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Jun 10, 2022

The week in GRC: US CEO-worker pay gap widens and Icahn drops proxy fight at Kroger

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

The Wall Street Journal (paywall) reported that Carl Icahn is dropping a proxy fight focused on the treatment of pregnant pigs at Kroger Co after determining he is likely to lose as he did in a similar fight with McDonald’s Corp. ‘I congratulate the McDonald’s team on its victory in this proxy engagement and, after much contemplation, given the company’s financial position, I believe the same outcome will result at Kroger,’ he said in a letter to shareholders.

Icahn wrote that these campaigns were different from his typical fights given that the two companies are performing well financially, which makes it less likely the campaigns would gain enough shareholder support. But he said he doesn’t believe their boards are holding management accountable with respect to the treatment of animals or the welfare of their employees. Icahn wrote that he would continue to focus on issues concerning the treatment of animals and that his work has helped raise awareness.

Kroger said the company is focused on creating sustainable value for its associates, customers, communities and shareholders. It said it will continue to speak with shareholders to inform its policies.


– The board of Spanish steel maker Acerinox said it was walking away from preliminary talks with Aperam about a potential tie-up, according to Reuters. ‘The board of the company in a meeting today agreed unanimously not to continue with the preliminary talks with Aperam to evaluate a possible corporate operation,’ Acerinox said in a regulatory filing.


–The WSJ  said pension plans and other institutional investors are supporting an SEC proposal that would require hedge funds and private equity funds to make more disclosures to investors. Retirement funds serving teachers and firefighters, university endowments and insurance funds are urging the SEC to move forward with a proposed rule that would ensure private-fund investors receive annual audits and quarterly statements.

The rule, which has been criticized by private funds and Republicans, would also prohibit fund managers from passing along certain legal costs and limit the funds’ ability to insulate themselves from lawsuits. Critics argue the proposed disclosure requirements are unnecessary because institutional investors are large and sophisticated enough to demand the information they need from private funds.


The Guardian reported that, according to a study of 300 top US companies released by the Institute for Policy Studies (IPS), the wage gap between CEOs and workers at some of those companies with the lowest-paid staff grew even wider last year, with CEOs making an average of $10.6 mn while the median worker received $23,968. The study found the average gap between CEO and median worker pay jumped to 670-1, up from 604-1 in 2020. Forty-nine companies had ratios greater than 1,000-1.

At more than a third of the companies surveyed, IPS found median worker pay did not keep pace with inflation. The report comes amid a wave of unionization efforts among low-wage workers and growing scrutiny of the huge share buyback programs many companies have been using to raise their share prices. Share-related remuneration makes up the largest portion of senior executive compensation and, because buybacks generally increase a company’s share price, they also boost executive pay.
 


– The US Department of Justice (DoJ) has tapped Glenn Leon, compliance chief with Hewlett Packard Enterprise (HPE), to lead a team of prosecutors responsible for some of the department’s biggest investigations into white-collar fraud and corruption, according to the WSJ. Leon, a former federal prosecutor who has served as HPE’s chief ethics and compliance officer since 2015, will become chief of the DoJ’s criminal fraud section, which investigates foreign bribery, market manipulation and securities and healthcare fraud by companies and their executives.


CNBC reported that Spirit Airlines postponed its shareholder meeting until June 30 so it can continue deal talks with Frontier Airlines and JetBlue Airways, as well as with its stockholders, the company said. Spirit made the announcement two days after JetBlue improved its offer for the discount airline, which has had a merger agreement in place with Frontier since February. Spirit shareholders were due to vote on the Frontier deal at the shareholder meeting on Friday. JetBlue urged Spirit stockholders to reject that merger.

‘We welcome this development as a necessary first step toward genuine negotiation between the Spirit board and JetBlue,’ said JetBlue CEO Robin Hayes in a statement on Wednesday. ‘Spirit shareholders are clearly urging the Spirit board to engage with us constructively and provide us with the same information previously made available to Frontier so that we can reach a consensual transaction.’

Spirit didn’t immediately respond to JetBlue’s claim that Spirit shareholders are urging the company to engage with JetBlue. Frontier declined to comment.


– According to Reuters, Hasbro said it had defeated a board challenge from activist hedge fund firm Alta Fox, with shareholders re-electing all of the company’s directors. Alta Fox, which nominated one director to Hasbro’s 13-member board, had pushed the firm to spin off its Wizards of the Coast and Digital Gaming unit and criticized how the company allocated its capital. Hasbro has said a spinoff of the profitable business would be unlikely to create any value for the company.

Alta Fox said in a statement it was disappointed with Wednesday’s results but would remain a shareholder and seek to maintain talks with the board.


– Shopify shareholders narrowly approved a measure to protect the voting power of co-founder and CEO Tobi Lütke, the WSJ reported. Around 54 percent of shareholders voted in favor of granting Lütke a new founder share that, on top of his existing super-voting Class B shares, raises his voting power from 34 percent to 40 percent.

Shareholders also voted in favor of a 10-for-1 share split aimed at making it easier for the e-commerce company to compensate employees and attract more individual investors to the stock. Other technology companies such as Amazon.com and Google parent Alphabet have split their stock or are in the process of doing so.


– The SEC reopened the comment period on proposed rules for listing standards for recovery of erroneously awarded compensation. The commission staff also released a memo containing additional analyses and data that the regulator said may be helpful in evaluating the proposals. The rules were initially proposed in July 2015 to implement Section 954 of the Dodd-Frank Act.


The Guardian reported that the EU reached an agreement to impose mandatory quotas to ensure women have at least 40 percent of seats on corporate boards. After 10 years of stalemate over the proposals, EU lawmakers hailed a ‘landmark’ deal for gender equality. Companies could also be fined for failing to recruit enough women to their non-executive boards and see board appointments cancelled for non-compliance with the law.

From 30 June 2026 large companies operating in the EU will have to ensure a share of 40 percent of the ‘underrepresented sex’ – usually women – among non-executive directors. The EU has also set a 33 percent target for women in all senior roles, including non-executive directors and directors, such as CEO and COO.


– The WSJ reported that Microsoft said it would soon start to disclose salary ranges for all job postings in the US, becoming one of the first major employers to take such a step amid new local requirements for pay transparency. Microsoft said it would publicly disclose salary ranges for internal and external postings across the country starting no later than January 2023.

The company’s home state of Washington adopted a law earlier this year requiring such disclosures on job postings starting next year. A similar law went into effect in Colorado in 2021 and other states have adopted such requirements. New York City adopted a similar measure that is expected to take effect in November.

‘Companies are very concerned about complying with the growing patchwork of state and local statutes,’ said Jen Rubin, an employment attorney with the law firm Mintz. ‘These days, especially in a post-pandemic economy, they may have employees in all 50 states, and it becomes a real challenge administratively to comply with all the laws, so Microsoft is kind of getting ahead of that wave of salary transparency laws.’ Mintz does not represent Microsoft.


– According to the WSJ, companies have started beefing up their finance teams and testing new technology in preparation for potential rules from the SEC on climate-risk and emissions disclosures. CFOs expect that complying with the proposed requirement would be costly. ‘We understood that when the SEC started talking about [the rules], that this was going to be a lot of work and you’re not going to do it with arms and legs,’ said Sameer Ralhan, the CFO of chemical producer Chemours Co, referring to the need for technology to tackle potential new disclosure requirements.

Chemours last year began adding resources to its finance team, including personnel and technology, to make certain climate-related disclosures – greenhouse-gas emissions from its own operations and from purchased energy – by the third quarter of next year, Ralhan said.

Some companies said they welcome the SEC’s initiative because it could result in publicly available information that can be compared across companies.