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Jan 19, 2024

The week in GRC: BlackRock to press companies on resilience this proxy season and US eyes tougher penalties for export-control violations

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

The Wall Street Journal (paywall) reported that a federal judge blocked JetBlue Airways from acquiring Spirit Airlines, agreeing with the US Department of Justice (DoJ) that the $3.8 bn deal would eliminate a competitor important to price-conscious travelers. The DoJ said JetBlue’s purchase of Spirit would remove an ultra-low-cost carrier that benefits travelers and puts pressure on other airlines to keep down fares. Removing Spirit as a rival would allow JetBlue to increase prices by as much as 30 percent, the government said.

Judge William Young agreed that the proposed deal would substantially lessen competition. ‘Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you,’ he wrote in his decision.

Merging with Spirit would provide more planes, more pilots and a broader network to win over more travelers, JetBlue said. Those claims didn’t persuade the DoJ or the judge. The airlines said in a joint statement that they disagreed with the court’s ruling and were evaluating next steps. They said the merger was still the ‘best opportunity’ to increase competition, keep fares low and compete with bigger airlines.

Reuters (paywall) reported that according to governance experts and analysts, Elon Musk’s warning about developing AI and robotics outside Tesla unless he gets more voting control at the company may infringe on his duties as CEO. Musk said he would be ‘uncomfortable’ building Tesla into a leader in AI unless he has about 25 percent voting control at the company. ‘Enough to be influential, but not so much that I can’t be overturned. Unless that is the case, I would prefer to build products outside of Tesla,’ he said on X, formerly Twitter.

‘The problem is his tweets suggest that in his capacity now as CEO and director, he is not only turning down profitable Tesla opportunities based on his personal preferences, but also redirecting them to his private companies,’ said Ann Lipton, a professor at Tulane Law School. ‘That’s a conflict of interest that suggests a violation of his fiduciary duties to Tesla.’

‘It would be illegal for him to go ahead with building technologies Tesla has touted without the company’s permission,’ said Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.

Musk and Tesla could not be reached for comment.

– According to a WSJ analysis, companies in the S&P 500 spent $65 mn for executives to use corporate jets for personal travel in 2022, up about 50 percent from pre-pandemic levels three years earlier. Early signs suggest the trend continued last year. Overall, the number of large companies providing the perk has risen roughly 14 percent since 2019 to 216 in 2022, figures from Equilar show. The number of executives receiving free flights grew nearly 25 percent to 427. Most companies report executive pay and perks in the spring.

– Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said AI will affect 40 percent of jobs globally and that it is ‘crucial’ countries build social safety nets to mitigate the impact on vulnerable workers, The Guardian reported.

Analysis by the IMF finds that about 60 percent of jobs in advanced economies such as the US and the UK are exposed to AI and half of these jobs may be negatively affected. But the technology will also help to enhance some humans’ productivity as AI improves their performance, it added. According to the IMF, the safest highly exposed jobs are those with a ‘high complementarity’ to AI, meaning the technology will assist their work rather than fully displace it, such as surgeons, lawyers and judges.

– Rogers Communications said deputy chair Melinda Rogers-Hixon and Martha Rogers have decided to retire from the Canadian company’s board as part of a private settlement between the members of the founding family, Reuters reported. ‘With our family differences now settled, we both believe this is the appropriate time to retire from the Rogers Communications board,’ the women said in a statement.

CNBC reported that BP appointed Murray Auchincloss as permanent CEO. His appointment comes roughly four months after his predecessor Bernard Looney resigned. Auchincloss, then CFO, was named interim CEO at the time of Looney’s exit. He has been at BP since the company’s 1998 merger with Amoco Canada, which he joined in 1992. ‘The board is in complete agreement that Murray was the outstanding candidate and is the right leader for BP,’ said chair Helge Lund in a statement.

– According to Reuters, BlackRock said the world is entering a ‘new economic regime’ that will see company performance driven by how boards manage mega-trends such as AI and the transition to a low-carbon economy. BlackRock said figuring out how companies plan to build resilience into their strategy as a result of the changing macroeconomic and geopolitical landscape would be a focus of talks with them ahead of AGMs. Other topics would continue to include board quality and effectiveness, strategy and purpose, incentives, climate & natural capital and the impacts a company has on people.

– The WSJ reported that Matthew Axelrod, the US Department of Commerce’s assistant secretary for export enforcement, said companies should expect much higher penalties for violations of export controls, the use of which has expanded as the US government tries to limit the ability of Russia and China to obtain certain technology. US penalties for export-control violations could begin to approach the size of those handed down for foreign bribery, Axelrod noted.

‘I think we’re on the cusp of that,’ he said. ‘You can expect to see more big-ticket corporate resolutions going forward.’ He also announced changes designed to make it easier for businesses to report their own violations.

– Activist investor Nelson Peltz’s Trian Fund Management, in formally nominating Peltz and former Disney CFO Jay Rasulo to Disney’s board, made a list of initiatives and performance targets they’d pursue if elected, according to CNBC. In a proxy filing, Peltz and Rasulo promised to ‘finally complete a successful CEO succession’, alluding to CEO Bob Iger’s consistent delaying of his retirement date and his return to the role. Trian said it would ‘align management pay with performance.’ It also aims to target and achieve ‘Netflix-like margins’ of 15 percent to 20 percent by 2027, with Peltz adding that he thinks Netflix is Disney’s biggest competition.

Disney has so far rejected Peltz’s push to join the board.

The Guardian reported that Sheryl Sandberg is to step down from the board of Meta, Facebook’s parent company. She stepped down as COO in June 2022 and has now announced she will leave the Meta board after her term ends in May. ‘The Meta business is strong and well positioned for the future, so this feels like the right time to step away,’ Sandberg wrote in a Facebook post. She said she would become an adviser to the company.

– The WSJ reported that according to a report from consultancy South Pole, nearly half of 1,400 companies surveyed said it had become harder to communicate their climate goals compared with around a year earlier. Several hundred companies said they were talking less about their net-zero goals.

The dilemma for companies comes at a time when some shareholders are demanding management do more on a range of ESG issues but regulators say some companies made unsubstantiated or exaggerated claims about their environmental goals. Their approach appears to have unintended consequences, as some firms decide it is too risky to publicize efforts to improve their climate records, a choice known as green hushing.

‘Corporate greenwashing has always been a challenge, but the pendulum has swung so far that now even the greenest companies are green hushing,’ South Pole said.

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...