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May 10, 2024

The week in GRC: Norfolk Southern shareholders back three activist nominees and US companies avoid politics ahead of election

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

Reuters (paywall) reported that hedge fund firm Shah Capital urged Novavax shareholders to vote against the re-election of three directors and proposals related to executive compensation, weeks after pressing for a board shake-up at the Covid-19 vaccine maker. Shah Capital said the company was ‘undervalued and continues to suffer from poor profitability’.

Last month, it urged Novavax to adopt a marketing strategy targeting consumers who are hesitant to receive mRNA vaccines. The investor had previously said it plans to put forward two of its own candidates for appointment to Novavax’s board but did not formally submit any nominations.

Novavax said in a proxy filing last week that it had not received any valid nominations from stockholders for its 2024 AGM, scheduled to take place on June 13. It also said it welcomes the perspectives of its shareholders and values their input. ‘We believe we have the right board in place to oversee Novavax’s strategy,’ the company said in its response.

– According to The Wall Street Journal (paywall), Chipotle Mexican Grill wants to make it easier to reward its managers and workers and for them to have ownership in the company by asking shareholders to approve its first stock split. ‘We think it’ll be easier for our employees to be shareholders,’ said Chipotle CFO Jack Hartung, adding that workers are the primary motivation behind the planned 50-for-1 split. ‘And that means, yes, it’s easier for them to buy the stock if they want, but it’s also easier for us to give them the right amount of stock.’

The planned split might also indirectly cut the time it takes customers to move through a Chipotle line. The theory is that a sense of ownership in the company could encourage employees to stay, which means more experienced workers who know how to make things move faster through the food lines might do so, said Sharon Zackfia, group head of the consumer sector at William Blair.

– The Public Company Accounting Oversight Board (PCAOB) is considering whether it should disclose the names of companies that received deficient audits of their financial information as part of its inspection reports, according to the WSJ. ‘That’s an issue we have definitely heard, and it’s under consideration,’ said PCAOB chair Erica Williams, referring to investor feedback. ‘There have been previous boards that have focused on that issue so we’re looking at the work they’ve done there.’

PCAOB staff are looking into this issue as they have done for years, Williams said. No formal consideration is under way, meaning the staff could recommend the issue be added to the agenda or drafted as a proposal for the board to vote on, but hasn’t yet, she added. Interpretations of the PCAOB’s authority to release that information under the Sarbanes-Oxley Act vary.

Chubb CEO Evan Greenberg said rising insurance premiums in regions vulnerable to climate change make sense and that government efforts to curb those increases won’t work in the long term, the WSJ reported. US states are driving a crisis of insurance availability by blocking insurers from pricing climate change into policies, Greenberg said. ‘Climate change is sending price signals. Society will not adjust its behavior to the change of climate just because people talk about it,’ he said. ‘We’re sending price signals very rationally. That starts driving behavior.’

CNBC reported that the EU is seeking information from X, formerly known as Twitter, about cuts to its content moderation resources as part of its first major investigation into the company under tough new laws governing online content. The European Commission said in a statement that it has requested information from X under the Digital Services Act, its groundbreaking tech law that requires online platforms to take a far stricter approach to policing illegal and harmful content.

The commission said it was concerned about X’s transparency report submitted in March 2024, which showed it had cut its team of content moderators by nearly 20 percent compared with the number of moderators it reported in an early October 2023 transparency report. X must provide information requested by the EU on its content moderation resources and generative AI by May 17, the commission said.

X was not immediately available for comment when contacted by CNBC.

– Conservative groups are increasingly asking shareholders to scrutinize companies’ LGBTQ+-themed marketing and public relations campaigns, with votes expected to be held at a number of AGMs on such shareholder proposals while others have already taken place this year, the WSJ reported.

But getting a vote isn’t the same as winning it. Levi Strauss shareholders, for example, last month overwhelmingly voted against a proposal that the company create a committee to determine whether ‘public and politically divisive positions’, including its work with LGBTQ+ organization Human Rights Campaign, had affected its financial sustainability. Companies including Walmart and Verizon have argued successfully to the SEC in recent weeks that they don’t need to hold votes on such proposals. But the proposals are becoming both more numerous and better constructed.

‘The argument isn’t new, but the tactics are new and they’re amping them up,’ said Sarah Kate Ellis, president and CEO of LGBTQ+ rights group Glaad. Many brands have recently approached Glaad seeking advice on how to respond to these proposals, she added.

– According to CNBC, Norfolk Southern shareholders voted to elect three of dissident Ancora’s director nominees but fell short of removing incumbent CEO Alan Shaw. Shareholders elected Ancora candidates William Clyburn, Sameh Fahmy and Gilbert Lamphere. The three seats are short of the seven the activist had been seeking but a clear indication of shareholders’ desire for change at the company.

Current board chair Amy Miles did not win re-election, nor did incumbent directors Jennifer Scanlon and John Thompson. Ancora’s Jim Chadwick and Frederick DiSanto said in a statement that the results showed the activist had driven ‘significant change’ at the railroad. The statement also noted that they believe Shaw was handed a ‘resounding vote of no confidence based on preliminary voting results.’

‘We will work constructively and collaboratively on behalf of our shareholders, unlocking the full potential of our powerful franchise,’ Norfolk Southern said in a statement, adding it welcomed the arrival of three new directors.

– The first-quarter earnings season is turning out better than many Wall Street forecasters had expected and companies are stepping up repurchases of their own shares, according to the WSJ. S&P 500 companies that have reported first-quarter results as of Monday have disclosed buying back $181.2 bn of their shares during the period, according to data compiled by Birinyi Associates. That is an increase of 16 percent from the same quarter last year.

Reuters reported that Barclays’ AGM was disrupted by activists protesting against its alleged indirect links to violence in Gaza, with the bank’s chair telling security staff to eject them from the event. ‘We are totally prepared to answer questions on this topic but there is no point engaging in megaphone diplomacy,’ group chair Nigel Higgins told protesters, who were led out of the gathering. Barclays said last week it did not invest its own money in companies that supply weapons used by Israel in Gaza and it only trades shares in such companies on behalf of clients. CEO CS Venkatakrishnan urged activists to reserve their questions until later in the meeting as he tried to address shareholders.

Barclays has faced similar disruption to investor meetings in recent years, particularly over its climate policies. A group of 24 investors with $1.24 tn in assets under management called on Barclays in a letter to restrict finance to all companies exclusively focused on fossil fuel extraction and to expand its commitment to restrict fracking financing to include the US.

– According to the WSJ, as the US presidential approaches, US companies are trying hard to stay off the political radar. Some CEOs are privately preparing plans to tell employees not to expect comments on political matters in all-hands sessions. Others are reconsidering common election initiatives such as get-out-the-vote drives in case they are seen as partisan. A number of companies are also getting tougher on workplace activism.

This stance is a shift from 2020 when CEOs, feeling pressure from employees and customers, got involved in political topics such as voting access. After years spent navigating debates on immigration, abortion and racial equity, many executives say fatigue has set in. Corporate advisers say that with a cooling white-collar labor market, employees also have less leverage to agitate for responses from employers.


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...