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Feb 25, 2022

The week in GRC: Russia’s invasion creates challenges for US banks and report highlights investor concerns over CEO pay

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

CNBC reported that activist investor Carl Icahn has started a proxy fight with McDonald’s over the company’s treatment of pigs, pushing for two board seats. McDonald’s said Icahn has nominated Leslie Samuelrich and Maisie Ganzler for election at the company’s 2022 AGM. ‘Mr Icahn’s stated focus in making this nomination relates to a narrow issue regarding the company’s pork commitment, which the Humane Society US has already introduced through a shareholder proposal,’ McDonald’s said.

Icahn has demanded that McDonald’s require all its US suppliers to move to ‘crate-free’ pork, according to the release. The company uses pork in its bacon cheeseburgers, breakfast offerings and its McRib sandwich.

‘While the company looks forward to promoting further collaboration across the industry on this issue, the current pork supply in the US would make this type of commitment impossible,’ McDonald’s said. ‘Furthermore, it reflects a departure from the veterinary science used for large-scale production throughout the industry, and would harm the company’s shared pursuit of providing customers with high-quality products at accessible prices.’

– According to Reuters, Volkswagen and its top shareholder have drawn up a preliminary agreement to list Porsche. Analysts estimate Porsche could be valued at up to €90 bn euros ($100 bn) in an IPO. A listing could shift the balance of power at Europe’s largest carmaker, which was carefully crafted following a failed takeover of Volkswagen by Porsche in 2009, resulting in Volkswagen acquiring the luxury brand. At the time, the Porsche and Piëch families became Volkswagen’s most influential investors via their holding company Porsche, which holds 31.4 percent of Volkswagen and 53 percent of its voting rights.

Volkswagen and Porsche declined to comment on details of a potential listing, but the carmaker said a final decision had not been taken and any deal must be approved by management and supervisory boards.

– The EU is proposing legislation that would require more data sharing among companies in Europe in an effort to loosen the grip officials say a few big tech companies have on some commercial and industrial data, The Wall Street Journal (pay wall) reported.

The new rules, in a bill called the Data Act, aim to help smaller companies keep pace with larger rivals in the race to profit from non-personal data generated by connected products, ranging from smart appliances to automobiles. The issue is increasingly important as more devices generate data used for control and monitoring, such as in smart homes and factories.

Big tech companies complain the bill discriminates against them and would in effect push many companies operating in Europe to store more of their data in Europe, with European providers, rather than sending it overseas or using US companies. ‘The Data Act will ensure that industrial data is shared, stored and processed in full respect of European rules,’ said Thierry Breton, European commissioner for the internal market.

– According to The Guardian, around 1,300 workers at a Hershey’s candy manufacturing plant in Stuarts Draft, Virginia, are voting on whether to unionize, in a move organizers say is led by older workers trying to ensure good benefits for newer employees. The ballots for the mail-in election to join the Bakery, Confectionery, Tobacco Workers and Grain Millers’ International Union were sent to workers on February 24, with results to be counted on March 24.

The Hershey Company is publicly opposing the effort. A Hershey spokesperson responded to the unionization drive and complaints about working conditions by saying the company is ‘proud to have created a culture that empowers our team members to speak openly and directly with leadership and ultimately drive change within the organization.’

The spokesperson added: ‘While we respect our team members’ right to make an educated decision on whether they want to be represented by a third party like a union, we believe the insertion of a union would be counterproductive and undermine the open and collaborative environment that has allowed the Stuarts Draft plant to thrive for nearly 40 years.’

– The Financial Times (pay wall) reported that Canada’s Brookfield Asset Management is in direct talks with shareholders over its bid to acquire AGL Energy and shut its coal plants early, an offer the head of the Australian utility company described as ‘opportunistic’ and unworthy of engagement.

Brookfield on Wednesday declined to say whether it was considering increasing its A$5 bn ($3.6 bn) offer, which AGL rejected on Monday. According to people familiar with the matter, Brookfield and its deal partner, Australian tech billionaire Mike Cannon-Brookes, said the consortium had bypassed the AGL board and was now talking directly to the utility’s biggest investors.

AGL chief executive Graeme Hunt said Brookfield and Cannon-Brookes’ offer was ‘light years away’ from a fair valuation of the company. He added that shareholders had urged the AGL board to reject the offer because it was ‘not the kind of value that would cause them to consider supporting something like this.’

Reuters said that according to a report by As You Sow, more frequent shareholder revolts show directors should hesitate to raise CEO pay during tough times. Proxy votes against executive pay at S&P 500 companies became more common last year and were often sparked by ‘questionable practices and metrics’, such as when companies eased performance targets during the Covid-19 pandemic, according to the report.

As companies begin to issue their proxy statements showing compensation details in coming months, some will have got the message that they should not tweak formulas to leaders’ advantage even if a crisis looms, said Rosanna Landis Weaver, one of the report’s authors. ‘Last year we could tell starkly when companies were doing these things, and shareholders responded,’ she said. But the unique circumstances of the pandemic mean it could be harder for investors to identify bad pay practices in the future, she added.

Among the S&P 500, a record 16 companies had the pay of their CEOs and other top leaders rejected by more than half of investors last year, up from 10 in 2020 and seven in 2019, according to the report.

CNN reported that a number of companies suspended production or limited manufacturing output in Ukraine because of the Russian invasion. Companies taking such steps include Carlsberg, a Coca-Cola bottling company, Mondelez and steel manufacturer ArcelorMittal. They join a number of airlines that have already suspended operations to Ukraine as its airspace has been closed. For example, ArcelorMittal wrote on Twitter that it’s ‘deeply concerned’ about the situation in Ukraine and said it has made plans for its employees to ‘stay safe.’

– Bath & Body Works said CEO Andrew Meslow would step down in May due to health reasons, less than a year after the firm became an independent public company, Reuters reported. Meslow in early 2020 took over the reins at what was then called L Brands from founder Leslie Wexner after holding several positions at the company. L Brands last year split itself into two companies: Bath & Body Works and Victoria’s Secret. Bath & Body Works has appointed chair Sarah Nash as its interim CEO and plans on identifying a permanent replacement.

– According to the WSJ, US financial institutions are largely prepared to handle a new round of Russia-related sanctions following the invasion of Ukraine. But the conflict will present some additional challenges for US banks ranging from how they manage their correspondent banking relationships to possible retaliatory cyber-attacks deriving from Russia.

Several major financial institutions declined to comment publicly on their plans related to sanctions, but retaliatory hacks are a major worry, several individuals connected to the US banking industry said. One of the people added that Biden administration officials have told banks they intend to share intelligence among multiple US agencies to mount a quick response, but the officials haven’t said what any response might be.

CNBC reported that President Joe Biden announced he is nominating federal Judge Ketanji Brown Jackson to the US Supreme Court. Jackson, who currently sits on the US Court of Appeals for the DC Circuit, ‘is one of our nation’s brightest legal minds and will be an exceptional justice,’ Biden said in a tweet.

Just five women – Sandra Day O’Connor, Ruth Bader Ginsburg, Sonia Sotomayor, Elena Kagan and Amy Coney Barrett – have served on the Supreme Court. Only two black men, Thurgood Marshall and Clarence Thomas, have ever been appointed to the bench. No black women have previously sat on the high court.

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...