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Sep 02, 2022

The week in GRC: Conservatives mastering the art of the proxy ballot and fast-food industry loses ‘super-sized’ battle

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

CNBC reported that Tesla violated workers’ rights when it banned shirts with pro-union insignia at the factory, according to a ruling by the National Labor Relations Board (NLRB) this week. The NLRB is now mandating that Elon Musk’s electric vehicle maker ‘cease and desist from maintaining and enforcing the overly broad team-wear policy that prohibits production associates from wearing black union shirts’. The decision contradicts a 2019 ruling over dress code policies at Walmart that allowed the retail titan to limit employees from wearing (but not ban) pro-union insignia at work.

Bloomberg (paywall) warned that asset managers that have recently reclassified hundreds of ESG funds should expect to have to explain themselves to their regulators and investors. The warning follows the recent redesignation of about 700 funds in the EU to a category known as Article 8, which is seen as offering some ESG attributes. The news outlet describes the fund class as having ‘mushroomed’ since its introduction in March last year: it now makes up roughly half the total domiciled in the EU, or $3.8 tn, according to analyst estimates from Morningstar.

Asset managers want Article 8 funds on their shelves in large part ‘because they feel there’s pressure from distribution channels, which there absolutely still is,’ Bloomberg quoted Ciara O’Leary, a partner at law firm Dechert, which advises the fund industry, as saying. But changing the classification of a fund that’s been on the market for a year opens the door to ‘queries from the regulators’ wanting to know the reasons and whether investor approval is needed.

– According to Cooley PubCo, the SEC – ‘without holding an open meeting’ – adopted two amendments to its whistleblower program. The vote was three to two. Under the SEC’s whistleblower program, the SEC may ‘make monetary awards to eligible individuals who voluntarily provide original information that leads to successful SEC enforcement actions resulting in monetary sanctions exceeding $1 mn and certain successful related actions’.

The first amendment reportedly expands the circumstances in which a whistleblower who assists in a related action can receive an award from the commission for that related action rather than from another agency’s whistleblower program. The second amendment concerns the commission’s authority to consider and adjust the dollar amount of a potential award.

‘These rules will strengthen our whistleblower program,’ the blog quoted SEC chair Gary Gensler as saying. ‘That helps protect investors.’

– ‘Fast-food chains [have lost a] super-sized lobbying battle,’ said The New York Times (paywall), reporting the news that California’s State Senate passed a bill to create a council assigned with setting wages and working conditions for the fast-food industry. The decision follows ‘furious lobbying’ from both unions and the industry, said the paper. The bill would set up a 10-member council, including representatives for workers and employers and could set industry-wide minimum wages at up to $22 an hour next year – far exceeding the current statewide minimum hourly wage of $15.50.

The paper quoted Kate Andrias, a labor law expert at Columbia University, as saying: ‘It’s one of the most significant pieces of state employment legislation that’s passed in a long time.’ The formation of the council moves California closer to sectoral bargaining, in which workers negotiate with employers over pay and working conditions on an industry basis, instead of company by company.

– ‘Conservatives are mastering the art of the proxy ballot to fight ESG,’ declared Bloomberg Businessweek (paywall), which noted how two activists have been ‘remarkably successful’ in getting anti-ESG measures before shareholders. This year, 272 ESG measures made it onto company proxies, up from 158 in 2021, said the publication, driven by ‘fund management giants’.

Now conservative groups are getting into the game, led by two little-known strategists who have mastered the art of the proxy ballot. Coincidentally, the SEC is helping to pave their way with important rule changes, added Bloomberg. ‘As corporations are making more and more decisions that conservatives feel cater to the left, [conservatives are] going to not just make more noise about this but [also] be more organized,’ Doug Heye, a Republican strategist and former communications director of the Republican National Committee, told the news outlet.

Reuters exclusively reported that Ben van Beurden, Shell’s CEO of the last decade, is preparing to step down next year. Two sources told the news agency that the oil giant has short-listed four candidates to succeed Van Beurden. Shell’s board succession committee, headed by chairman Andrew Mackenzie, has met several times in recent months to draw up plans for Van Beurden’s departure and interview potential successors to the 64-year-old Dutchman, the sources told Reuters.

The successor short list has reportedly been narrowed down to Wael Sawan, Shell’s head of integrated gas and renewables, and Huibert Vigeveno, who heads the company’s downstream refining operations. Reuters said CFO Sinead Gorman and Zoe Yujnovich, head of upstream, are also seen as possible successors, adding that Shell declined to comment.

– In related news, Reuters also reported that Starbucks named Laxman Narasimhan as its next chief executive officer, ‘choosing an executive credited with revitalizing the maker of Lysol disinfectants to undertake a ‘reinvention’ of the world’s biggest coffee chain’.

Narasimhan was CEO of Reckitt, which also makes Durex condoms, Enfamil baby formula and Mucinex cold syrup. He announced his departure from that post earlier in the day, and FTSE-listed Reckitt’s shares fell 4 percent.

– Shareholders of Swiss luxury group Richemont are reportedly ‘lining up’ against hedge fund Bluebell’s challenge to chair Johann Rupert, said the Financial Times (paywall). Several top investors in Richemont are planning to vote against proposals by Bluebell to shake up the Swiss luxury group’s board and challenge its controlling shareholder and chair. London-based hedge fund Bluebell Capital Partners, which owns a small stake in Richemont, has proposed three resolutions to be voted on at a shareholder meeting next Wednesday, including one that would nominate former Bluebell partner and luxury industry veteran Francesco Trapani to the board, explained the paper.

The FT said Bluebell is arguing that Richemont, whose biggest brands are Cartier and Van Cleef & Arpels, has underperformed peers such as LVMH and Hermès and has been hurt by poor governance and strategic choices, such as sticking with money-losing ventures in fashion and ecommerce. But Stephen Paice, head of European equities at Baillie Gifford, which is a top 15 investor in Richemont, said the fund was planning to vote against Bluebell’s resolutions.

‘You can see that the composition of the board has changed over the past five years and Richemont has tried to address some of the gaps in the skillset,’ Paice told the paper. ‘I think the direction of travel is positive.’

– ‘US public pension plans are some of the ESG movement’s biggest supporters,’ reported Institutional Investor. ‘Divisions along political party lines might change that.’ Analysis from Morningstar looking at the most recently available 2021 public fund proxy votes on 72 key ESG shareholder resolutions found that US public pension funds in both red and blue states showed higher rates of support for almost all of the measures, compared with general shareholders and ESG-focused funds.

The analysis included 29 public pension plans – including the nation’s largest plans like CalPERS, New York State Common Retirement Fund and the State of Wisconsin Investment Board – that directly voted their proxies and that collectively represent $3.4 tn in assets under management.

‘We came in with the hypothesis that public pensions would be supportive,’ Janet Yang Rohr, director for multi-asset and alternatives research at Morningstar, told the publication. ‘When you look at other things they’ve done – they were early signers of the UN [Principles for Responsible Investment] – and when you look at general news stories, you see that they’re leading the net-zero portfolio movement.’

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