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May 25, 2018

The week in GRC: Companies prep for GDPR deadline, and McDonald’s shareholders vote against straw proposal

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

– The Financial Times reported that Royal Dutch Shell faced a rebellion against CEO Ben van Beurden’s pay but won a vote of confidence in its approach to climate change. The quarter of total votes cast against Shell’s 2017 executive remuneration at its annual meeting was not enough to stop the pay report being approved, but was among sizable pay protests this month against a series of large European companies’ management.

Ninety-four percent of shareholder votes were cast against a resolution that would have forced the Anglo-Dutch group to commit to firm targets for reducing carbon emissions. Activists wanted more concrete targets and argued that Shell’s goal was not enough to fulfil the Paris climate agreement to limit global temperature rises to well below 2 degrees Celsius above pre-industrial levels.

The vote showed shareholders’ trust in management to set the pace of Shell’s transition to a lower-carbon future, rather than being tied to fixed targets of the kind proposed in the resolution, the company said. On pay, Shell said it would ‘engage constructively’ with shareholders and ‘reflect carefully on any feedback’ in response to the show of dissent.

– The US Supreme Court delivered a blow to the rights of workers by allowing companies to require them to sign away their ability to bring class-action claims against management, agreements already in place for roughly 25 million employees, according to Reuters. The justices, in a 5-4 ruling, endorsed the legality of the growing practice by companies to compel workers to sign arbitration agreements waiving their right to bring class-action claims on various disputes, primarily over wages and hours.

Craig Becker, a former member of the US National Labor Relations Board and now general counsel of the AFL-CIO union federation, said the decision will have a ‘chilling effect’ on employees coming forward to complain of mistreatment.

– The FT reported that Congress ratcheted up efforts to keep key technology out of Chinese authorities’ hands. A Senate panel is beginning the process of negotiating the final details of a bill that its authors say would give the committee on foreign investment in the US more powers and increase scrutiny of Chinese investments, particularly in tech companies.

– According to The Wall Street Journal, the highest-paid software executive of 2017 was Gary Norcross, CEO of Fidelity National Information Services, at $29.1 million. His total compensation increased 46 percent from $20 million the previous year, according to regulatory filings. A spokesperson said $11.1 million of Norcross’ pay last year included a special bonus for integrating SunGard, which the company acquired in late 2015. She said most of his pay is tied closely to performance and aligned with shareholder interests.

The median pay figure for the software and services industry is $10.7 million, below the overall median of $12.1 million for full-year CEOs at all S&P 500 companies, according to a WSJ analysis of proxy filings by S&P 500 firms.

– Hyundai Motor shelved a restructuring, backing away from a looming confrontation with foreign investors including activist hedge fund firm Elliott Management, according to the FT. ‘The group will re-evaluate our restructuring plan to better enhance the group’s business competitiveness and corporate governance as well as to strengthen shareholder value,’ Hyundai Motor said in a statement.

The move came days after executives from the company asked for support for the restructuring, which could have strengthened the Hyundai founding family’s control over key units. Hyundai said it would present an ‘updated plan.'

– The WSJ reported that the NYSE was set to get the first female leader in its 226-year history. Stacey Cunningham, the exchange’s COO, would become its 67th president, according to the NYSE’s parent Intercontinental Exchange (ICE). She was due to start her new role Friday, succeeding Thomas Farley, an ICE veteran who is leaving the Atlanta-based company.

Farley will become head of a new special-purpose acquisition company (Spac) backed by Daniel Loeb’s hedge fund firm Third Point, people familiar with the matter said. Farley confirmed he would be leading a Spac and added that it would be listed on the NYSE, but declined to provide details.

CNBC reported that the US House of Representatives voted to pass the biggest rollback of financial regulations since the financial crisis. The margin was 258-159, with 33 Democrats supporting the legislation. The measure eases restrictions on all but the largest banks, raising the threshold under which banks are deemed too important to fail from $50 billion to $250 billion. Those institutions also would not have to undergo stress tests or submit so-called living wills.

Senators such as Bernie Sanders, I-Vermont, and Elizabeth Warren, D-Massachusetts, opposed the measure and argued it could open taxpayers to more liability if banks fail. House Minority Leader Nancy Pelosi, D-California, also criticized it, arguing that it ‘would open the doors to banks once again discriminating in how they lend to home buyers.’

– According to Reuters, several socially conscious investment firms are selling or rethinking their Facebook holdings because they are unsatisfied by the company’s efforts to beef up personal data protection and online safety following revelations about the improper sharing of users’ information. In April, for example, Eaton Vance unit Calvert Research and Management sold Facebook shares on concerns about lax controls that meant ‘the company clearly violated users’ fundamental right to privacy,’ contrary to the firm’s investment principles, according to Emma Doner, one of Calvert’s ESG analysts. A Facebook spokesperson declined to comment.

– The WSJ reported that, according to results released Tuesday, shareholders in Wynn Resorts voted nearly 80 percent of shares against the company’s compensation plan at an annual shareholders’ meeting. A Wynn Resorts spokesperson indicated that the company was prepared to act on the result. The board is working to move the casino firm from ‘a founder-[led] company to a more traditional global enterprise,’ he said. ‘Compensation practices will be a part of that evolution, and we look forward to the future support of our stockholders through the process.’

– According to the FT, US companies are more scared and less prepared than their European counterparts for the EU’s General Data Protection Regulation (GDPR), which comes into effect today (May 25), with many rushing to make last-minute changes and some small companies choosing to pull out of Europe.

Less than a quarter of US respondents were confident they would meet the GDPR deadline when surveyed last month by the Ponemon Institute. Larry Ponemon, director of the think tank, said most companies are not going to be compliant by the deadline, with many doing the ‘bare minimum’. Compared with Europeans, more US respondents said GDPR will significantly change how they handle data.

– The SEC proposed rules and amendments that would promote research on mutual funds, exchange‑traded funds, registered closed-end funds, business development companies and similar investment funds. The proposal would reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public entities.

If adopted, the proposal would generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions. This proposed safe harbor is similar to a regulatory safe harbor that already exists for research reports about other public entities.

– The FT reported that Samsonite International was accused of ‘questionable accounting practices and poor corporate governance’ by short-seller Blue Orca Capital. The firm said it believed Samsonite had concealed slowing growth through debt-fueled acquisitions, and dubious accounting practices had inflated its margins and earnings. Blue Orca called on Samsonite’s board of directors to appoint an independent auditor to scrutinize the company’s activity. Samsonite did not immediately respond to a request for comment.

– The WSJ reported that activist investor Elliott Management said it had taken a stake in Germany’s Thyssenkrupp and signaled its intention to make changes at the company. Elliott Advisors, the activist investor’s British arm, said: ‘Thyssenkrupp has significant scope for operational improvement which would benefit all stakeholders.’ The company has already faced shareholder calls to shed its historic steel-producing operations. Thyssenkrupp declined to comment on the Elliott stake.

– McDonald’s shareholders rejected a proposal to take the first step toward a ban on plastic straws, USA Today said. The proposal, which was backed by a consumer group, received only 7.65 percent of the vote at the company’s annual meeting. The measure would have required McDonald’s to prepare a report to shareholders about the business risks of using plastic straws. McDonald’s management had recommended against the proposal, citing a series of major steps it is taking to cut waste and boost the company’s sustainability image.

– According to the WSJ, French President Emmanuel Macron called on US tech companies to embrace European regulations, ranging from taxation and privacy to artificial intelligence, because the US government is failing to do so. ‘The US model is no longer sustainable because there is no political accountability,’ Macron said at a tech conference in Paris just hours before Facebook CEO Mark Zuckerberg took the same stage.

Zuckerberg, who had met with Macron, struck a conciliatory tone during his appearance, saying the tech sector is now ‘making sure we take more responsibility’ and that Europe’s new GDPR privacy law can help ‘increase public trust that these systems are working.’

CNBC reported that Federal Reserve chair Jerome Powell said banking regulation has become stricter and more transparent in the days since the financial crisis, though more adjustments are likely ahead. Powell cited stress testing as one particular area where openness has both helped stabilize the financial system and given the public more confidence that institutions are prepared for the next crisis.

‘In the financial stability realm, the case for enhanced transparency is not just about being accountable; it is also about providing credible information that can help restore and sustain public confidence in the financial system,’ Powell said, according to prepared remarks.