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Nov 15, 2019

The week in GRC: ESG funds see record inflows, and Icahn backs Xerox-HP union

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

The Wall Street Journal reported that socially responsible investment funds have been enjoying a record year of inflows, but that many aren’t as clean as investors might expect. ESG funds have taken in a record $13.5 billion of net new money from investors in the first three quarters of the year, according to Morningstar. But while most of the top funds exclude gunmakers, casino operators and tobacco companies, some have been slow to reduce their exposure to fossil fuels.

To complicate matters, what constitutes a strong or weak ESG rating can vary widely from firm to firm. ‘The biggest frustration on behalf of investors is there’s no standardization within this industry,’ said Rebecca Corbin, founder of capital-markets research and advisory firm Corbin Advisors.

Analysts suggested reasons why asset managers have been slower to screen out energy stocks than other types of firms. One explanation could be that no asset manager wants to deliver sub-par returns. Also, an oil company that scores poorly on the E element of ESG may do well on the other two elements, meriting its inclusion in a fund, Corbin said.

Reuters reported that German renewable firm PNE said Active Ownership Capital (AOC), PNE’s third-largest shareholder, does not plan to accept a standing bid from a Morgan Stanley-controlled fund. AOC ‘does not intend to accept the offer,’ PNE said in its reasoned opinion on the offer, in which it comes out in favor of the bid and recommends that shareholders accept it.

PNE said its management and supervisory board saw the bid as an appropriate reflection of ‘the value of the company at the present time – [that is], also taking into account the current overall regulatory, geopolitical and macroeconomic situation.’ AOC was not immediately available for comment.

– According to the WSJ, Hong Kong’s Securities and Futures Commission (SFC) said UBS overcharged and misled wealthy clients for a decade without detection, and fined the bank HK$400 million ($50 million) and demanded HK$200 million in customer compensation. The SFC said client advisers and assistants at the bank regularly added extra fees and padded out spreads on bond and structured-note trades, taking ‘profits from its clients without agreement with or disclosure to them.’ A UBS spokesperson said the behavior of the individuals, who all lost their jobs, ‘is unacceptable and in strong contrast to the behavioral principles of our firm.’

– The WSJ reported that the unexpected death of Kaiser Permanente CEO Bernard Tyson leaves the hospital and health-insurance company in flux at a time of ambitious growth. Gregory Adams, an executive vice president and group president whom Kaiser named interim CEO and chair, said the company will stay committed to the growth strategy launched by Tyson.

Adams said the non-profit system’s board would wait until later this month to discuss succession, with plans this week to celebrate Tyson’s legacy. Tyson, one of the few top black executives of major US for-profit or non-profit corporations, was an influential voice on issues of race relations and health policy. He worked to mentor and support black executives and corporate board members.

– German prosecutors said they have charged four current and former personnel managers at Volkswagen over what they described as the payment of allegedly excessive salaries and bonuses to members of the automaker’s influential employee council, according to the Associated Press via The Washington Post.

Prosecutors said the four – two former management board members, plus one current and one former senior manager, none of whom are named – were charged with breach of trust. Prosecutors allege their decisions cost Volkswagen €5.05 million ($5.48 million). The case is separate from Volkswagen’s diesel emissions scandal.

– According to the WSJ, the biggest US asset managers are trying to convince federal authorities that they don’t harm competition among companies as a debate about their influence has caught regulators’ attention. Some have been meeting with officials and disseminating research in an effort to challenge concerns that large institutions’ holdings of multiple companies in a single sector hurts competition.

Many in the asset management industry, government and academic circles say there is no clear evidence that common ownership causes anti-competitive effects. But the worry is that by owning parts of many companies in the same industry, investors are influencing them to act in ways that maximize gains for all rather than pushing individual companies to compete more vigorously.

Bloomberg reported that, according to people familiar with the matter, KKR & Co has approached Walgreens Boots Alliance about a deal to take the company private, in what could be the largest leveraged buyout. The private equity firm has been preparing a proposal to potentially buy out shareholders of Walgreens Boots, the people said. It is unclear how feasible the transaction would be, given the need for large amounts of financing, and Walgreens Boots and KKR could decide against pursuing a deal, the people said.

Representatives for Walgreens Boots and KKR declined to comment.

Reuters said that, according to a new study, the UK’s largest listed companies will miss an official gender equality target unless 50 percent of senior hires in the next year are women. Many in the FTSE 100 Index of the top listed companies are ‘well adrift’ of the goal that one in three senior jobs should be held by women by the end of next year, the Hampton-Alexander Review said. It found that just under 29 percent of leadership roles in the FTSE 100 are held by women this year – up slightly from 27 percent last year – and only about one in three available roles go to female applicants.

A separate goal that one in three positions on FTSE 100 company boards should be held by women was likely to be met, the review found. The Hampton-Alexander Review is an independent body set up by the government in 2016 to monitor progress. ‘While on the surface it appears that representation of women on boards has increased, we know many of these women are in non-executive roles. It’s time to give women real power, not just a seat at the table to observe,’ said Gemma Rosenblatt, head of policy and campaigns at the Fawcett Society, which campaigns for women’s rights.

– Changes in technology and the structure of audit firms have prompted the PCAOB to consider tweaking rules governing the controls audit firms use to determine the quality of their audits, the WSJ said. The PCAOB is considering whether to change long-standing rules on audit firms’ quality-control systems as part of a broader overhaul of its inspection processes.

The board is expected to discuss a preliminary proposal at a meeting next month aimed at ensuring that audit firms are more proactive in identifying emerging risks and deficiencies in their quality-control systems. The public’s feedback on the concept release would help the board form a proposal.

– New Media Investment Group, parent company of GateHouse Media, announced its intention to acquire Gannett in August. This week the deal was approved in a shareholder vote at Gannett’s Virginia headquarters, with New Media shareholders also voting to approve the deal earlier in the day, CNN reported. The deal puts hundreds of local newspapers under one umbrella company, making it the largest US media company by print circulation.

The merged company will keep the Gannett name. Gannett owns USA Today and more than 100 local newspapers, including The Arizona Republic and The Des Moines Register. Michael Reed was named CEO and chair of the new Gannett. Paul Bascobert, who was brought in as CEO of Gannett in August, is serving as CEO of the ‘combined company’s operating subsidiary,’ according to a statement.

– The WSJ reported that activist investor Carl Icahn is pushing for the proposed union of Xerox Holdings Corp and HP, arguing that a combination of the companies could create big profits for investors. Icahn, who owns a 10.6 percent stake in Xerox, said he also owns a 4.24 percent stake in HP. Xerox recently made an offer to buy HP for $33 billion. HP confirmed the approach the following day without commenting further on the bid.

‘We are aware of Carl Icahn’s investment and are committed to doing what is in the best interests of all HP shareholders,’ the company said in a statement on Wednesday.

– A Delaware court judge ruled that Icahn will not have access to Occidental Petroleum’s Anadarko takeover records to support his proxy fight against the oil company’s board, Reuters reported. Icahn sued Occidental in the Delaware Court of Chancery last May seeking financial records and details of its negotiations with Anadarko. He has since launched a proxy fight seeking to appoint new management and speed up asset sales to repay debt taken on with the $38 billion deal.

Vice chancellor Joseph Slights wrote that Icahn’s complaints of Occidental mismanagement ‘appear to be nothing more than disagreements’ with the company’s directors and his lawsuit failed to show how the documents would advance his proxy contest.

‘We intend to appeal his decision because we believe understanding what happened in the Oxy boardroom is very important to our proxy fight and for all stockholders,’ Icahn Enterprises general counsel Andrew Langham said.

Occidental did not respond to requests for comment.

CNN said that, according to the latest Women in the Workplace survey from and McKinsey & Company, the percentage of C-suite executives who are women has risen to 21 percent, up from 17 percent five years ago. Forty-four percent of companies now have three or more women in their C-suite, up from 29 percent in 2015.

Despite these improvements, gender disparity at the top shows no signs of disappearing due to a promotion gap that occurs early in women’s careers, the report showed. ‘The biggest obstacle that women face is the first step up to manager, or [the] ‘broken rung’. Women are less likely to be hired and promoted to manager,’ researchers wrote.