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Mar 27, 2020

The week in GRC: SEC extends relief amid Covid-19, and temporary succession planning looms

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

– The SEC announced that it is providing conditional regulatory relief for registered transfer agents through May 30, 2020, due to the impact of Covid-19. Those wishing to take advantage of the relief must tell the SEC in writing that they are doing so and describe the specific regulatory obligations they unable to comply with, as well as why they cannot do so. 

– The SEC also gave immediate effectiveness to a proposed NYSE rule filing designed to facilitate electronic auctions in light of its decision to temporarily close its New York trading floor as of March 23. The closure is a precautionary measure in response to Covid-19. The NYSE rule filing modifies certain rules to set wider price parameters, and to remove volume limits, within which NYSE designated market-makers can facilitate auctions in an electronic trading environment.

The Wall Street Journal noted that temporary succession planning may become a more pressing issue in the coming weeks, as companies prepare for the possibility of executive absences related to the coronavirus pandemic. For example, Altria Group said CFO Billy Gifford will assume authority and responsibilities for chair and CEO Howard Willard, who contracted Covid-19, until Willard returns from his leave of absence.

Charles Elson, a corporate governance professor at the University of Delaware, said the potential effect of the pandemic on executives’ health will likely make boards more cognizant of succession plans. Most boards already have an emergency succession plan, but few are likely to be prepared for the rapid spread of the new coronavirus, Elson said.

– An important part of the deal for SoftBank to bail out WeWork is in jeopardy of falling apart, and a special committee of WeWork’s board is trying to make sure SoftBank doesn’t walk away, according to CNBC. In an emailed statement, public relations firm Joele Frank said ‘the special committee of the WeWork board of directors remains committed to taking all necessary actions to ensure that the tender offer SoftBank has promised to our employees and shareholders is completed.’

According to people familiar with the matter, SoftBank still plans to extend $5 billion in debt to WeWork. The special committee wants to ensure that employee shares get purchased as well. ‘SoftBank has made numerous assurances to employees, and reneging on the agreement would be completely unethical, especially given the current environment,’ the statement said.

SoftBank responded in a statement, saying that it ‘continues to honor its obligations’ under the agreement and that WeWork hasn’t satisfied all the conditions required for the deal to close. SoftBank said it has provided more than $5 billion in capital to WeWork since October.

– Cloud service provider Box said it would appoint three new directors to its board as part of an agreement with activist investor Starboard Value, Reuters reported. Jack Lazar, former CFO of GoPro, will join Box’s board immediately and a second director will be selected from a list of candidates provided by Starboard, the company said in a statement. The company’s board will choose a third director ahead of its AGM in June, it added. Two of Box’s current board members will not stand for re-election, while one board member will retire, Box said.

‘We see a number of opportunities for substantial shareholder value creation,’ said Starboard managing partner Peter Feld.

– The WSJ said the stock market’s coronavirus-induced slide could wipe out hundreds of millions of dollars from executive pay packages and prompt a recalibration of how CEO compensation is set. For 143 CEOs of S&P 500 companies, the median compensation in 2019 was $13 million, up from $11.2 million for the same group in 2018, according to a WSJ analysis. The recent market selloff and the expected slowdown in business has led to companies dealing with how and whether to reset financial targets and other goals that determine executive pay, said Seymour Burchman, an executive compensation pay consultant at Semler Brossy Consulting Group.

Reuters also reported that Sweden’s Financial Supervisory Authority urged banks to cancel dividend payments and retain the cash to support the supply of credit during the period of stress caused by the coronavirus outbreak. In Sweden and elsewhere authorities have moved to boost companies’ access to credit to ensure the financial system does not seize up like it did during the financial crisis, but there are worries that taxpayer money may end up going to shareholders rather than to companies trying to cope with the crisis.

– The SEC extended the filing periods covered by its previous conditional reporting relief for certain public company filing obligations. The move is aimed at addressing potential compliance issues raised by the coronavirus outbreak. Subject to certain conditions, the order gives public companies a 45-day extension to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020. Among other conditions, companies must continue to explain in summary why the relief is needed in their particular circumstances for each periodic report that is delayed.

The agency’s division of corporation finance also issued guidance on its views regarding disclosure and other securities law obligations that companies should consider with respect to Covid-19 and related business and market disruptions. The guidance encourages timely reporting while recognizing that it may be difficult to assess or predict with precision the broad effects of Covid-19 on industries or individual companies.

Reuters reported that Occidental Petroleum said it would add to its board three of activist investor Carl Icahn’s associates, ending a fight that began after Occidental’s acquisition of Anadarko Petroleum. Andrew Langham, Nicholas Graziano and Margarita Paláu-Hernández will join Occidental’s board as independent directors. ‘We believe Oxy is a good company with good assets,’ Icahn said in a statement.

– According to the WSJ, Japanese beer maker Kirin Holdings is in a face-off with UK-based activist investor Independent Franchise Partners, which wants Kirin to focus on alcoholic drinks while getting rid of non-core businesses such as a stake in a cosmetics company. A shareholder vote on the divestment proposal was set for Friday. Kirin management says young people are drinking less beer, meaning that it needs to build new growth businesses. Hassan Elmasry, managing partner of Independent Franchise Partners, said the company should stick with what it knows best.

Reuters reported that a bipartisan group of US attorneys general from 32 US states wrote to, Walmart, Facebook and eBay outlining specific steps it wants the online platforms to take to end price gouging amid the coronavirus crisis. Pennsylvania’s Josh Shapiro is leading the effort along with attorneys general from Connecticut, Vermont and New Mexico.

The steps include triggering price-gouging protections before emergency declarations in a state, being proactive in setting policies and restrictions on sellers instead of playing catch-up, and creating a ‘fair pricing’ page where consumers can report incidents.

According to eBay, it is taking significant measures to block or remove items that make false health claims and trying to ensure sellers on its platform follow local laws and company policies. A Facebook spokesperson said the company has removed ads and commercial listings for items such as masks and hand sanitizers. Walmart said it has implemented a ‘price freeze’ on key items and that merchandising teams cannot change prices for items sold in stores. Similarly, it is monitoring prices online to make sure they remain reasonable. Amazon did not respond to requests for comment.

– According to the WSJ, the recent market volatility resulting from the coronavirus pandemic may give investors more of an incentive to grill companies on ESG risks. The pandemic has demonstrated the importance of factors that are important to ESG investors, such as disaster preparedness, continuity planning and employee treatment through benefits such as paid sick leave as companies instruct employees to work from home.

Companies should expect more investors to ask questions about resilience and contingency planning, viewing the issues in light of the pandemic as connected to a company’s long-term performance, according to Jeff Meli, global head of research at Barclays. Those conversations could evolve to broader ESG discussions, including topics such as whether telecommuting could reduce a company’s carbon footprint, he said.

– The SEC announced additional temporary regulatory relief to market participants in response to the effects of the coronavirus outbreak, including to those that need to make filings on its Edgar system. It also gave relief regarding certain company filing obligations under Regulation A and Regulation Crowdfunding, as well as a filing requirement for municipal advisers.

– The WSJ reported that Jeffrey Zients would not seek re-election to Facebook’s board after joining in 2018 as an independent director, leading to an almost complete shake-up of the board. He will be succeeded by Robert Kimmitt, a lawyer and former deputy secretary to the US Department of the Treasury. In the past year, the company has announced the exit of five independent directors: former White House chief of staff Erskine Bowles, Netflix CEO Reed Hastings, former Genentech executive Susan Desmond-Hellmann, former American Express CEO Kenneth Chenault, and now Zients.

Zients will depart after Facebook’s AGM, typically held in May. The company said he was vacating his seat ‘to devote more time to his business and other professional interests.’ Zients, in a statement, said: ‘I wish Mark [Zuckerberg], the leadership team and the dedicated Facebook employees the best.’ A spokesperson for Zients declined to comment further on why he was leaving.

Reuters said the US Department of Justice approved United Technologies Corporation’s (UTC) planned merger with Raytheon, subject to conditions. UTC agreed in June to combine its aerospace business with US contractor Raytheon and create a new company worth roughly $121 billion, in what would be the sector’s biggest ever merger. It won EU antitrust approval earlier in March.