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Nov 11, 2022

The week in GRC: New York voters approve $4.2 bn environmental bond and ISSB chair hopeful on aligning its standards and EU rules

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

Reuters reported that the US Supreme Court heard arguments in two cases that may make it easier to challenge the regulatory power of federal agencies in disputes involving the Federal Trade Commission (FTC) and the SEC. The justices are weighing an appeal by Scottsdale, Arizona-based Axon Enterprise after a lower court dismissed the Taser manufacturer’s lawsuit contesting the constitutionality of the FTC’s structure in a bid to counter an antitrust action related to its acquisition of a rival.

In one case, the justices are considering the SEC’s appeal of a lower court’s decision reviving a challenge brought by Texas accountant Michelle Cochran to the legality of its in-house tribunal after it faulted her audits of publicly traded companies. At issue in both cases is whether targets of an agency’s enforcement action may challenge its structure or processes in a federal district court or must first endure the agency’s administrative proceeding, which may be costly and time-consuming.

– The Financial Times (paywall) reported that according to a report from Cranfield University and EY, UK companies have an ‘appalling’ shortfall of women in executive roles. The annual survey of the UK’s FTSE 350 raises new concerns that companies are not doing enough to bring through women in management positions despite reaching targets for women directors on boards.

The number of women on FTSE-listed boards has risen this year to almost 40 percent but nine in 10 were in non-executive positions, suggesting the increase has been driven by the appointment of women to such roles to comply with targets. The survey found that only about 17 percent of executives in the FTSE 100 are women – much lower than the 40 percent figure for boards. This falls to 12 percent among smaller companies on the FTSE 250, where for the third year running only 47 women hold executive directorships.

The Wall Street Journal (paywall) reported that the EU’s competition regulator said it would pursue an in-depth investigation into Microsoft’s planned $75 bn acquisition of Activision Blizzard, adding to the global scrutiny of whether the deal could harm competition in the video game industry.

The European Commission, which opened its initial, formal probe into the deal in late September, said it is worried the transaction may reduce competition in the markets for console and personal computer distribution, video games and PC operating systems. It said it was concerned that Microsoft may block access to Activision Blizzard games for other game distributors. The shift to an in-depth probe, also known as a phase-two investigation, signals that the regulator is concerned the deal could restrict competition within the EU.

A spokesperson for Microsoft said the company is continuing to work with the EC on potential next steps and to address any valid marketplace concerns. ‘We’ve said we are committed to making the same game available on the same day on both Xbox and PlayStation,’ the spokesperson said. ‘We want people to have more access to games, not less.’

– The SEC named Keith Cassidy and Natasha Greiner as deputy directors of the agency’s division of examinations. In addition to serving as deputy director, Cassidy is the national associate director of the division’s technology controls program with responsibility for examinations of Regulation SCI entities and for overseeing the SEC’s CyberWatch program and the cyber-security program office. In addition to serving as deputy director of the division, Greiner is the national associate director of the investment adviser/investment company exam program.

– Kohl’s Corp CEO Michelle Gass is to step down and take the helm at Levi Strauss & Co amid renewed calls from activist investors for management and board reshuffles at the department store chain, Reuters reported. Gass, who became Kohl’s CEO in 2018, will leave in December to become president at Levi’s early next year before taking over from long-time CEO Chip Bergh within 18 months. Bergh has led Levi’s for the last 11 years. Kohl’s said it would install Tom Kingsbury, a director nominated by hedge fund firms Macellum Advisors and Ancora Holdings, as interim CEO from December 2.

– New York voters approved a $4.2 bn environmental bond, one of the biggest wins for ESG infrastructure in eight years and a sign of the sector’s growth in the municipal bond market, Bloomberg reported. The plan was widely expected to pass, following a long history of successful environmental bond acts in New York. The financing plan is designed to strengthen climate and flooding resilience in a state still recovering from weather-related disasters. The new debt will pay for green building projects, water-quality improvement and shoreline restoration. Of the $4.2 bn, at least 35 percent is pledged to be spent in disadvantaged and under-resourced communities disproportionately affected by climate change.

Reuters reported that, according to people familiar with the matter, investors hoping for large payouts from eurozone banks may be disappointed as supervisors are urging them to preserve capital amid a souring economic outlook. Banks have been reporting large profits and announcing dividends and share buybacks, boosted by increases in interest rates and a trading boom after more than a decade of mostly meager returns.

But with the eurozone now heading for recession and supervisors urging caution, bankers will likely find it harder to reward shareholders as generously next year, as their capital buffers may be smaller than they expect, the people said. The European Central Bank (ECB), which supervises eurozone banks, believes some banks have overly optimistic assumptions about the economy, the people said.

A spokesperson for the ECB declined to comment.

Reuters reported that an EU draft law forcing large companies to check whether their suppliers use slave or child labor is facing calls from several member states to shield or even fully exclude the financial services industry. The European Commission in February proposed the Corporate Sustainability Due Diligence directive, which would also require boards of EU-based companies to ensure their business model and strategy align with targets limiting global warning.

The governments of Luxembourg, Ireland and Germany have indicated they want to exclude asset managers and institutional investors from the law, with France and Italy going further and calling for the entire financial sector to be left out, an EU diplomat familiar with the negotiations said.

– According to CNBC, Keurig Dr Pepper announced that CEO Ozan Dokmecioglu agreed to resign after violating the company’s code of conduct. The company said the violations were not related to its strategy, operations or financial reporting. Keurig Dr Pepper’s board reappointed Bob Gamgort, chair and former CEO, as chief executive. Gamgort had passed the role to Dokmecioglu on July 29 as part of a previously announced succession plan.

– Emmanuel Faber, chair of the International Sustainability Standards Board (ISSB), said he was hopeful of reaching in the coming weeks a ‘big milestone’ toward aligning the EU’s corporate disclosures with his board’s global norms, Reuters reported. Despite nearing agreement over how the work of the ISSB will align with a similar set of EU rules being finalized, differences have persisted over what should be counted when assessing a company. The ISSB is looking to define a global baseline for such disclosures and make as many countries as possible adopt it, and Faber said the issue remained difficult.

The EU is finalizing disclosure rules for 50,000 companies in the 27-country bloc to report on ESG factors, as well as a company’s impact on the environment, known as double-materiality. Global regulators have urged the EU and ISSB to make their climate disclosures interoperable to avoid competing norms confusing cross-border investors.

– The WSJ reported that according to a person familiar with the matter, Lisa Osofsky, director of the UK’s Serious Fraud Office, will leave her job in August 2023 after completing her five-year tenure. The UK attorney general’s office will start its search for her successor immediately, the person said, adding that Osofsky will remain in her job for a short period after her tenure ends, if needed.