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Mar 24, 2023

The week in GRC: Biden vetoes effort to block DoL’s ESG rules and experts question bank boards’ risk oversight

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

CNBC reported that the United Nations published a landmark report urging governments to begin an urgent course correction to tackle the climate crisis, warning that existing plans were insufficient to prevent the worst of what is to come. The UN’s Intergovernmental Panel on Climate Change (IPCC) said the unprecedented challenge of keeping global warming to 1.5°C above pre-industrial levels had become even greater in recent years due to increasing global greenhouse gas emissions.

‘Mainstreaming effective and equitable climate action will not only reduce losses and damages for nature and people, but will also provide wider benefits,’ said IPCC chair Hoesung Lee in a statement. ‘This Synthesis Report underscores the urgency of taking more ambitious action and shows that, if we act now, we can still secure a livable, sustainable future for all.’

– According to The Wall Street Journal (paywall), payments company FLEETCOR Technologies has struck an agreement with activist shareholder DE Shaw Group to refresh its board and consider separating parts of its business. As part of the agreement, FLEETCOR has appointed Rahul Gupta, the former CEO of healthcare-billing and payments company RevSpring, to its board, as well as another mutually agreed-upon director, and had already appointed tech executive Annabelle Bexiga to its board in January. One of its longer-tenured directors is soon expected to retire, the company said on Monday. FLEETCOR added that it plans to pursue a strategic review of its business, a process it aims to complete by year-end.

– Asset manager DWS criticized the multiple board commitments of Bayer’s chair, with the company the target of activist investors in the run-up to a change of CEO on June 1, Reuters (paywall) reported. Hendrik Schmidt, a corporate governance expert at Germany’s DWS, said his questions at Bayer’s AGM on April 28 will include whether chair Norbert Winkeljohann plans to reduce the number of board positions he holds. ‘We will question critically how he aims to make sure he can give his mandate as supervisory board chairman at Bayer the necessary attention,’ Schmidt said.

Winkeljohann has chaired Bayer’s non-executive board since 2020. He is also Deutsche Bank’s deputy chair, chair at unlisted wholesale trade groups Sievert and Bohnenkamp and a board member at steel maker Georgsmarienhuette. Schmidt said DWS views this as a clear case of a chair’s attention being overstretched under its vetting rules for stocks in which it invests, though he said the asset management firm had yet to decide how it will vote at the AGM.

Bayer declined to comment. In its notice of the AGM, the company said its ‘supervisory board has satisfied itself’ that Winkeljohann is able to make time for his duties, taking into account his seats on other boards.

CNBC reported that Starbucks said Laxman Narasimhan had officially become CEO nearly two weeks earlier than expected. He was due to lead the company’s AGM on Thursday this week in his first public address as its CEO. After being named incoming CEO in September, Narasimhan has spent months learning about Starbucks’ business, including training as a barista. The official transition was expected to happen on April 1. Narasimhan succeeded Howard Schultz at the end of his third spell in the job.

– The WSJ reported that President Joe Biden issued the first veto of his presidency, rejecting a Republican-led measure that would have overturned a US Department of Labor regulation allowing retirement-plan managers to consider ESG factors in their investment decisions. Guidelines regarding ESG have been targeted by conservatives, who have been arguing they are part of an effort by progressives to promote ‘woke capitalism’. Defenders of the regulation say ESG simply adds another factor for managers to consider when making investments.

‘This bill would risk your retirement savings by making it illegal to consider risk factors Maga House Republicans don’t like,’ Biden said. ‘Retirement plan fiduciaries should be able to consider any factor that maximizes financial returns for retirees across the country. That is not controversial – that is common sense.’

– Senators Elizabeth Warren, D-Massachusetts, Bernie Sanders, I-Vermont and 10 other senators are calling for the Federal Reserve to clamp down on large regional banks with assets between $100 bn and $250 bn following the collapse of Silicon Valley Bank (SVB), according to CNN. Both SVB and Signature Bank fit into that asset threshold when they failed.

The bipartisan 2018 rollback of the Dodd-Frank Act released large regional banks in that range of assets from the toughest oversight and the lawmakers noted that the same 2018 rollback gives the Fed latitude in applying tougher regulation to banks in this category – including stronger capital, liquidity, stress testing and resolution plans.

‘The Fed has a responsibility to ensure financial stability and, in order to fulfill that responsibility, it must ensure that all banks with potential systemic significance are subject to rigorous safety and soundness rules,’ the lawmakers wrote.

Reuters reported that activist investor Engine Capital urged fuel marketer Parkland Corp to look at strategic alternatives including the sale or spin-off of non-core assets to become a more focused fuel and convenience retailer. ‘If the board is unwilling to optimize the business in the public market, we believe the board should consider a sale of the entire company to either private equity or [a] strategic buyer,’ Engine Capital said.

Parkland has accumulated assets that are not typically owned by pure-play fuel and convenience operators, according to Engine Capital. The activist investor also urged the company to change its compensation framework to better align management’s incentives with shareholders’ interests.

‘The letter has been circulated by management to the board of the company for its review and consideration,’ Parkland said in a statement.

– According to the WSJ, risk professionals say board-level risk committees at many banks have neither the clout nor the expertise to push back against corporate leadership, a weakness that should be addressed in the wake of the recent bank collapses. The largest banks by law must have a risk committee that reports directly to the bank holding company’s board. Those committees must include at least one member with experience in ‘identifying, assessing and managing’ risk exposures of large financial firms, according to an amended version of Dodd-Frank.

But the board-level risk committees often don’t go beyond that single qualified member and can sometimes lack the expertise to stand up to senior management, said Clifford Rossi, a former chief risk officer for Citigroup’s consumer lending group and now a professor at the University of Maryland’s Robert H Smith School of Business. His research found that most of the failures of the previous financial crisis could be traced to deficiencies in risk governance.

CNBC reported that Toshiba Corp’s board accepted a buyout offer from a group led by private equity firm Japan Industrial Partners, valuing the company at ¥2 tn ($15.2 bn). A successful deal would see the conglomerate taken private following tension with overseas activist shareholders. But it is not yet clear whether activist funds will be satisfied with the terms.

Reuters said that, according to data from the National Association for Law Placement (NALP), US law firm hiring slowed significantly in 2022 after a supercharged 2021, at least for more junior lawyers at the biggest firms. Lateral hiring decreased nearly 12 percent overall in 2022 on the heels of a 111 percent increase the previous year. The decline was driven by a decline in demand for associates, NALP found.

The number of lateral associate moves declined 20 percent last year compared with 2021, when corporate deals pushed demand for legal services to record highs and prompted firms to increase associate hires by 149 percent.

– The WSJ reported that lawmakers, bankers and advocacy groups have written to the Financial Crimes Enforcement Network (FinCEN) about recent proposals around a corporate-ownership database intended to clamp down on the use of anonymous shell companies, arguing that they would defeat the purposes of creating it. In letters this week, the various groups criticized a proposed reporting form that would give companies the option to say they were unable to identify their owners and to mark ‘unknown’ with respect to key information about any owners.

‘It is shocking that something as simple as an information-intake form may, if left in its current state, sink a landmark anti-corruption achievement more than a decade in the making,’ said Zoë Reiter, a director for the Project on Government Oversight.

A FinCEN spokesperson said the agency was committed to effectively implementing the ownership database and would be carefully considering all comments submitted on its proposals.

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...