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Mar 12, 2021

The week in GRC: DoL won’t enforce ESG investment rules and Wells Fargo sets net-zero emissions goal

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

The Wall Street Journal reported that GameStop’s board created a committee focused on the company’s transformation efforts that will be headed by Ryan Cohen, the Chewy co-founder who joined as a director earlier this year. The new strategic planning and capital-allocation committee will ‘continue to focus on identifying actions that can transform GameStop into a technology business and help create enduring value for stockholders,’ the company said.

Members of the committee include Chewy’s former top operations executive Alan Attal, Hestia Capital Management executive Kurt Wolf and Cohen, who disclosed a roughly 10 percent stake in GameStop last November.

CNN reported that Wells Fargo is setting a goal of net-zero greenhouse gas emissions – including from the companies and projects it finances – by 2050. The bank has long been a major backer of oil, natural gas and coal projects that climate activists warn threaten the planet. ‘This transition to a lower-carbon economy is real. And we want to be leaning into it, financing it and helping our clients through it rather than ignoring it,’ said Jon Weiss, CEO of corporate and investment banking at Wells Fargo.

Wells Fargo joins an array of big banks setting net-zero goals, following similar pledges made recently by Goldman Sachs and Citigroup. Bank of America, Morgan Stanley and JPMorgan Chase have also rolled out plans to align their financing activities with the Paris climate accord.

– The US Department of Justice’s (DoJ) FCPA unit has grown to a record size, numbering 39 prosecutors in total, the WSJ reported. It has also moved to level up its compliance expertise, hiring a lawyer with experience of working on DoJ-appointed corporate monitorships.

The FCPA unit last year played a part in levying a record $7.84 bn in global penalties for corruption-related misconduct, despite limits imposed by the coronavirus, according to a recent tally.

‘I’d be very surprised if it doesn’t continue apace,’ said Billy Jacobson, a partner at Allen & Overy and a former assistant chief in the DoJ’s FCPA unit. Encouraging companies to build compliance programs that can prevent or catch wrongdoing is a key focus of the DoJ fraud section’s corporate enforcement program.

Reuters said that, according to experts speaking on a webinar hosted by the Federal Reserve Bank of New York, increasing diversity and inclusion at companies requires special attention to the role of middle management and employees seen as having influence within their organizations. Although clear communications from top executives over diversity and inclusion policies are essential for employees to understand the objectives of a company’s program, there also needs to be a focus on certain groups and individuals who can often serve as role models and leaders.

‘Are there particular people in an organization who can influence a culture?’ asked Betsy Levy Paluck, a professor of psychology at Princeton University, on the webinar. ‘[Those] who can do this are the people who are most watched in an organization.’

– The WSJ reported that new EU rules came into effect on Wednesday that seek to regulate the sustainable-finance industry for the first time. Managers of funds that invest in line with ESG considerations now have to put forward a tangible, measurable plan for how they will do so. This will apply to all asset managers that raise money in the EU, whether they are based within its borders or not.

The rules, known as the Sustainable Finance Disclosure Regulation, address a long-running concern for the industry that there is a lack of supervision of ESG. There is no hard definition of what constitutes a sustainable investment and no watchdog to enforce it. Fund managers and ESG ratings firms have been allowed to set their own definitions, which has sparked concerns that claims may be exaggerated.

– The SEC announced the award of roughly $1.5 mn to a whistleblower whose information and assistance led to a successful enforcement action. ‘The whistleblower alerted the SEC to previously unknown conduct and thereafter provided multiple submissions, identified potential witnesses and met with staff on several occasions,’ said Jane Norberg, chief of the SEC’s office of the whistleblower. The agency has awarded roughly $759 mn to 143 individuals since issuing its first award in 2012.

– The WSJ said that, according to some investors and former SEC officials, shareholder proposals on environmental and social issues could find more support from the agency’s new leadership. The SEC during the Trump administration gave guidance that emboldened companies to seek no-action relief for blocking shareholder proposals asking them to report things such as greenhouse gas emissions and gender and racial issues in their workforces.

Under the Biden administration, the SEC could enable more proposals to reach ballots, particularly since the White House has made regulation on climate change and racial and gender issues more of a priority, former SEC officials said. The SEC has in recent weeks said it would monitor how ESG-focused funds vote on shareholder ballots and opened a review of how companies are disclosing risks they face from climate change.

An SEC spokesperson declined to comment.

CNN reported that brewer Molson Coors revealed a ‘cyber-security incident’ at the company that has disrupted its beer-making operations. The Chicago-based company said in a regulatory filing that the hack has taken its systems offline, delaying and disrupting parts of Molson Coors’ operations, including its production and shipments. An investigation into the incident has begun, the company said, and it is ‘working around the clock to get its systems back up as quickly as possible.’

‘We have engaged a leading forensic IT firm to assist our investigation into the incident,’ said chief communications and corporate affairs officer Adam Collins. ‘We will continue to communicate with our business partners with updates.’

– The group of activist investors looking to take control of Kohl’s board has reduced the number of directors it plans to nominate to five from nine, according to CNBC. In a letter sent to the retailer’s shareholders, the group said it originally nominated nine candidates ‘in hopes of working constructively with the board to choose from a large pool of candidates to construct a well-balanced board.’ But Kohl’s has rejected the initial proposal, arguing that it would disrupt the momentum the retailer has seen in its business.

Kohl’s on Tuesday published a new presentation for investors, highlighting its recent progress and plans to increase sales and profitability. It argued that the dozen members of its current board have deep retail experience, including four directors who are either current or former retail CEOs.

A representative from Kohl’s was not immediately available to respond to a request for comment.

– The WSJ reported that Volvo Cars is strengthening its focus on compliance with data protection regulations as it looks to increase online sales and build cars with more connected features, and has hired a new chief compliance and ethics officer with a background in data protection. Augusta Speiser will lead a team that works more closely with divisions throughout the organization to help them navigate complex data protection issues, the company said. She comes to Volvo from dental equipment manufacturer Dentsply Sirona, where she held a variety of legal and compliance roles, including as the company’s global data protection officer.

– The US Department of Labor’s (DoL) Employment Benefits Security Administration (EBSA) said it will not enforce recently published final rules on ‘Financial factors in selecting plan investments’ and ‘Fiduciary duties regarding proxy voting and shareholder rights.’ Until the publication of further guidance, the DoL will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules with respect to an investment, it said.

‘These rules have created a perception that fiduciaries are at risk if they include any [ESG] factors in the financial evaluation of plan investments, and that they may need to have special justifications for even ordinary exercises of shareholder rights,’ said Ali Khawar, principal deputy assistant secretary for the EBSA, in a statement.

‘We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that [ESG] integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.’

– According to the WSJ, although millions of workers have been laid off during the pandemic, several employers say cutting ties with individual employees over performance issues has become far more complex. As their workers contend with pandemic-related stresses – from school closures and childcare crises to burnout from long home-bound workdays – many companies are reluctant to fire or even raise issues of underperformance for now, executives and corporate advisers say.

Without clear insight into the daily challenges of remote teams, some business leaders say they are often unsure what is at the root of performance problems, particularly if the worker has been a good employee in the past.