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Jan 27, 2023

The week in GRC: Salesforce announces board changes and SEC proposes ABS reforms

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

The Wall Street Journal (paywall) reported that increased SEC scrutiny has disrupted crypto companies’ plans to go public this past year, amid financial distress and failures across the industry. Crypto-focused companies have failed to secure the SEC approvals that are needed for companies going public. The companies were seeking stock exchange listings through mergers with special purpose acquisition companies, a route to listing that was popular in 2020 and 2021 before heightened regulatory checks and market turbulence.

The SEC didn’t set out to stop the companies from going public, according to a person familiar with the matter, but crypto companies believe the pace of the agency’s review hurt their efforts. Most crypto firms say their digital assets aren’t securities and as such don’t need to comply with investor-protection rules. SEC chair Gary Gensler disagrees.

Reuters (paywall) reported that Capricorn Energy’s chair Nicoletta Giadrossi, CEO Simon Thomson and three other directors stepped down from the board following weeks of shareholder pressure, led by activist investor Palliser Capital, to overhaul the oil and gas producer’s leadership. Palliser and some of Capricorn’s biggest shareholders had also publicly opposed a planned merger with gas producer NewMed. Under the board shake-up, James Smith will remain as CFO with the intention of also stepping down as a board director on February 1, a spokesperson said.

NewMed said in a statement following Capricorn’s board shake-up that it saw a significantly smaller chance of finalizing the merger. Capricorn postponed the NewMed deal vote to February 22, while the meeting called by Palliser regarding the directors will go ahead as planned. Asked about the future of the executive leadership of the company, a Capricorn spokesperson said they ‘remain employees of the group to ensure continuity of governance, operations oversight and reporting obligations.’

– According to CNBC, Rupert Murdoch withdrew his proposal to recombine Fox Corp and News Corp Fox said its board received a letter from board chair Murdoch and his son, Fox CEO Lachlan Murdoch, saying they ‘determined that a combination is not optimal for the shareholders’ of either of the companies at the time.

– The SEC announced Silvestre Fontes as regional director of the agency’s Boston office. John Dugan and Kevin Kelcourse, who have been acting co-regional directors, will remain as associate regional director of the office’s enforcement program and associate regional director of the office’s examinations program, respectively. Fontes worked in the Boston office’s enforcement program for 13 years, most recently as assistant regional director before leaving the agency in 2011. He has been chief compliance officer of Bracebridge Capital for the past four years.

– The SEC proposed banning a Wall Street practice that lawmakers said was partly to blame for the 2008 financial crisis, the WSJ reported. The commission voted unanimously to repropose a long-delayed rule that would ban conflicts of interest by entities that create asset-backed securities (ABSs). In the run-up to the financial crisis, banks created securities from bundles of risky mortgages and sold them to investors at the same time some traders at the banks were betting against the instruments.

As part of the Dodd-Frank Act, Congress ordered regulators to prohibit participants in ABS offerings from engaging in transactions that would represent a conflict of interest with investors. In 2011, the SEC voted to propose a new rule, but it drew criticism from the financial services industry and wasn’t completed. Now it is restarting the rulemaking process. The new rule would apply to underwriters, placement agents, initial purchasers or sponsors of ABSs, as well as any affiliate or subsidiary. Within one year of a security’s sale, they would be prohibited from short-selling the instruments or using derivatives, such as credit-default swaps, to bet against them.

Reuters reported that the Tokyo Stock Exchange (TSE) said it had proposed ending a grace period in March 2025 for companies listed on the top ‘prime’ section that fall short of listing rules. The TSE adopted tougher listing criteria for its top category in April last year, but companies that fall short of the new rules can at present stay on by submitting improvement plans, a provision some investors believe waters down the reform.

According to the TSE, 269 companies on the prime section failed to meet the criteria as at the end of last year. The TSE proposed that those not meeting the rules by March 2025 would be given a one-year ‘improvement period’, and then designated as shares under supervision for six months before delisting. The TSE’s ‘standard’ and ‘growth’ sections should also end their grace period for respective listing rules in March 2025, the TSE recommended.

– The Financial Crimes Enforcement Network (FinCEN) warned banks to be alert for Russian oligarchs trying to circumvent US sanctions by investing in commercial real estate where complex financing methods and opaque ownership structures can help bad actors hide funds, the WSJ reported. The alert issued by FinCEN is the US Department of the Treasury’s latest effort to prevent sanctioned Russians from finding ways to evade such financial restrictions.

In an 11-page report, FinCEN listed a number of potential red flags and typologies it said banks should be on the lookout for. Sanctioned individuals may try to use pooled investment vehicles or offshore funds to avoid due-diligence processes, FinCEN said.

– The Financial Times (paywall) reported that, according to a group representing some of the world’s largest investors, UK equities are no longer seen as a ‘must own’ asset class. In its annual review, the Investor Forum said that ‘unless companies, investors, regulators and policymakers accept the reality of this situation, UK equities as an asset class will continue to diminish – to the detriment of all economic participants and society more broadly.’

‘The declining relevance of UK equity markets over the last 25 years has been breathtaking,’ said Andy Griffiths, the group’s executive director. ‘It is crucial that the focus of any reform recognizes the global nature of financing and seeks to create an environment in which UK-listed companies can once again thrive.’

The FT reported recently that the Investor Forum had written to FTSE 100 boards to try to calm a developing struggle over the role of stewardship and corporate governance with the offer of new discussions to resolve issues and to work together on expanding businesses.

– According to CNBC, Chevron announced a $75 bn stock buyback program and a dividend hike. The buyback program will become effective on April 1, with no set expiration date, the company said. This buyback plan follows a $25 bn plan enacted in 2019. The old plan will be terminated at the end of March. The new buyback plan comes after a successful year for energy stocks, as a reopened US economy and Russia’s invasion of Ukraine combined to drive oil and gas prices higher in 2022.

Reuters reported that Salesforce named three new board directors amid pressure from activist investors for better cost control and management changes. The company appointed the CEO of hedge fund firm ValueAct Capital Mason Morfit, Mastercard CFO Sachin Mehra and former CEO of Carnival Corp Arnold Donald to its board. Salesforce also said Sanford Robertson and Alan Hassenfeld, directors at the firm since 2003, will not stand for re-election.

Reuters reported on Thursday that Elliott Management Corp, the activist investment firm that recently made a multi-million-dollar investment in Salesforce, plans to nominate several director candidates.

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...