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Jun 22, 2018

The week in GRC: Women on track for record number of new board seats, and Chanel releases first annual results

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

The Wall Street Journal reported that Volkswagen said Rupert Stadler, the CEO of its luxury brand Audi, who is being held in prison during an investigation into the company’s diesel-emissions scandal, had stepped aside pending clarification of the issues that led to his arrest. ‘Mr Stadler has declared that he was willing to testify,’ a prosecutor said. ‘We expect to question him tomorrow or during the course of the week.’

Volkswagen and Audi declined to comment on Stadler’s arrest or the investigation against him. Stadler’s attorney didn’t return a request for comment. Stadler has in the past said he had no prior knowledge that illegal software had been installed on Volkswagen or Audi engines. He hasn’t been charged with any wrongdoing.

After a meeting of Volkswagen and Audi directors, Volkswagen said the directors agreed to temporarily relieve Stadler of his duties at his own request while he tries to clear his name. Volkswagen named Abraham Schot, Audi’s sales chief, as the brand’s interim CEO.

Bloomberg said that, according to Goldman Sachs, it is a record year for proposals made by shareholders at Japanese AGMs, which could have positive consequences for investors. Specifically, Goldman expects more companies to sell cross-shareholdings – stock held in other firms for purposes such as strengthening relationships – after shareholder proxies calling for such unwinding more than doubled this year compared with 2017.

More than 40 firms received shareholder proposals this AGM season, and seven of them were urged to reduce cross-shareholdings, according to Goldman. Those resolutions don’t even need to pass to spur change, it says. Getting ‘significant’ shareholder support could be a catalyst.

– The US Supreme Court agreed to hear an appeal by an investment banker banned from the industry by the SEC in a case that may limit the scope of those who can be held liable under laws protecting investors from securities fraud, according to Reuters. At issue is whether a person who did not personally make fraudulent statements but simply passed them along can be found liable for engaging in a fraudulent scheme. Anti-fraud provisions of US securities laws prohibit false statements as well as other conduct categorized as acts, devices, practices or schemes.

– The SEC named Maurya Keating as associate regional director for the investment adviser and investment company examination program in the agency’s New York office. She will join the agency later this month. Keating most recently served as a lead director/vice president and associate general counsel of AXA Equitable Life Insurance, where she spent the past 13 years. She also served as investment adviser chief compliance officer for the firm’s retail platform.

– The WSJ reported that Carl Icahn secured a majority of seats on SandRidge Energy’s board. The activist investor won four board seats in a shareholder vote and the company agreed to give him a fifth after another was too close to call. SandRidge held on to three seats after reaching an agreement with Icahn to expand the board by one. It is unusual for activists to win control of a board as Icahn apparently has at SandRidge. The two primary shareholder advisory firms, Glass Lewis and ISS, had recommended shareholders back some of each side’s nominees.

– According to the Financial Times, the UK’s Financial Conduct Authority (FCA) will launch a review of Mifid II, which changed how asset managers pay for the research they use to make investment decisions. The FCA is worried about inconsistencies in the interpretation and application of the Mifid II regulations, which came into force in January. ‘The costs of research packages offered by some of the big banks are totally out of whack with pricing elsewhere in the market,’ said Joshua Maxey, managing director of Third Bridge, an independent research company, who welcomed the FCA probe.

The New York Times reported that fashion company Chanel released its annual results for the first time in its 108-year history. It also announced a reorganization that will bring all its various companies under one roof. At a time of heightened competition in high-end retail, the French fashion house said it had opened up its books to show that it had the size, and the willingness, to fend off any takeover approaches.

‘We realized it was time to put the facts on the table as to exactly who we are: a $10 billion company with very strong financials, plus all the means and ammunition at our disposal to remain independent,’ said CFO Philippe Blondiaux.

– According to Reuters, Bank of America’s Merrill Lynch unit admitted to misleading brokerage customers about which firms processed their trades and agreed to pay a $42 million fine under a settlement with the SEC. The settlement follows a similar agreement with the New York attorney general in a related probe nearly three months ago, under which Merrill Lynch also admitted to wrongdoing and agreed to pay a $42 million fine.

The SEC said Merrill Lynch engaged in a scheme known as ‘masking’ – including the alteration of trade confirmations – to deceive customers into thinking it was processing their trades in-house, making its trading services appear more active and sophisticated, and reducing the fees it would pay to exchanges.

Bank of America referred to a statement it made on March 23 about the New York settlement, when it said: ‘At all times we met our obligation to deliver the best prices to clients. About five years ago, we addressed the issues concerning communicating to clients about where their trades were executed.’

– The Federal Trade Commission’s new chair, Joseph Simons, is promising active antitrust enforcement across industries as well as scrutiny of big technology platforms, according to the WSJ. Simons said his message to the business community is to expect vigorous enforcement. ‘That’s the key thing. That’s the mantra,’ he said, adding: ‘We want to go after cases that matter.’

– The WSJ reported that, according to an analysis of corporate filings by ISS Analytics, women in the first five months of 2018 accounted for 248 – or 31 percent – of new board directors at the country’s 3,000 biggest publicly traded companies. That is the highest percentage in at least a decade and puts 2018 on track to be a record year for new female board members.

Companies haven’t put women into leadership roles in the boardroom at the same rate, however. Although women occupy 18 percent of board seats at the 3,000 biggest companies, just 10 percent of lead independent directors are women and only 4 percent of boards are led by a woman, according to the ISS data.

Large investors such as State Street Global Advisors and BlackRock are calling for companies to diversify their boards and, in some cases, voting against certain directors at firms with all-male boards.

Reuters reported that the 35 largest US banks are preparing to put more money toward dividends, share buybacks and business investments after clearing the first stage of their annual regulatory stress tests. Although the banks would suffer $578 billion in total losses in the Federal Reserve’s most severe scenario to date, their level of high-quality capital would be greater than the threshold regulators demand.

– AmTrust Financial Services said shareholders approved its plan to be taken private by two New York families and a private equity firm, according to the WSJ. The bid was initially challenged by activist investor Carl Icahn, who said the first deal was ‘happening at the wrong price at the wrong time.’ Earlier this month, however, Icahn agreed to support the deal when the buyers increased the offer to $2.95 billion.