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Dec 09, 2022

The week in GRC: Activist investor criticizes BlackRock CEO Fink and SEC reopens comment period on stock buyback proposal

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

The Wall Street Journal (paywall) reported that restaurant and trade groups said they have submitted enough voter signatures for a ballot measure to try to stop the implementation of a new California law that would set minimum hourly wages for fast-food workers in the state. A coalition of restaurant owners and business groups called Save Local Restaurants said it had filed more than 1 mn petition signatures to put the law on hold and place an initiative before California voters on the 2024 ballot.

The California law could set the minimum wage for the fast-food industry as high as $22 an hour next year and establish new workplace standards. Governor Gavin Newsom signed the legislation last September, saying it would give workers a stronger voice in determining their wages and working environments.

– VF Corp announced CEO Steve Rendle’s retirement and named its lead independent director Benno Dorer as interim CEO, effective immediately, Reuters reported. Rendle, who was also board chair, was CEO for nearly six years and has been with the apparel and footwear maker for about 25 years. The company said it has started looking for a permanent CEO and named Richard Carucci as interim board chair. Dorer joined VF Corp’s board in 2017 and has served as the company’s lead independent director since 2021.

– Italian fashion group Prada confirmed it would name former Luxottica CEO Andrea Guerra as its new CEO, Reuters reported. Current CEO Patrizio Bertelli will be appointed chair of the company at its AGM next spring. He will replace Paolo Zannoni who will be recommended for the role of executive deputy chair of the group and chair of its parent company Prada Holding. Current co-CEO Miuccia Prada will remain creative director of the Miu Miu and Prada brands – the latter together with Belgian designer Raf Simons – and a board member.

Reuters reported that AT&T agreed to pay a $6.25 mn penalty to settle an SEC lawsuit accusing the company of selectively leaking financial information to Wall Street analysts. Three executives of the company – Christopher Womack, Kent Evans and Michael Black, who the SEC alleged were involved in violating Regulation FD – also agreed to each pay a $25,000 penalty. The parties settled without admitting or denying wrongdoing.

‘We are committed to following all applicable laws and pleased to have resolution with the SEC. With this settlement, the company and its employees neither admitted nor denied the SEC’s allegations,’ AT&T said in a statement.

The SEC adopted Regulation FD in 2000 to prevent companies from disclosing material non-public information privately, helping level the playing field for investors.

CNBC reported that BlackRock CEO Larry Fink is facing calls from activist investor Bluebell Capital to step down over the firm’s alleged ‘hypocrisy’ on its ESG messaging. Fink has become a high-profile proponent of stakeholder capitalism and in his annual letter to CEOs earlier this year rejected accusations that the asset manager was using its size to push a political agenda. In a letter to Fink dated November 10, shareholder Bluebell expressed concern about the ‘reputational risk (including greenwashing risk) to which BlackRock under the leadership of Larry Fink has unreasonably exposed the company.’

In a statement, BlackRock responded: ‘In the past 18 months, Bluebell has waged a number of campaigns to promote its climate and governance agenda. BlackRock investment stewardship did not support its campaigns as we did not consider it to be in the best economic interests of our clients.’

Bluebell partner and co-founder Giuseppe Bivona said the firm was concerned about ‘the gap between what BlackRock consistently says on ESG and what it actually does’, based on Bluebell’s encounters with the firm during activist campaigns.

– The SEC reopened the comment period on proposed amendments intended to modernize and improve the disclosure required on companies’ repurchases of their equity securities, often referred to as buybacks. The SEC said it is reopening the comment period because, after the proposed amendments were published for public comment, the Inflation Reduction Act of 2022 was enacted.

The law imposes on certain companies a non-deductible excise tax equal to 1 percent of the fair market value of any stock of the company repurchased by that company during the taxable year. The agency has prepared a memorandum discussing potential economic effects of the new excise tax that may be helpful in evaluating the proposed amendments.

– The WSJ reported that Nina Chen, recently appointed chief climate risk officer at the Office of the Comptroller of the Currency (OCC), said the organization doesn’t want to steer banks to take on particular views on climate change. ‘We… do not have expectations that banks need to contribute to lower greenhouse gas emissions or have net-zero targets,’ Chen said. ‘And we definitely do not direct capital flow to or away from certain sectors and companies.’

The OCC has said the largest banks should protect against the risks they face from climate change, including those arising from physical events such as extreme weather and from the transition to a lower-carbon economy. Weaknesses in how they approach that risk could hurt individual banks or the overall financial system, the regulator said in draft guidance issued last year.

Chen said the OCC is concerned with the ‘safety and soundness’ of financial institutions. The OCC’s mission ‘is not about directing capital or about supporting [a] low-carbon transition,’ she said.

– According to Reuters, a new report found that US law firms saw decreased demand in 2022 measured against ‘aberrational performance’ in 2021, with the biggest firms feeling the worst of the decline. Client demand dropped 1.2 percent overall through the first nine months of this year, compared with the same period last year, Citi Private Bank’s law firm group and Hildebrandt Consulting said.

The report said firms ranked among the top 50 highest-grossing in the US by The American Lawyer saw demand drop 1.9 percent in the first three quarters. Firms expect growth in bankruptcy and financial restructuring practices next year, although that has not built up just yet, according to the report. Firms also expect growth in areas such as regulatory and compliance, antitrust and ESG work, the report said.

– According to Bloomberg (paywall), Franck Tuil’s Sparta Capital Management called on consulting and engineering firm John Wood Group to pursue buybacks to raise its stock price. John Wood Group is ‘substantially undervalued’ against global peers and has the potential for ‘well more than 100 percent’ upside, Sparta Capital wrote in a letter to the company’s board.

‘Wood generates reliable and predictable operating cash to invest in its future and reward its shareholders,’ Tuil wrote. ‘You should underpin the confidence and visibility you have in your future prospects with decisive action on shareholder returns.’

‘We have engaged in a constructive dialogue with Sparta, and there is much in its letter that we agree with,’ said a spokesperson for John Wood Group. ‘We look forward to continuing that discussion.’

Reuters reported that TotalEnergies, one of the last western companies remaining in Russia, said it would take a $3.7 bn write-off on its stake in Russian group Novatek and withdraw its two members from the company’s board. Unlike BP and Shell, and despite criticism from some activists, TotalEnergies maintained several investments in Russia after the country invaded Ukraine.

TotalEnergies said in a statement that EU sanctions against Russia meant its two directors on Novatek’s board were abstaining from voting in board meetings, in particular on financial matters, and so could not fulfill their roles. ‘Under these circumstances, the board of directors of TotalEnergies has decided to withdraw the representatives of the company from the board of PAO Novatek with immediate effect.’