the Federal Reserve Board, Federal Deposit Insurance Corp, US Department of the Treasury’s Financial Crimes Enforcement Network, National Credit Union Administration and Office of the Comptroller of the Currency.
The agencies clarified that there are no regulatory requirements or expectations for financial institutions to have unique, additional due-diligence steps for clients who are considered politically exposed. But they said banks must ‘identify and report suspicious activity, including transactions that may involve the proceeds of corruption.’
– According to CNN, Trump’s threat to ban WeChat could become a problem for US companies operating in China. An executive order issued earlier this month would prohibit Americans and US firms from ‘any transaction that is related to WeChat’ – an escalation of the technology dispute between the two countries that has already resulted in sanctions and threats against other Chinese companies.
WeChat’s Chinese parent company Tencent did not respond to a request for comment. It said previously that it was seeking clarification of the order and has emphasized that the international version of WeChat is separate from the Chinese app, which is also known as Weixin. Its website says Tencent uses data ‘in strict accordance with applicable laws and regulations.’
– The WSJ said the SEC voted 3-2 to approve a proposal expanding its definition of accredited investors to include holders of an entry-level stockbroker’s license, ‘knowledgeable employees’ of non-public firms and others. This gives them greater access to the largely unregulated world of private equity firms, hedge funds and business start-ups. Such investors will not need to meet the SEC’s existing wealth-based threshold of at least $1 million in net assets – not counting their home – or at least $200,000 in annual income.
The existing system ‘is fundamentally unfair, unequal and unjustified,’ said commissioner Elad Roisman. Both dissenting votes came from the SEC’s Democratic commissioners, Caroline Crenshaw and Allison Herren Lee.
– TikTok CEO Kevin Mayer said he is leaving the social media platform after being in the post for about three months, as the company comes under increasing pressure from the White House over its ties to China, according to the WSJ. In a letter to staff, Mayer said the political environment had sharply changed in recent weeks and the role of CEO would be altered significantly after the expected sale of TikTok’s US business.
The Trump administration has pressed TikTok’s owner, Chinese technology company ByteDance, to sell its US operations after targeting the app over national security concerns. US officials say they are concerned TikTok could pass on data it collects from US citizens to China’s authoritarian government. TikTok has said it doesn’t share data with the Chinese government and wouldn’t do so if asked.
Zhang Yiming, founder and chair of ByteDance, sent an email to staff thanking Mayer for his contribution and saying he understood how political circumstances had led to the decision. Mayer said he decided to step down after considering the corporate structural changes that would be required if the US business was sold.
– The SEC said it was closely monitoring the impact of Hurricane Laura on investors and capital markets. The agency’s divisions and offices that oversee companies, accountants, investment advisers, mutual funds, brokerage firms, transfer agents and other regulated entities and investment professionals would continue to track developments and would evaluate the possibility of granting relief from filing deadlines and other regulatory requirements for those affected by the storm, it said.
– The WSJ reported that, according to securities filings, the SEC sent letters in June to Coca-Cola and Boeing requesting more information about how they use supply-chain finance, essentially a form of short-term borrowing to pay for goods and services. Although similar to loans, supply-chain financing is often not clearly disclosed on a company’s financial statements. Companies usually record the transactions as accounts payable, leading some to say they portray overly optimistic financial health.
The SEC has increased scrutiny of the practice over the past year and a half. Coca-Cola said it hadn’t previously disclosed the supply-chain finance program, begun in 2014, because it hadn’t materially affected liquidity and wasn’t likely to in the future. In a later response to the SEC, the firm said it would make disclosures about the program in future filings. A Coca-Cola spokesperson declined to comment further.
Boeing responded to the SEC that it didn’t consider supply-chain financing to be material to its overall liquidity, and said it would disclose in future filings the amounts included in accounts payable as a result of the supply-chain-finance programs as well as the impact on operating cash flows each period. A Boeing spokesperson declined to comment.
– The SEC voted to give companies more flexibility in disclosing risk factors and legal proceedings in their financial statements by approving amendments to Regulation SK, the WSJ reported. Under the revised rule, companies must provide a summary of no more than two pages if their risk factor section exceeds 15 pages. Including many general risks in that section tends to add to the complexity of statements without giving investors much additional insight, according to the agency.
As part of the changes, companies no longer have to provide a description of the general development of their business over the past five years. They will need only provide an update focusing on material developments since the last time they fully discussed it in financial statements.
– CNN reported that the New Zealand government has ordered one of its spy agencies to investigate a cyber-attack that originated overseas and disrupted the country’s financial markets for a fourth consecutive day on Friday. Finance minister Grant Robertson said the Government Communications Security Bureau has been instructed to help New Zealand’s stock exchange, NZX. The National Security System has also been activated, requiring government agencies to work together, he told reporters.