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Jul 24, 2020

The week in GRC: Companies start to reveal pandemic impact, and corporate Covid-19 contact-tracing programs planned

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

The Wall Street Journal noted that companies are starting to give investors their first complete look at the effects the Covid-19 pandemic has had on their balance sheets. The largest 500 US public companies are expected to report a 44 percent drop in earnings for the second quarter amid widespread lockdown orders, according to analysts polled by FactSet. That compares with a 14.9 percent decline in the first quarter. If this is the case, the 44 percent decline would reflect the S&P 500’s largest year-over-year drop in earnings since the fourth quarter of 2008.

‘The Q1 results were a best preview of coming attractions,’ said Sam Stovall, chief investment strategist at CFRA Research. ‘The main show is Q2.’ Stovall said the second quarter could be the nadir of the recession. ‘You can rarely hurt yourself falling out of a basement window,’ he said.

– The WSJ also reported that IAC/InterActiveCorp CFO Glenn Schiffman said giving quarterly guidance is ‘a total waste of time.’ IAC/InterActiveCorp, which owns video platform Vimeo, home improvement website Angie’s List and other businesses, formally scrapped its policy of providing quarterly outlooks recently, a move aimed at creating a more long-term focus among managers and investors. IAC said it would instead issue a monthly business update on key metrics such as revenue.

Schiffman said IAC had been giving annual forecasts for earnings before interest, tax, depreciation and amortization and quarterly revenue information since 2016, the year he became the company’s CFO. Giving such guidance is voluntary and the company will continue to report full quarterly results as mandated by the SEC.

Schiffman said that to create quarterly guidance he typically had at least half a dozen internal meetings and follow-up discussions each quarter, and said he wants to spend more time on growing the business and generating value for shareholders instead.

– Activist investor IsZo Capital Management wants to place six new directors at Nam Tai Property to help the China-based real estate company perform better, and is asking other shareholders for help in calling a special meeting, according to Reuters. New York-based IsZo wrote to other shareholders to try to rally a group that owns 30 percent of the outstanding shares to join a call for a special meeting.

A representative for Nam Tai did not immediately respond to a request for comment.

CNBC reported that Walmart said it would pay out another round of bonuses to hourly employees and close its stores on Thanksgiving Day. The company said in a statement that it will spend roughly $428 million on the bonuses to thank employees for working during the Covid-19 pandemic. Full-time hourly employees will receive $300 and part-time and temporary workers will get $150.

Walmart has given two other special bonuses to employees. In all, the bonuses have totaled $1.1 billion. ‘We know this has been a trying year, and our associates have stepped up. We hope they will enjoy a special Thanksgiving Day at home with their loved ones,’ said John Furner, president and CEO of Walmart US, in a statement. ‘We are certainly thankful to our people for all of their efforts.’

– The New York Times Co said president and CEO Mark Thompson, who has overseen the newspaper’s digital transformation, will step down from his positions, according to the WSJ. Meredith Kopit Levien, the company’s COO, will succeed Thompson, effective September 8.

‘I’ve chosen this moment to step down because we have achieved everything I set out to do when I joined the company eight years ago,’ Thompson said. Kopit Levien joined the company in 2013 as the head of advertising and subsequently served as chief revenue officer.

Reuters reported that hedge fund firm Farallon Capital Management said it would vote for nominees to Toshiba Corp’s board who are backed by activist funds. Effissimo Capital Management is calling for Toshiba to elect an Effissimo co-founder and two others as outside directors, while 3D Opportunity Master Fund is seeking the election of two candidates it is nominating.

Farallon said in a statement it believes ‘it is important that Toshiba seeks to further strengthen its corporate governance framework in the interests of all stakeholders.’

– According to the WSJ, the UK’s Financial Reporting Council (FRC) has called for companies to provide extensive disclosures on the impact of the pandemic on their finances. The FRC said UK companies overall released sufficient information related to the effects of Covid-19 on their operations, following a limited review of 17 interim and annual financial statements for the period ended March 31.

But the FRC wants companies to go beyond complying with mandatory reporting requirements so that investors and regulators can understand how the economic downturn will affect current and future earnings. Its suggestions include adding explanations on judgments and estimates made in financial reports, particularly if there are doubts about a company’s financial health and its ability to remain a going concern.

– Unilever CEO Alan Jope said he would like his eventual successor to be a woman or from a minority, according to Bloomberg. ‘It would be a dream of mine to have a woman or someone from a minority background be my successor,’ he said. ‘Having balance and representation in the senior ranks of Unilever is literally one of the top three priorities.’

Jope is unlikely to move in the short term as he’s been in the job for only a year and a half. He also said it will be the board that actually chooses the next CEO.

– SEC chair Jay Clayton said he is worried that retail investors are using money on risky, short-term trades and causing the price of certain stocks to skyrocket, CNBC reported.

‘Here at the SEC, when we think about that investor, we think about someone who’s investing for the long term: investing over time, doing it on a monthly basis,’ Clayton said. ‘What we are seeing is significant inflows from retail investors, and they have the hallmarks of short-term inflows. And does that concern me? Sure. Because that’s more trading than investing. Short-term trading is much more risky than long-term investing, and so I do worry.’

Clayton said the SEC has issued guidance to brokers and investment advisers on how to give individuals proper warning about the risks they face when allocating capital in selected equities.

Reuters reported that more than half of US companies surveyed by benefits company Mercer are starting Covid-19 contact-tracing programs in their workplace as employees return to offices even as the numbers of new cases rise nationally.

Of the more than 300 companies that took part in the survey, 54 percent plan to implement a contact-tracing program or had already started one, Mercer said. Among respondents, 42 percent said they are using existing employees to do contact tracing and 9 percent are training employees. In addition, roughly 4 percent said they will be hiring more staff and/or a vendor for their contact-tracing efforts, and about 3 percent plan to use a smart phone app or wearable device to track employee contacts.