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Apr 03, 2020

The week in GRC: Many companies switch to virtual AGMs, and Xerox drops HP bid

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

The Wall Street Journal reported that the coronavirus outbreak is making life tough for activist investors. With executives trying to keep their companies in business and workers employed, activists’ demands in many cases seem less relevant than they did just a few weeks ago. As a result, many investors have dropped campaigns or settled them early.

The shift comes during proxy season, which is normally a busy time for activists because they have the chance to nominate directors ahead of AGMs. ‘Companies right now are struggling to keep workforces together,’ said Edward McCarthy of DF King & Co. ‘To take away from that is just bad for everyone.’

Companies are taking no chances. Some are seeking standstill agreements with activists or settlements that they might not otherwise have agreed to, advisers say. Others are trying to delay their annual meetings.

Reuters reported that Barclays received cautious investor support for setting itself an ambition to reach ‘net zero’ for its own carbon emissions and the activities it finances by 2050. ‘We wanted to see leadership from Barclays on this critical issue and its proposed ambition is a significant first step,’ said Diandra Soobiah, head of responsible investment at UK pension scheme Nest. A group of investors plans to file a resolution at Barclays’ AGM urging the bank to phase out lending to the fossil fuel sector, a move that prompted Barclays to come up with its own resolution.

The bank said it would also continue to engage with ShareAction and other investors behind the resolution as it develops the strategy, and that it expected them to back its move. It did not comment on whether it recommended backing ShareAction’s resolution.

– According to CNBC, Amazon warehouse workers on Staten Island in New York were planning to strike to call attention to what they called a lack of protection for employees who continue to come to work amid the coronavirus outbreak. Workers said they’ve grown increasingly concerned about coming into work after an employee tested positive for the virus.

An Amazon spokesperson said it was supporting the person, who is in quarantine, and asked anyone who was in contact with the worker to stay home with pay for two weeks. ‘We are following all guidelines from local health officials and are taking extreme measures to ensure the safety of employees at our site,’ the spokesperson said.

The spokesperson later said the warehouse does not need to be shut down to be cleaned, but said the company was following guidelines from health authorities when making decisions and said the company has increased the frequency and intensity of deep cleaning and sanitation at its facilities.

– According to Reuters, Harley-Davidson said investor Impala Asset Management no longer planned to nominate two candidates to its board. Under the agreement, Impala can submit up to two nominees who are not associated with the investor for the position of additional independent director, the motorcycle maker said.

– Mack-Cali Realty Corp said it will not renominate the four directors who were elected to its board last year after investment firm Bow Street proposed them in a proxy contest, according to Reuters. The real estate investment trust said it hired a search firm to replace the four people. Bow Street said the company’s decision shows a ‘blatant disregard’ for corporate governance principles.

A search firm has been hired to find qualified candidates to replace the four, ‘who have agreed to be nominated on Bow Street’s slate and have explicitly endorsed and sought to advance Bow Street’s self-interested agenda,’ Mack-Cali said in a statement. After winning four seats in 2019, Bow Street now plans to try to gain a majority on the 11-member board.

– SEC chair Jay Clayton said the agency should not ban the short-selling of shares, amid speculation about further measures the SEC might take to limit market declines based on fears the coronavirus will lead to a global recession, Reuters reported. Authorities in other countries, including Spain, Italy and South Korea, have moved to curtail short-sellers.

‘You need to be able to be on the short side of the market in order to facilitate ordinary market trading,’ Clayton said, adding that he understands the concerns by some investors but does not favor a ban. He said the agency is monitoring concerns of trading whipsaw during high market volatility.

– According to the WSJ, the UK Treasury’s Office of Financial Sanctions Implementation (OFSI) has fined Standard Chartered for violating sanctions that the EU imposed on Russia following its annexation of the Crimea region in 2014. The bank must pay £20.47 million ($25.41 million) for violating the EU’s sanctions against Russia, OFSI said in a decision published Tuesday. The fine is the largest imposed yet by the agency, which was created in 2016.

The penalty is based on a series of loans Standard Chartered made to a Turkish bank owned by Sberbank of Russia, which is blacklisted by the EU, according to OFSI. The bank identified and reported the alleged sanctions violations to authorities and took remedial steps following the breach, Standard Chartered said in a statement. ‘We remain unwaveringly committed to complying with all applicable financial sanctions regulations,’ the bank said.

CNBC reported that John Legere is finished with the role of T-Mobile CEO after the company officially closed its merger with Sprint. The transition comes ahead of schedule, with president and COO Mike Sievert taking over as CEO, effective immediately.

The company announced the planned transition late last year but said it would occur on May 1, 2020. Legere had been expected to give up the role after the $26 billion merger closed having cleared regulatory hurdles. Legere led the Sprint merger through a series of challenges and will remain on the board for the remainder of his term through the AGM in June, the company said.

– The WSJ said Xerox dropped its hostile bid to buy HP after the Covid-19 pandemic undermined the copier maker’s ability to complete the debt-laden merger. Xerox said it is ending both its more than $30 billion tender offer and a proxy fight to replace HP’s board. Xerox decided it is no longer prudent to pursue the deal given the public health crisis and resulting market declines.

The development comes more than two weeks after Xerox said it was suspending efforts to meet with HP shareholders to push its bid so it could focus on responding to the pandemic.

– According to a report from ISS Corporate Solutions, 47 percent of companies polled have yet to make a decision on the type of annual meeting they will hold, but 37 percent have moved to a virtual-only AGM format and 4 percent are opting for a hybrid in-person/virtual meeting. Just 11 percent say they will convene their annual meeting in the same manner as they did last year, the survey finds.

The study ran from March 19 to March 25 and included 230 responses, one third of which were from S&P 500 companies. Just 4 percent of responding companies say they are determining whether to move the date of their meeting when asked whether they expect to hold their annual gathering in the ‘same general timeframe this year.’

– The WSJ reported that many CFOs face an unprecedented challenge over the coming weeks in closing the books on a volatile first quarter with most or all of their finance staff and auditors working remotely. Companies are adapting internal controls and processes to function securely outside of their offices during the coronavirus pandemic, putting communication skills and technological capabilities to the test.

Many companies have warned investors that their quarterly or year-end guidance will be flawed given the uncertainty surrounding the outbreak. Regulators have offered relief to companies that need more time to file financial statements.

– Hulu co-founder Jason Kilar is to succeed John Stankey as CEO of AT&T’s WarnerMedia, according to CNBC. The transition will be effective on May 1, with Kilar reporting to Stankey in his role as president and COO of AT&T, the company said. WarnerMedia has been searching for a new CEO since AT&T elevated Stankey to COO in September. Kilar served as CEO of Hulu since founding the company in 2007 until 2013.

Randall Stephenson in February said he plans to stay on as CEO of AT&T through the end of the year but has not made a commitment beyond that point.

– The Financial Stability Board (FSB) said global regulators are in talks with governments to allow key staff at financial institutions to work on site during the coronavirus epidemic to keep markets open, Reuters reported. The FSB also said an end-of-2021 deadline for stopping the use of Libor benchmarks in financial contracts remained a priority. There had been speculation that the deadline might be put back in response to the Covid-19 outbreak.

Reuters also reported that the US Federal Reserve said it was temporarily easing its leverage rules for large banks by exempting certain investments from a key leverage calculation as part of efforts to counter the economic slowdown resulting from the pandemic. Banks will now be able to exempt any holdings in US Treasury debt or deposits at the Fed from their calculations of the supplementary leverage ratio, an additional leverage restriction imposed on the largest US banks.

The exemptions, which the Fed said will encourage banks to continue lending, will stay in place until March 31, 2021.

CNN said that, according to statements from SoftBank and a special committee of WeWork’s board, the Japanese tech company has backed out of a plan to buy $3 billion worth of shares in the work-space start-up from existing shareholders and investors. SoftBank chief legal officer Rob Townsend said in a statement that the share purchase was subject to certain conditions agreed to in October. ‘Several of those conditions were not met, leaving SoftBank no choice but to terminate the tender offer,’ he said.

WeWork declined to comment. But the special committee of WeWork’s board said in a statement that it ‘is surprised and disappointed’ by SoftBank’s decision. It added that it will evaluate all legal options, including litigation.

– The WSJ reported that SEC chair Clayton gave a sympathetic hearing to companies financed by private investors that want access to the federal government’s emergency small-business lending program. Federal regulations can make it harder for companies with private equity or venture backers to qualify as small businesses. Clayton told small business advocates that he would ‘echo these issues’ to officials at the Small Business Administration and the US Department of the Treasury, which have authority over the rules.

Rep Maxine Waters, D-California, who chairs the House Financial Services Committee, wrote in a letter to Trump administration officials that strict conditions should be attached to any loans made to companies owned by buyout firms, saying support should be given only if the companies fully maintain employment levels and worker salaries, and add worker representation to boards of directors.

– Five federal financial regulatory agencies including the SEC said they will consider comments submitted before May 1, 2020, on their proposal to modify the Volcker Rule’s general prohibition on banking entities investing in or sponsoring hedge funds or private equity funds. The agencies will continue to consider comments to give parties more time to analyze the issues and prepare their comments in light of disruptions resulting from the coronavirus.