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Sep 18, 2020

The week in GRC: BlackRock discloses votes against climate crisis laggards, and SEC postpones Rule 14a-8 vote

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

– According to CNBC, the philanthropic investment group created by eBay founder Pierre Omidyar intends to convince business leaders and policymakers that capitalism needs to be redefined. Omidyar Network released a blueprint calling for investors to start taking a new and seemingly more progressive approach to understanding capitalism.

The group is encouraging leaders to look at the economic system as a way to ‘equally ensure that people who have been historically and systematically marginalized by structural racism, colonialism, paternalism and indifference will have opportunity, power and the self-determination that comes from economic prosperity and a vibrant, fair and responsive democracy,’ the report states. It also argues that capitalism should still be about rewarding individual success.

Omidyar recently retired from the board of eBay. His wife, Pam, co-founded the Omidyar Network.

CNN reported that the coalition that led a boycott involving some of the world’s biggest companies pulling their ads from Facebook in July announced a week of new action against the company. On Wednesday civil rights groups including the Anti-Defamation League and the NAACP called for, among other things, companies and high-profile users to stop posting on Instagram, which is owned by Facebook, to protest its parent company’s handling of hate and its allowing politicians to lie in political ads.

‘Our organizations as well as other experts have been warning Facebook for years about the problem of dangerous, potentially violent groups and individuals using Facebook. But time and time again [it has] failed to listen,’ the group said.

– Molson Coors Beverage Company said it has partnered with DG Yuengling & Son to brew and sell its beers and expand the Pennsylvania-headquartered company’s distribution to the US West Coast, Reuters reported. DG Yuengling said it would operate separately from the joint venture, which is to be led by a board of directors consisting of members from both companies. The partnership is expected to come into effect in the second half of 2021.

– According to the WSJ, a debate over whether business-interruption insurance policies held by millions of companies cover a pandemic is coming in for scrutiny in courts around the world, attracting the attention of regulators, insurers, industry groups and company owners. Insurance companies say the policies are intended to help holders recover from events such as fires, which require repairs and rebuilding, and are not intended to cover pandemic-related claims. For companies, the courts’ rulings could be the difference between survival and bankruptcy.

In the US, litigation over business-interruption policies is happening on a state-by-state basis, which allows for a variety of judgments based on how each policy was worded. The volume of plaintiffs and variety of venues raise the chance of sympathetic judges or juries finding for small-business plaintiffs, some lawyers say.

– The SEC announced an award of more than $10 million to a whistleblower whose information and assistance helped lead to a successful SEC enforcement action. ‘This award recognizes the persistent efforts of the whistleblower to expose serious financial misconduct,’ said Jane Norberg, chief of the SEC’s office of the whistleblower. ‘This whistleblower also provided extensive and ongoing assistance to the investigative team over the course of the investigation, including identifying witnesses and helping staff understand complex fact patterns and issues related to the matters under investigation.’

The SEC has awarded roughly $520 million to 94 individuals since issuing its first award in 2012.

Reuters reported that Ireland’s High Court temporarily froze a probe by Facebook’s lead EU regulator that threatened to halt the company’s transatlantic data flows. Facebook had sought a judicial review of the Irish Data Protection Commission’s preliminary decision that the mechanism it used to transfer data from the EU to the US ‘cannot in practice be used.’

‘Leave to take the judicial review was granted,’ a court spokesperson said.

A Facebook spokesperson welcomed the court decision: ‘Businesses need clear, global rules, underpinned by the strong rule of law, to protect transatlantic data flows over the long term.’ In seeking to overturn the Irish regulator’s decision, Facebook has said the mechanism in question, the Standard Contractual Clause, had been deemed valid by the Court of Justice of the EU in July.

Reuters reported that, according to people familiar with the matter, US investors expect the SEC to drop a contentious provision of proposed reforms that would make it tougher for them to push companies on issues such as climate change and social justice. The rule change would raise the bar for submitting shareholder proposals at companies’ AGMs. Talks on the rule have gone down to the wire as investors made last-ditch efforts to prevent the changes in meetings with SEC staff members and letters, the people said.

Although the SEC will push ahead with the rule change, it is poised to drop one of its most contentious provisions, which would have allowed companies to exclude proposals that have declining shareholder support, the people said. That would be an important reprieve for supporters of social and environmental motions, which can take years on the ballot to gain traction.

‘The rulemaking is tone-deaf to the surge in market support for environmental and social governance disclosure, and the groundswell of demand from young people that their investments and employers have a positive effect on the environment and society,’ said Sanford Lewis, director of the Shareholder Rights Group.

An SEC spokesperson declined to comment.

– The SEC‘s meeting to vote on adopting the amendments to procedural requirements for the submission of shareholder proposals and the provision relating to resubmitted proposals under Rule 14a-8 had been scheduled for Wednesday, September 16, but was postponed to Wednesday, September 23, 2020. Next week’s meeting will now also include discussion originally scheduled for September 2 on whether to adopt amendments to the rules implementing the SEC’s whistleblower program.

– The WSJ reported that Herbert Diess, chair of Volkswagen’s management board, said the carmaker has completed a three-year supervision program under a US-appointed independent monitor following its emissions scandal, resulting in a more transparent company. ‘But the end of the monitorship is not the end of our journey,’ Diess said in a statement. ‘I am committed to the continuous improvement of our organization and its culture, and so are all my board of management colleagues.’

Volkswagen has worked to improve its risk-based compliance program and has focused on training to improve workplace culture as it sought to meet its obligations under a plea agreement with US authorities, said Kurt Michels, Volkswagen’s chief compliance officer. The company said that since 2017 it has updated and strengthened its structures and systems in technical development, governance, risk management, compliance and legal functions, among other divisions.

– According to Reuters, as investors, executives and politicians demand greater racial and ethnic diversity in boardrooms, they are running into a problem: how to tell the ethnicity of directors in the absence of much self-reporting and disclosure. The lack of data, they said, is slowing progress on efforts to improve diversity in the upper ranks of global corporations. Their efforts to increase disclosure have run into hurdles, such as concerns the practice is divisive or that some directors don’t want to list their family backgrounds.

‘We would like to see the makeup of all directors,’ said Benjamin Colton, co-head of stewardship efforts at State Street Global Advisors. ‘We understand there may be directors who don’t want to self-identify, and in those cases we might engage on that a little more.’

Reuters reported that the US Supreme Court will remain closed to the public and will conduct its October oral arguments by teleconference, in an extension of its Covid-19-related restrictions into its new term. Members of the public cannot tour the building and lawyers will present their oral arguments by phone instead of in the courtroom itself. The court for the first time heard arguments by teleconference in May as a precaution against the spread of the coronavirus.

‘The court will continue to closely monitor public health guidance in determining plans for the November and December argument sessions,’ a spokesperson said.

– BlackRock CEO Larry Fink said he does not foresee all employees ever returning to the office, according to CNBC. ‘I don’t believe BlackRock will ever be 100 percent back in office,’ he said. ‘I actually believe maybe 60 percent or 70 percent, and maybe that’s a rotation of people. But I don’t believe we’ll ever have a full, you know, cadre of people in office.’

Fink called the realization that we can work from home ‘one of the great humanistic discoveries.’ But he added that some tasks are better performed in the office, and that there are downsides to having many employees working remotely. ‘Cultures were not meant to be done in a remote fashion, and culture is what binds and unifies us as an organization,’ he said. ‘I’m still not sure how well we’re doing on a cultural basis. Operationally, we’ve done fantastic.'

The Guardian reported that BlackRock disclosed that in the past year it has voted 55 times against directors at 49 companies for failing to make progress on tackling the climate crisis. The firm in January announced its sustainability focus, saying it would be getting tough on companies that did not meet its expectations on dealing with climate risk, and would vote against them at AGMs.

According to its annual investment stewardship report, BlackRock cast more than 5,100 votes against company directors in the past 12 months to hold management to account for failing to make headway on a range of issues, from environmental goals and corporate strategy to board diversity. This was 300 more than in the previous year.

The firm in July said it had identified 244 companies that were not making progress on the climate crisis and voted against 53 of them. It put the remaining 191 companies ‘on watch.’ This is the first time BlackRock has disclosed the number of firms it is reviewing, thereby warning them they risked having votes cast against them in 2021 unless they make significant progress.