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May 07, 2021

The week in GRC: CCOs take bigger role on ESG and Tegna defeats activist in proxy vote

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

– According to The Wall Street Journal, Warren Buffett said Greg Abel will succeed him as Berkshire Hathaway CEO if he leaves the role in the short term. ‘The directors are in agreement that if something were to happen to me tonight, it would be Greg who’d take over tomorrow morning,’ Buffett said. A 2018 decision to name to the board Ajit Jain, who runs the company’s insurance business, and Abel, who heads its other operations, indicated they were the top choices as Berkshire’s next CEO. Abel’s remit includes railroad holdings, utilities, manufacturers, retailers and auto dealerships.

Bloomberg reported that activist investor Starboard Value, saying it’s ‘increasingly frustrated with the poor financial results’ of software-maker Box, plans to nominate directors to the board. Starboard said it has urged management over the past two years to improve growth and profitability and has criticized ‘questionable capital-allocation decisions and subpar shareholder returns.’

Despite a commitment by Box to address the concerns, ‘execution has fallen well short of expectations,’ Starboard said in a letter to shareholders. In its latest quarterly results, Box reported narrower losses of $4.9 mn compared with $30.4 mn a year earlier. CEO Aaron Levie said the company is seeing demand for its bundled suite of software products.

– Some of the biggest US bond fund managers are using technology to increase the business they do with broker-dealers owned by women and members of minority groups, the WSJ said. Electronic-trading platform MarketAxess Holdings has begun partnering with trading firms owned by minorities, women and veterans to settle trades between large investment firms including AllianceBernstein Holdings, BlackRock and Lord Abbett & Co, along with hedge fund managers such as Brigade Capital Management.

MarketAxess is helping large asset managers meet requirements set by their own clients to transact more with minority-owned dealers. The new initiative shows the growing importance of ESG factors as Wall Street firms compete for investment dollars. Pensions, foundations and insurers increasingly want money managers to direct a portion of their trades to brokers owned by women and minority groups.

The New York Times reported that two broad coalitions of companies and executives were planning to release letters calling for expanded voting access in Texas, taking a stance in the debate over Republican legislators’ proposed new restrictions on balloting. One letter, under the banner of a new group called Fair Elections Texas, stops short of criticizing the two voting bills but opposes ‘any changes that would restrict eligible voters’ access to the ballot.’ A separate letter signed by more than 100 Houston executives directly criticizes the proposed legislation and equates the efforts with ‘voter suppression.’

– According to CNBC, President Joe Biden’s allies in the business community have been helping the White House to coax industry to support the administration’s climate change agenda. Several business leaders who are working with the White House told CNBC that the effort is a major change in direction from what they saw during the Trump administration.

The US Chamber of Commerce and the CEO Climate Dialogue have also been engaging the White House on climate initiatives. The CEO Climate Dialogue has almost two dozen members including companies from Wall Street and the energy industry. Its goal is to promote the use of the private sector and a more market-based approach to securing net-zero emissions by 2050.

– Companies looking to show investors their commitment to sustainability are relying more on the work of their chief compliance officers, according to the WSJ. The role of compliance in ensuring employees act ethically has a natural place in companies’ efforts to attract sustainability-minded investors, these issuers say. Some compliance executives have been asked to help manage social or environmental goals that go well beyond their role’s traditional remit as companies seek to back up pledges they make on such issues and address potential legal risks.

‘Over the last couple of years, [ESG] has become a mountaintop of risk,’ said Dave Curran, who leads Paul Weiss Rifkind Wharton & Garrison’s sustainability practice. ‘Lawyers and compliance executives are getting more and more involved in everything from pressure-testing disclosures to analyzing processes and procedures and tracking, measuring and monitoring these programs.’

The Guardian reported that AstraZeneca is facing opposition over its plans to award its CEO, Pascal Soriot, a big increase in bonuses. Pirc, Glass Lewis and ISS have all raised concerns over moves to raise the maximum share bonus Soriot can receive under a long-term plan from 550 percent of his £1.3 mn ($1.8 mn) base salary to 650 percent. The company also plans to raise Soriot’s maximum annual bonus to 250 percent of salary from 200 percent, depending on performance targets being hit.

Neville White, head of responsible investment policy and research at EdenTree Investment Management, which holds AstraZeneca shares, described the proposed bonus increases as ‘obscene’ and said he would vote against them.

AstraZeneca pointed out that the pension contributions of Soriot and other executives would be cut to the same level of the wider workforce under the new policy. A spokesperson said: ‘We link the remuneration of our executives to successful delivery of our strategy and shareholder returns. Since their appointment, our executive directors have driven a remarkable turnaround in the company’s performance. This has resulted in AstraZeneca delivering a total shareholder return of close to 300 percent over the last eight years, significantly ahead of our global pharmaceutical and FTSE 100 peers.’

– According to the WSJ, the Biden administration is blocking a Trump-era regulation that would have made it easier to classify gig workers and others as independent contractors, which had been sought by companies such as food-delivery and ride-sharing services. The US Department of Labor said it is nullifying a rule it completed in early January that sought to make it more difficult for a gig worker to be counted as an employee under federal law. Having status as an employee, rather than a contractor, means those workers are covered by federal minimum-wage and overtime laws.

– The WSJ reported that BlackRock voted for two shareholder proposals that would have pressed Warren Buffett’s Berkshire Hathaway to publish disclosures on how it manages climate risk and diversity efforts across its many businesses. The shareholder-led proposals didn’t pass, but around a quarter of votes cast were in favor of them, Berkshire said during its AGM.

BlackRock’s vote highlights the growing tension between asset managers calling for companies to further emphasize ESG issues and executives who are pushing back. ‘The company is not adapting to a world where [ESG] considerations are becoming much more material to performance,’ BlackRock wrote in a bulletin about its Berkshire decision.

Buffett has defended the company’s policies. ‘Overwhelmingly the people who bought Berkshire with their own money voted against those propositions,’ he said. ‘Most of the votes for it came from people who’ve never put a dime of their own money into Berkshire.’

– Anheuser-Busch InBev said CEO Carlos Brito will step down, effective July 1, CNBC reported. Michel Doukeris, who serves as head of the company’s North American business, will take the reins from Brito, who has held the role of CEO for 15 years, starting when the company was just InBev. He led the acquisitions of Anheuser-Busch and SABMiller, turning the firm into the world’s largest beer brewer.

– According to the WSJ, Zoom Video Communications built a multi-layered compliance team last year to formalize its risk and ethics functions under one leader as the company became a household name during the pandemic. The company hired its first chief compliance officer in January 2020 and built a new compliance team with the addition of 50 more lawyers and compliance professionals, said Lynn Haaland, Zoom’s deputy general counsel and chief compliance and ethics officer. ‘There really hasn’t been for me a ‘pre-pandemic’ or ‘normal’ time at Zoom,’ said Haaland, who is also Zoom’s chief privacy officer.

Reuters reported that Tegna shareholders re-elected all 12 directors to the US regional TV station operator’s board, giving a victory to management and rebuffing hedge fund firm Standard General after it tried for a second time to add new directors. Preliminary vote counts showed that all 12 directors were re-elected, the company said. The vote at Tegna is one of the few proxy contests that have proceeded to a vote this year as other campaigns have been settled between activist and company.

‘We are deeply gratified by this clear vote of confidence from our shareholders, and we continue to benefit from the input we received from the many shareholders we engaged with,’ said board chair Howard Elias in a statement. Standard General had asked the company to review operations with an eye to improving performance.

– The WSJ said that, according to a new Edelman survey, people have become more likely to use a new brand or stop using one because of its response to calls for racial justice. They also say companies are doing more than individual brands to make changes on race issues, a reversal from earlier results.

Edelman global CEO Richard Edelman said the shift in perceptions of brands’ actions on race is particularly striking. Although neither companies nor brands got approval on the issue from a majority of respondents, 37 percent said companies were doing well on creating change, up 12 percentage points from last August. Thirty-two percent of respondents said the same for brands, up four percentage points. ‘Last August, brands were significantly more trusted to deal with this systematic race issue than corporations, and now that’s flipped,’ Edelman said.