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Mar 20, 2020

The week in GRC: Boards plan for long-term pandemic impacts; and companies mull stock buybacks

This week’s governance, compliance and risk-management stories from around the web

CNN reported that the French Competition Authority said it is fining Apple €1.1 billion ($1.2 billion) over restrictions it placed in contracts with wholesalers, the biggest antitrust fine the French authority has imposed. The regulator alleged that Apple and two of its wholesalers ‘agreed not to compete’ and as a result prevented distributors from competing with each other, ‘thereby sterilizing the wholesale market for Apple products.’ Other distributors could then not offer promotions or lower prices, and Apple ‘abused the economic dependence’ of the distributors by subjecting them to ‘unfair and unfavorable commercial conditions,’ the regulator alleged.

In a statement, Apple called the decision ‘disheartening’ and said that it plans to appeal. ‘It relates to practices from more than a decade ago and discards 30 years of legal precedent that all companies in France rely on with an order that will cause chaos for companies across all industries,’ an Apple spokesperson said. ‘We are extremely proud to serve our French customers and believe they should be allowed to choose the product they want, either through Apple Retail or our large network of resellers across the country.’

– According to Reuters, Mizuho Financial Group will face a shareholder motion urging it to outline a plan and set targets so that its business practices are more in line with the Paris climate change agreement. The move is the first time a Japanese publicly traded company has faced a shareholder climate change resolution, said Kiko Network, an activist group and shareholder in the bank.

The proposal is being filed as there is growing pressure on banks and other financial institutions to curb lending to coal companies and do more to tackle climate change. Mizuho declined to comment on its lending to coal companies. It is checking on whether it had received the shareholder proposal, a spokesperson said.

– Lockheed Martin said Marillyn Hewson will step down as CEO and picked board member and American Tower Corp leader James Taiclet as her replacement, CNBC reported. Hewson has been with the company since 1983 and took over as CEO in January 2013. Lockheed changed its mandatory retirement age rules in 2018 to exempt the CEO, allowing Hewson to stay on past 2019.

Lockheed said the CEO changes are effective June 15.

– According to the Wall Street Journal, Starbucks said it will start offering 20 free therapy sessions a year for all of its employees, including part-time workers, as part of a mental-health benefit plan. This makes the company one of the most high-profile employers of hourly service workers to give significant mental-health benefits, HR consultants say.

From April 6, Starbucks employees can begin using their pool of therapy sessions and meet with a counselor in person or via video chat, the company said. They will also have unlimited access to self-care apps through Lyra Health. ‘We did a ton of listening with all of our partners,’ said Ron Crawford, vice president of global benefits at Starbucks, of the company’s efforts to gather feedback from employees. ‘Something that’s been bubbling up over the past year or so has been the topic of mental health. It’s an issue across the entire country.’

Reuters said the coronavirus pandemic has begun to affect the US court system, pausing civil and criminal jury trials in high-profile venues such as Manhattan’s federal court. The postponements pose questions about how courts will protect criminal defendants’ rights to a speedy trial, clear hundreds of thousands of asylum cases and resolve high-profile corporate disputes. New York state’s court system has announced it will suspend new jury trials, although trials in progress will continue.

– The WSJ reported that the New York and California governors are proposing major increases in state regulatory power over consumer financial services, arguing federal oversight has become weak under the Trump administration.

The governors say the expanded state agencies would help compensate for what they say is a lack of enforcement by the Consumer Financial Protection Bureau, which was created under the Dodd-Frank Act following the financial crisis to help consumers harmed by problems involving mortgages and other consumer-finance products. The proposals, if approved, may lead to similar changes elsewhere and put more scrutiny on Wall Street and financial institutions across the country, legal advisers say.

– According to Reuters, EU regulators have asked companies seeking to complete mergers to delay submitting antitrust filings due to the coronavirus outbreak, a move that could affect the timelines of agreed deals. A spokesperson for the European Commission said it had adopted ‘measures to respect the experts’ advice on social distancing.’ He said: ‘This will affect to some extent our current working habits, but the Directorate-General for Competition is prioritizing actions to fulfil its mission and meet legal deadlines.’

– Insurance companies have been granted an extra two years to implement a new accounting rule aimed at increasing visibility into how they make money, Reuters reported. The International Accounting Standards Board (IASB) said it has approved delaying its new rule until 2023 following a request from the industry in 2018. ‘Timely implementation of IFRS 17 is vital to improve the quality and comparability of accounting for insurance contracts,’ the IASB said in a statement.

The rule aims to bring light to what critics have called the ‘black box’ of insurance accounting where a variety of national practices exist. Alex Bertolotti, who tracks IFRS 17 at PwC, said the delay recognizes the practical difficulties many insurers face in implementing major changes.

– According to the WSJ, privacy lawyers warned companies to be careful not to demand excessive personal information from workers amid the coronavirus pandemic, saying that could violate data-protection and employment laws in Europe and the US. Companies are trying to stop the spread of the coronavirus by implementing measures such as travel bans, requirements to report international travel and, in some cases, health tests such as body temperature scans at office entrances.

The EU’s General Data Protection Regulation says companies can collect personal data only for a specific reason and must obtain individuals’ consent for how it will be used. ‘You don’t want to cross any lines here when it comes to privacy and integrity, but at the end of the day that [infected] person of course needs medical care and needs to be taken out of the office immediately,’ a spokesperson for Sweden-based construction company Skanska said.

– According to the WSJ, CFOs are figuring out whether to make share repurchases or hold on to cash as stock prices fall amid fears surrounding the coronavirus pandemic. Some companies seem to be taking advantage of the down market, announcing plans to buy up shares. But others have said they would suspend share buyback plans to preserve cash and exercise caution in an uncertain period.

‘The buybacks really now have to compete again with companies’ other priorities,’ said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Companies often buy back shares to help improve earnings per share and stock prices. But they also need to stay sufficiently capitalized to resist financial hits from economic conditions arising from the pandemic.

Reuters reported that activist fund firm Elliott Management ended its resistance to software company CapGemini’s $4.1 billion friendly takeover of smaller rival Altran. Elliott said in a regulatory filing in France that the recent worldwide stock market downturn meant it was now prepared to sell its Altran shares to CapGemini.

– According to the WSJ, the IASB is contemplating adding new rules on how companies account for acquisitions and goodwill. The changes would be part of its plans to provide more useful information to investors and lower the cost of compliance to businesses.

The organization is considering requiring companies to disclose information about their objectives for an acquisition. In later periods, companies would have to provide information on how that acquisition is performing in comparison with their objectives.

– Activist investor Starboard Value said it has nominated four directors to eBay’s board and called on the company to look for external candidates for the CEO role, Reuters reported. The existing board at eBay had difficulty making key decisions, as shown by the delay in making a CEO change that seemed inevitable after sustained underperformance, Starboard portfolio manager Peter Feld wrote in a letter to eBay’s board. The company’s former CEO Devin Wenig stepped down in September, citing differences with eBay’s revamped board.

– Company directors have begun to plan for the long-term impact on their businesses of the coronavirus pandemic, the WSJ said. Thirteen percent of directors said their companies have delayed a planned investment for 2020 because of the outbreak, according to a survey by the National Association of Corporate Directors (NACD). The survey was based on a poll last week in a range of industries.

More companies are expected to postpone investments in the coming weeks as directors shift their focus from urgent concerns about workplace safety to long-term decisions aimed at minimizing the financial impact of the outbreak, according to the NACD.

– The NYSE will temporarily close its trading floors and move fully to electronic trading from Monday, said owner Intercontinental Exchange following an employee and a trader testing positive for the coronavirus, Reuters reported. The facilities to be closed include the equities and American options trading floors in New York and Arca options trading floor in San Francisco. Trading and regulatory oversight of all NYSE-listed securities will continue uninterrupted, the company said.

‘Our markets are fully capable of operating in an all-electronic fashion... and we will proceed in that manner until we can reopen our trading floors to our members,’ said NYSE president Stacey Cunningham in a statement.

– The WSJ reported that Federal Deposit Insurance Corp (FDIC) chair Jelena McWilliams in a letter called on the Financial Accounting Standards Board (FASB) to delay or make exceptions to certain accounting rules to help financial institutions tackle the fallout from the coronavirus pandemic. McWilliams requested that FASB give large public banks the option to defer implementing a new rule on expected future credit losses. The companies that decide to delay implementation would use the old model of recognizing losses once they had evidence the losses had been incurred.

CNBC reported that Mark Cuban said companies that get federal assistance in response to the coronavirus crisis should be prevented from buying back stock ever again. ‘No buybacks. Not now. Not a year from now. Not 20 years from now. Not ever,’ Cuban said. ‘Because effectively you’re spending taxpayer money to buy back stock and to me that’s just the wrong way to do that.’ He also said: ‘Whatever we do in a bailout, make sure that every worker is compensated and treated equally — in that the executives don’t get rewarded extra to stick around because they got nowhere else to go.’

Cuban, owner of the NBA’s Dallas Mavericks, said he thought any mechanisms of executive compensation — such as equity or repricing existing stock options — should only be allowed if they are offered to all workers.

– The Financial Industry Regulatory Authority (FINRA) named Greg Ruppert as executive vice president for its national cause and financial crimes detection programs. Ruppert will join FINRA on March 23 and will report directly to Bari Havlik, executive vice president for member supervision.

Ruppert fills a new role created after Cameron Funkhouser retired at the end of 2019 as head of FINRA’s office of fraud detection and market intelligence (OFDMI). The national cause and financial crimes detection program incorporates departments previously within OFDMI, as well as other departments, such as: the office of the whistleblower and tip program; fraud surveillance; and specialist teams for anti-money laundering and cyber-security. Ruppert joins FINRA from Charles Schwab, where for the last six years he was senior vice president and chief of the financial crimes risk management group.

Reuters reported that Danaher Corp secured US antitrust approval to buy General Electric’s biopharmaceutical business, GE Biopharma, for $21.4 billion on condition it sell some assets. GE CEO Lawrence Culp said the deal was a ‘critical milestone’ in efforts to transform the company. Danaher and GE said they expect the deal to close on March 31.

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...