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Jul 12, 2019

The week in GRC: Anadarko shareholders to vote on Occidental deal, and DoJ to credit antitrust compliance programs

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

The New York Times reported that the UK Information Commissioner’s Office (ICO) said it intended to order British Airways to pay a fine of almost $230 million over a data breach last year, which would be the largest penalty against a company for privacy lapses under the General Data Protection Regulation (GDPR).

According to the ICO, poor security at the airline allowed hackers to divert roughly 500,000 customers visiting the British Airways website last summer to a fraudulent site, where names, addresses, login information, payment card details, travel bookings and other data was taken.

British Airways said in a statement that it was ‘surprised and disappointed’ by the agency’s finding and that it would dispute the judgment. British Airways chair and CEO Alex Cruz said the company had ‘responded quickly to a criminal act to steal customers’ data.’ The hack occurred in 2018 from June until September.

The ICO said it would ‘carefully consider’ responses from the airline and others to its penalty before issuing a final decision.

– According to The Wall Street Journal, CEOs of banking and financial institutions in the S&P 500 received a median raise of 8.5 percent last year, compared with 5.6 percent for CEOs in the broader index. At the same time, firms in the industry posted a median total shareholder return of negative 17 percent in 2018, while the median return for the index overall was negative 5.8 percent. Median pay for finance CEOs was $11.4 million for the year, $1 million below the overall S&P 500 median.

Federal financial regulators are considering finalizing rules, first adopted under the Dodd-Frank Act, that would require big banks to postpone more pay for top executives with provisions to rescind it in the event of later losses at the companies, the WSJ has reported.

– The number of companies valued at $10 billion or more that have gone public in the first half of this year is more than at any other time since the dotcom boom in 2000, the WSJ said.

Uber Technologies, Lyft, Pinterest, Zoom Video Communications, CrowdStrike Holdings and Chewy all made their stock-market debut within a matter of months, equaling the number of $10 billion-plus listings seen from 2015 through 2018, according to data compiled by Jay Ritter, a professor at the University of Florida.

The total number of listings has been in line with recent years.

Allison Herren Lee was sworn into office as a member of the SEC. Most recently, Lee has written, lectured and taught courses internationally on financial regulation and corporate law. She served for more than a decade in various roles at the SEC, including as counsel to commissioner Kara Stein and as senior counsel in the division of enforcement’s complex financial instruments unit. Lee has also served as a special assistant US attorney and was a member of the American Bar Association’s former committee on public company disclosure.

– The SEC also announced that Julie Erhardt, deputy chief accountant for technology and innovation in the office of the chief accountant (OCA), plans to leave the agency this month after more than 14 years. She has served as a deputy chief accountant most recently focused on innovations in financial reporting and previously on international accounting and auditing matters in the OCA.

‘Julie’s expertise and commitment to our mission were made particularly evident to me when she agreed to serve as the commission’s first acting chief risk officer, setting a course for our efforts to identify, monitor and mitigate risks,’ SEC chair Jay Clayton said in a statement. ‘The SEC has benefitted from her work in each of the roles she has taken on during her 14 years of service.’

– The day after British Airways faced a proposed penalty under new EU privacy rules, CNN reported that Marriott faces a £99 million ($124 million) fine for allegedly failing to protect customer data. The hotel company said in a regulatory filing that the UK Information Commissioner’s Office intends to impose the fine under the GDPR.

The regulator said the proposed penalty relates to a Marriott data breach that exposed 339 million guest records globally, including 30 million Europeans. Marriott has said the hack began in 2014 but was only discovered in November 2018, shortly before it reported the breach.

Marriott said it would appeal any fine imposed by the regulator. ‘We take the privacy and security of guest information very seriously and continue to work hard to meet the standard of excellence our guests expect,’ Marriott International CEO Arne Sorenson said in a statement.

– In an interview ahead of his retirement announcement on Monday, Leo Strine, chief justice of Delaware’s Supreme Court, urged large investment funds to pressure US companies to stop funding political causes and advocate for labor, Reuters reported. ‘No one invests their money so that these corporations can spend it on politics. No one,’ Strine said. ‘It’s unaccountable and it’s wrong.’

Delaware is home to most publicly traded companies, so its courts are the most influential judiciary in the US. Strine spent two decades there as a judge, including the last five as chief justice. He said it would be an ‘evolutionary step’ for companies to have a director protecting the interests of the workforce and he supported Senator Elizabeth Warren’s (D-Massachusetts) bill to expand corporate directors’ purview to include labor.

He also criticized using mandatory arbitration as a way to further reduce shareholder litigation. Arbitration would deny companies and investors lengthy written opinions that help improve corporate governance, he said.

– The WSJ reported that the Organization for Economic Cooperation and Development Working Group on Bribery in International Business Transactions called on Japan to boost enforcement of its foreign-bribery laws, saying the country has one of the least stringent enforcement rates given the size and range of its economy.

The working group said the Japanese authorities have made some progress since the previous evaluation in 2011 and lauded implementation of new rules to close some loopholes in its regulation. Japan will submit a written report to the working group by June 2021 on its implementation of recommendations and its enforcement efforts.

– Five federal regulators – the Federal Reserve, Commodity Futures Trading Commission, Federal Deposit Insurance Corp, Office of the Comptroller of the Currency and SEC – adopted a final rule that excludes community banks from the Volcker Rule.

Under the final rule, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets are excluded from the rule. The final rule also allows a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment adviser as long as the adviser is not an insured depository institution, a company that controls an insured depository institution or a bank holding company.

– According to Reuters, Elliott Management has invested more than competitors in its efforts for corporate change so far this year and there has been a growing focus among activist investors on German companies. Elliott committed $3.4 billion in new capital in the first six months of 2019, according to data on the sector compiled by Lazard.

Elliott has investments in Bayer and SAP, reflecting the rise in activism directed at corporate Germany. ‘Two years ago, many German corporates did not think about activists. Now we are getting more and more calls from management teams and supervisory boards. There’s a real awakening, a dramatic shift,’ said Richard Thomas, who leads Lazard’s European shareholder advisory practice.

Institutional shareholders were increasingly seeing the value of engaging with activist investors in Germany, said Louis Barbier of SquareWell Partners, which surveyed asset managers.

– Public real estate companies are adding slightly more female than male directors to their boards, an indication that the male-dominated industry may be starting to respond to calls for gender diversity, according to the WSJ.

Boards of real estate investment trusts added 60 new female members, or 50.4 percent of the 119 new directors, during the 2019 spring proxy season, according to Ferguson Partners. During the 2018 proxy period, 52 percent of the newly elected directors were women – the first time that females comprised the majority of new board members. Only a quarter of new real estate board members were women in 2015.

– The Financial Industry Regulatory Authority (FINRA) today released new guidance on obtaining credit for extraordinary co-operation in investigations. FINRA’s enforcement team credits extraordinary co-operation so that the outcome is ‘materially different’ than it would have been otherwise, officials noted.

‘In response to comments from member firms requesting further transparency, FINRA is issuing this notice to provide additional information about what firms and individuals can do to earn credit for extraordinary co-operation, and what kinds of credit are available,’ Susan Schroeder, executive vice president with the department of enforcement, said in a statement.

– Norwegian Air CEO Bjørn Kjos stepped down from the company he founded and still partially owns. He said that he would continue working as an adviser to the airline’s chair, focused on industry alliances and building on a recent agreement with rival EasyJet, according to CNN. CFO Geir Karlsen will act as interim CEO while the company hires a permanent replacement.

Reuters reported that the European Central Bank (ECB) has hired former Goldman Sachs banker Elizabeth McCaul as one of its top banking supervisors. She is one of three new ECB representatives on the Single Supervisory Board, which oversees the eurozone’s 114 largest banks. McCaul will join the ECB from Promontory Financial Group.

She will be joined on the Single Supervisory Board by Edouard Fernandez-Bollo, who works for the French banking watchdog, and Kerstin af Jochnick, who until Thursday was first deputy governor of the Swedish central bank.

– US companies have started to take notice of the threats of the growing incidence of extreme weather to their businesses but, according to Michael Arone, chief investment strategist at State Street Global Advisors, investors should also be aware of the economy-wide effects of these disasters, MarketWatch noted.

‘Extreme weather is having an effect on economic growth,’ Arone said, even though it has had ‘little effect on markets’. In a recent research note, Arone made the case for why investors should start paying closer attention. ‘From record-setting heat to flooding in the Midwest, weather could play an outsized and unnoticed role in upcoming economic releases,’ he wrote.

Reuters reported that Anadarko Petroleum shareholders will vote next month on the company’s planned $38 billion sale to Occidental Petroleum. Occidental avoided its own shareholder vote on the deal by securing a $10 billion financing agreement with Berkshire Hathaway, which allowed it to raise the cash portion of its offer.

Although an Anadarko shareholders’ vote for the proposed deal is very likely, the price has angered several Occidental investors, including activist Carl Icahn, who has called for a special meeting to replace four Occidental directors.

– The WSJ said the US Department of Justice (DoJ) will start rewarding companies that have systems in place to prevent antitrust crimes at the time a breach occurs. Assistant Attorney General Makan Delrahim, who runs the DoJ’s antitrust division, said a company that can show it had a strong compliance program can receive discounts off fines and a more lenient type of settlement. The department has also released written guidance on how it evaluates such programs.

The announcement extends a policy for crediting companies that develop programs for preventing corruption offenses. It is the latest effort by the DoJ to incentivize companies to invest in programs that prevent crimes before they happen.

– According to CNN, Accenture has named Julie Sweet as its next CEO, adding to the limited ranks of women who lead major companies. The firm said Sweet will take the top job in September. She is at present head of Accenture’s North America business.

‘Julie is the right person to lead Accenture into the future, given her strong command of our business and proven ability to drive results in our largest market,’ said David Rowland, the company’s interim CEO and incoming executive chair. Sweet joined Accenture in 2010, serving as the company’s general counsel after 10 years as a partner at Cravath Swaine & Moore.

There are now more women CEOs of Fortune 500 companies than ever before. The latest Fortune list, published in May, put the total at a record high of 33 – up from the previous record of 32 in 2017. But the current figure equates to just 6.6 percent of Fortune 500 CEOs being female.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...