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Sep 13, 2019

The week in GRC: CEOs demand action on gun violence, and WeWork reveals governance changes

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

– Nissan’s board of directors announced that CEO Hiroto Saikawa had resigned, effective September 16, CNN reported. The board named COO Yasuhiro Yamauchi as acting CEO while Nissan searches for a successor. Saikawa’s resignation came days after he admitted to reporters in Japan that he and other top Nissan executives were overpaid as part of a stock-related payment plan. He denied any wrongdoing and said he would return excess funds.

The company’s directors heard the results of an internal investigation into conduct at Nissan, including the company’s stock appreciation rights program. Nissan chair Yasushi Kimura said that although the payments were not illegal, the program was ‘intentionally manipulated’ to increase the amount of money that could be gained from it. ‘As a governance issue, we take it seriously,’ he added.

Kimura did not say that Saikawa’s resignation was directly linked to any excess pay he received. Instead, the CEO had for some time intended to ‘hand the baton’ to a successor and the company was ready to move on, he added. Saikawa reiterated that he decided to return money he said he ‘shouldn’t have received.'

– According to The Wall Street Journal, activist investor Elliott Management disclosed a $3.2 billion stake in AT&T, criticized the company’s strategy and called for it to get rid of unnecessary assets. The hedge fund firm wrote in a letter to the company that it would seek seats on the company’s board and challenged AT&T to sharpen its focus on its core assets, including its wireless business. The firm didn’t ask AT&T to sell specific divisions but said the company should review any assets that lack a strategic rationale.

An AT&T spokesperson didn’t immediately respond to requests for comment.

– Investor John Paulson’s hedge fund firm opposed Callon Petroleum Co’s proposed $3.2 billion acquisition of Carrizo Oil & Gas and urged the company to instead consider selling itself, Reuters reported. ‘If the board is truly interested in its shareholders, given the magnitude of the difference between the current stock price of Callon and its takeover value, it should pursue a sale of Callon,’ Paulson & Co, which has a 9.5 percent stake in Callon, said in a letter to the company’s board.

Callon was not immediately available for comment.

Reuters reported that Bayer management board members Hartmut Klusik and Kemal Malik will leave at the end of the year without a replacement, as the German drugmaker shrinks its board to five seats to cut costs. ‘By streamlining the structure of the board of management, we are optimizing the allocation of responsibilities and contributing to the company’s ongoing efficiency program,’ said Werner Wenning, chair of the non-executive supervisory board, in a statement.

Malik is responsible for innovation and the Asia-Pacific region. Klusik is labor director and responsible for technology and sustainability. The company will continue to push for innovation and to develop its network of partnerships, Wenning added.

– Alibaba founder Jack Ma stepped down as head of one of the world’s largest e-commerce companies, The Guardian reported. Ma announced his retirement as chair of the company last year. He will be replaced by Daniel Zhang, the company’s CEO. In a video, Ma said: ‘I’m the person always looking forward. I don’t want to look [back] at things.’ He has previously said he will turn his attention to philanthropy, focusing on education in rural areas.

In an open letter announcing his resignation last year, Ma wrote: ‘I still have lots of dreams to pursue. Those who know me know that I do not like to sit idle. The world is big, and I am still young, so I want to try new things.’

– The SEC voted to propose amendments to the national market system plan governing the consolidated audit trail (CAT NMS Plan). The proposed amendments to the CAT NMS Plan would require self-regulatory organizations that are participants in the plan to file with the SEC and publish a complete implementation plan for the consolidated audit trail and quarterly progress reports, each of which must be approved. The proposed amendments would also include financial accountability provisions that establish target deadlines for four implementation milestones and reduce the amount of fee recovery available to the participants if those target deadlines are missed.

‘[The consolidated audit trail] needs to be implemented without further delay,’ said SEC chair Jay Clayton in a statement. ‘The proposed amendments are designed to bring greater transparency and accountability to the implementation of the [consolidated audit trail].’

– According to Reuters, seven US states and the District of Columbia sued to block rules adopted by the SEC that would allow brokers to recommend products that benefit them as long as they disclose the conflict. The package of rules requires brokerage firms to disclose potential conflicts of interest in the fees investors pay and the commission brokers earn when giving financial advice. They also require brokers to have a higher standard to meet a client’s best interests when recommending stocks, mutual funds and other financial products.

In a court filing, the states of New York, California, Connecticut, Delaware, Maine, New Mexico, Oregon and the District of Columbia argued that the rule change is ‘arbitrary and capricious.’

‘Among the harms they will suffer, plaintiffs will lose revenue from the taxable portions of distributions from their residents’ investment and retirement accounts that are worth less because of expensive conflicts of interest in investment advice,’ the states wrote in the court filing.

The SEC did not immediately respond to a request for comment.

– The California State Senate passed a bill that would make it more difficult for so-called gig economy companies such as Uber Technologies and Lyft to classify workers as independent contractors rather than employees, according to Reuters. Several Democratic presidential candidates have supported the measure, including senators Elizabeth Warren of Massachusetts, Bernie Sanders of Vermont and Kamala Harris of California.

‘We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need,’ Lyft said in a statement. Uber did not immediately respond to a request for comment. Uber and Lyft have proposed a ballot referendum that could be presented to California voters next year that would exempt drivers for ride-hailing services from the legislation.

– The WSJ said Starbucks has agreed to provide additional disclosures about how it recognizes revenue after the SEC queried some of its accounting practices. The company is one of many US issuers adjusting to new accounting guidelines that came into effect at the start of last year for most public companies. The new rules are intended to standardize how companies from different industries account for revenue from sales and services.

At least 208 companies received letters from the SEC about their revenue-recognition practices in 2018, according to regulatory filings and data compiled by Audit Analytics. That figure is up roughly 56 percent from the annual average during the previous two years.

The SEC, in letters sent between May and August as a part of a routine review, questioned Starbucks management’s approach to recognizing revenue in its quarterly earnings filing ended March 31. ‘The SEC has made similar inquiries to companies across different industries, including the retail and quick-service restaurant sector,’ a Starbucks spokesperson said, adding: ‘We do not expect further SEC dialogue on this matter.’

– The SEC said James Daly, division of corporation finance associate director, will retire at the end of the month after working with the agency for more than 38 years. He is an associate director overseeing the division’s disclosure review program.

During his tenure, he has supervised efforts to improve disclosure on topics affecting financial institutions during the financial crisis and disclosure guidance on a variety of emerging risks such as cyber-security. Among other things, he guided the division’s efforts to lead companies to improve management’s discussion and analysis disclosures.

– According to CNN, 145 business leaders signed a letter demanding the US government take action on gun violence, in one of corporate America’s strongest statements to date on the issue. In a draft letter addressed to the US Senate, the leaders demand that lawmakers ‘support commonsense gun laws’ already passed by the House of Representatives and that ‘doing nothing about America’s gun violence crisis is simply unacceptable.’

The group is pushing senators to pass a bill that requires background checks on all gun sales and red flag laws. The latter enables those who have seen warning signs to seek a court order to intervene and temporarily prevent someone who is in crisis from having access to a firearm. The group primarily includes CEOs from tech, media and start-ups. Major names on the list include Airbnb CEO Brian Chesky, Lyft co-founders Logan Green and John Zimmer, Uber CEO Dara Khosrowshahi and Twitter CEO Jack Dorsey.

– Oracle said Mark Hurd, one of its two CEOs, will take a medical leave of absence, the WSJ reported. Hurd said in a note to employees that he requested the leave to address health issues. Company representatives didn’t respond to requests for further comment.

The absence means Safra Catz will be Oracle’s sole CEO. Oracle has had an unusual leadership structure since September 2014 in which Hurd and Catz share the CEO title, while Oracle co-founder Larry Ellison is chair and technology chief. Catz and Ellison will manage Hurd’s responsibilities in the interim, according to Oracle.

Reuters reported that the London Stock Exchange (LSE) rejected a $39 billion takeover offer bid from Hong Kong Exchanges and Clearing (HKEX), deciding to stick with its planned purchase of data and analytics group Refinitiv. The LSE told HKEX in a letter that it had fundamental concerns about key aspects of the proposal that it said had no strategic merit, and that HKEX’s relationship with the Hong Kong government would ‘complicate matters.'

HKEX had no immediate comment. It had touted the deal as providing London with a major gateway to the Chinese economy, but the LSE said HKEX did not provide the best long-term positioning for this.

– According to the WSJ, WeWork parent The We Company has chosen to list its shares on Nasdaq and outlined sweeping changes in its governance as prepares for an IPO in the face of tepid interest from investors. The company listed a series of corporate governance changes in a regulatory filing released Friday, saying the company would appoint a lead independent director by the end of the year.

We Company co-founder and CEO Adam Neumann also curbed the potency of his voting rights to 10 votes per share from 20 votes per share. The company further eliminated a provision in which his wife, Rebekah Neumann – also a We Company co-founder – would play a key role in choosing Neumann’s successor if he dies or is permanently disabled in the next 10 years.

Reuters reported that Occidental Petroleum CEO Vicki Hollub said the company plans to shift toward a carbon-neutral production model, but that new US laws are needed to support technologies designed to fight global warming. Occidental, which recently bought Anadarko Petroleum, is advancing its use of technologies to capture carbon and prevent the element from escaping into the atmosphere.

But to make this a reality, major legislative change is needed, Hollub told investors, government leaders and carbon sequestration companies at a conference in Chicago. She urged attendees to call on Congress to support legislation to facilitate the permitting and development of carbon capture sequestration projects and carbon dioxide pipelines.

– The board of directors of the Council of institutional Investors (CII) said Amy Borrus, currently CII’s deputy director, will succeed Ken Bertsch as executive director when he retires in August 2020. ‘Amy is a highly regarded leader on corporate governance issues, and she has built strong relationships with key stakeholders’ said Ash Williams, CII board chair and executive director and CIO for the Florida State Board of Administration, in a statement. ‘With Amy at the helm in 2020, the council is positioned to build on Ken’s success in driving improved corporate governance, strong shareowner rights and vibrant, transparent and fair capital markets.’

Borrus joined CII as deputy director in 2006 and served as interim executive director from June 2015 to March 2016. Before CII, she was a correspondent for BusinessWeek for more than two decades.