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Apr 24, 2020

The week in GRC: Businesses seek post-pandemic liability curbs and Covid-19 raises corporate reputation risks

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

The Wall Street Journal reported that major US companies are looking into ways to test their employees for Covid-19 before they come to work. Regular tests for workers could keep exposure to sick employees to a minimum and boost employees’ confidence about coming back to work, corporate medical advisers and HR executives say. But companies face challenges in quickly building testing capacity because tests are difficult to obtain in large quantities and the practice raises potential issues of privacy and liability.

Amazon CEO Jeffrey Bezos recently told shareholders that the company has started gathering the equipment it needs to build a Covid-19 testing lab for its employees. The company has redeployed a team of scientists, procurement specialists and software engineers to work on a lab for testing frontline workers.

– According to Bloomberg, Deutsche Bank has created a dedicated sustainable finance team within its capital markets division in response to the growing focus on ESG among clients. The bank hired Trisha Taneja from Sustainalytics to lead the team, which will operate within its existing capital solutions and sustainable financing group, according to an internal memo. A Deustche Bank spokesperson confirmed the internal announcement.

‘Being able to offer global clients further ESG product expertise, regulatory guidance and investor perspectives will be a key differentiator, opening the door to broader strategic dialogue,’ said Henrik Johnsson, co-head of capital markets, and Frazer Ross, head of the bank’s EMEA investment-grade debt capital markets syndicate, in the memo.

– Shake Shack is returning a $10 million loan it received from the US government under the Paycheck Protection Program (PPP) that was held up as a way to help small businesses pay workers and keep their operations running during the coronavirus crisis, CNN reported. There has been a growing backlash over the distribution of funds under the PPP, with media outlets reporting that large chunks of the package were taken by chain restaurants, hoteliers and publicly traded corporations rather than small, local businesses.

Shake Shack CEO Randy Garutti and chair Danny Meyer revealed their decision to give back the funding in an open letter, saying that the NYSE-listed company no longer needs the money because it is ‘fortunate to now have access to capital that others do not.’ The company said in a filing that it expects to be able to raise up to $75 million from investors by selling shares. Garutti further told CNN that the company changed its mind and returned the loan after hearing small business owners’ stories about not getting access to it.

Reuters said the Covid-19 pandemic has ended the latest experiment in dual leadership at SAP as the German software company named Christian Klein as its sole CEO to give clarity to its 400,000 customers. Klein will take on full responsibility while Jennifer Morgan, who was appointed alongside him last autumn to jointly run the company, will leave on April 30. ‘What we figured out is that we have a responsibility to give our customers clear guidance,’ Klein said.

Morgan became the first woman CEO of a German blue-chip company, but her tenure was cut short by the sudden economic slump following the coronavirus’ spread. ‘I have always believed co-CEO models have their place and their time – after all I was a co-CEO once. But this has turned out not to be that time,’ wrote SAP’s co-founder and chair Hasso Plattner in a message to staff.

– Major US business groups are lobbying Congress to pass measures that would protect companies from coronavirus-related lawsuits when states start to lift pandemic restrictions and businesses begin to reopen, according to Reuters. The US Chamber of Commerce, National Association of Manufacturers and National Federation of Independent Business are seeking temporary legal and regulatory safe harbor legislation to curb liabilities for employers that follow official health and safety guidelines.

Companies want to make sure they are not held liable for policy decisions by government officials if employees or customers contract Covid-19 once operations resume. They also want protection from litigation that could result from coronavirus-related disruptions to issues such as wages and hours, leave and travel.

– The WSJ reported that PG&E chief executive Bill Johnson will step down on June 30 after a little over a year in the role. The company said Johnson, who was appointed last April to help direct the company out of bankruptcy, has decided to retire. PG&E will appoint William Smith, a former AT&T executive who joined the board in October, as interim CEO.

‘I joined PG&E to help get the company out of bankruptcy and stabilize operations. By the end of June, I expect that both of these goals will have been met,’ Johnson said in a statement. ‘As we look to PG&E’s next chapter, this great company should be led by someone who has the time and career trajectory ahead of [him] to ensure it fulfills its promise to reimagine itself as a new utility.’

– The WSJ, noting that some senior executives are taking pay cuts in an effort to show solidarity with their employees who are being downsized in unprecedented numbers, reported that companies whose leaders don’t do this face reputational risks for years to come.

With many investors focusing on ESG issues, perceived missteps could do companies more damage than in the past. Proxy advisory firms and index funds are paying more attention to board accountability, according to governance analysts. Activist investors might target companies that give executives more equity to compensate them for leading through a crisis, said Aaron Bertinetti, senior vice president for research and engagement at Glass Lewis.

– White House economic adviser Larry Kudlow said he was in favor of protecting companies from coronavirus-related lawsuits as the administration eyes a speedy reopening of the economy, according to CNBC. Kudlow said companies, and particularly small businesses, should not have to face what he called ‘trial lawyers putting on false lawsuits.’

Some economists have expressed skepticism about limiting corporate liability for coronavirus risks. Justin Wolfers, an economics and public policy professor at the University of Michigan, wrote on Twitter recently: ‘The whole point of making employers liable for risking the lives of their staff is to prevent them from exposing their staff to undue risk. Businesses are asking for the right to expose their workers to fatal risks with no consequences.’

– SEC chair Jay Clayton warned investors against putting money into Chinese companies as they rebalance their portfolios following market turmoil due to problems with those companies’ disclosures, Reuters reported. Clayton’s remarks came after the regulator said Beijing-based US-listed issuers should ‘present risks prominently, in plain English and discuss them with specificity.’

The note restated that the SEC and other authorities often have difficulties in bringing and enforcing actions against non-US companies for false disclosures around the nature and quality of financial information, including financial reporting and audits.

– According to the WSJ, New York City’s pension system is joining the call for the removal of Lee Raymond from JPMorgan Chase’s board, saying that the former ExxonMobil CEO ‘lacks the impartiality and climate competency’ needed to fulfill his duties when it comes to risks arising from climate change.

Three city pension funds plan to vote against Raymond at next month’s AGM, according to New York City comptroller Scott Stringer, who has been working on a plan for the funds to divest their holdings in companies that own fossil-fuel reserves. He said Raymond’s background conflicts with his responsibilities as lead independent director for JPMorgan.

A JPMorgan spokesperson said the bank had no comment beyond its proxy statement, in which JPMorgan said it declined an offer by Raymond not to stand for re-election, saying he has the capability, judgment and other skills and attributes the board looks for in a director. The bank also noted that Raymond has asked the board to start a formal process to identify his successor. Raymond declined to comment.

Reuters reported that US Treasury secretary Steven Mnuchin said companies that received Covid-19 rescue money intended for small businesses could be investigated if it appears they did not need the money. Mnuchin said it was ‘questionable’ whether some larger companies qualified for the PPP based on a self-certification step in the loan process. He said companies should look carefully at their applications to be sure they can certify that the forgivable loans of up to $10 million are necessary.

– The Office of Foreign Assets Control (OFAC) said it would consider the effects of the pandemic on companies’ ability to comply with sanctions as it assesses possible enforcement actions, according to the WSJ. OFAC acknowledged that some companies may need to temporarily reassign sanctions-compliance resources if they face technical or personnel challenges due to the outbreak. Such a reallocation could hamper a company’s sanctions-compliance efforts – for example, its ability to vet business partners or customers and conduct in-person audits.

OFAC encouraged individuals and companies to tell the agency about pandemic-related compliance worries such as possible delays in meeting regulatory deadlines.


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...