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Nov 25, 2020

The week in GRC: Execs get used to remote due diligence, and GM changes tack on emissions suit

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

The Wall Street Journal reported that index compilers FTSE Russell and MSCI are reconsidering their approach to securities from companies the US government says help the Chinese military. President Donald Trump on November 12 signed an executive order barring Americans from investing in 31 Chinese companies that the US says supply and otherwise support China’s military, intelligence and security services.

MSCI said it was consulting investors on the impact of the ban, including whether it needed to change existing stock indexes or introduce new ones. FTSE Russell said its policy was to exclude securities covered by US, UK or European Union sanctions. The index provider said it was ‘seeking rapid feedback from clients and other stakeholders on the scope of the sanctions and the timing of the deletion of the affected securities from FTSE Russell indexes.’

CNN noted that the European Central Bank (ECB) recently said it will start conducting ‘in-depth’ assessments of how bank balance sheets account for climate risks in 2022. For example, banks will be expected to disclose how flooding and storms could affect the value of their real estate portfolios and customer supply chains, as well as take into account losses that could arise if businesses adjust their operations to be less carbon-intensive.

‘Ensuring banks’ balance sheets also reflect climate-related and environmental risks is a prerequisite not only for the resilience of the banking sector, but also for the accurate pricing of these risks,’ the ECB’s supervisory arm said in a statement, adding that it will begin discussions with lenders on the new approach early next year.

– The WSJ noted that finance executives feared due diligence – particularly reviewing a target company’s books and assets – and negotiations wouldn’t be doable in a remote world due to the pandemic, but that global companies have overcome those concerns to strike deals worth more than $1 trillion in the third quarter of this year, according to Dealogic. Transactions involving US companies have also soared to $531.27 billion in the third quarter, up from $140.48 billion in the second quarter and $345.69 billion in the third quarter of 2019, according to the data provider.

Executives say they are getting used to signing deals with people they have never met or barely know. Talks and discussions are taking place via Webex, Microsoft Teams and other remote tools, and factory visits are conducted through video calls.

– General Motors (GM) said it was reversing course and will no longer back the Trump administration’s effort to prevent California from setting its own emissions rules in a continuing court fight, Reuters reported. CEO Mary Barra said in a letter to environmental groups that GM was ‘immediately withdrawing from the pre-emption litigation and inviting other automakers to join us.’

The change came as GM sought to work with president-elect Joe Biden, who has made boosting electric vehicles a top priority. The Detroit automaker has laid out a major strategy to increase electric vehicle sales. Barra said she believes ‘the ambitious electrification goals of the president-elect, California and [GM] are aligned to address climate change by drastically reducing automobile emissions.’

The White House and US Department of Justice declined to comment. An Environmental Protection Agency spokesperson said: ‘It’s always interesting to see the changing positions of US corporations.’

CNBC reported that Dick’s Sporting Goods’ president, Lauren Hobart, will succeed Ed Stack as CEO on February 1. Stack will transition to executive chair and remain chief merchant. He took over the business from his father, Dick Stack, in 1984 and took the company public in 2002.

‘This is the perfect time for this transition,’ the outgoing CEO said in a statement. ‘We have the best management team in the company’s history, and the investments we have made in our people, our stores and our communities are paying off.’

– According to Reuters, Swedish real estate company SBB launched a 30 billion Norwegian krone ($3.34 billion) takeover bid for Norway’s Entra but was met with a swift rejection. ‘While the board appreciates the interest... the potential offer will not be recommended,’ Entra said of SBB’s bid.

‘Prior to today’s offer from SBB, [Entra] has received a separate non-binding proposal from another party that may or may not lead to an offer,’ the Oslo-listed company said. SBB said its proposed takeover would create the largest listed real estate company in northern Europe and give increased stock market liquidity and access to capital.

Reuters reported that the SEC proposed a pilot program under which tech companies such as Uber and Lyft could pay gig workers up to 15 percent of their annual compensation in equity rather than cash, a move it said was designed to reflect changes in the workforce. The SEC said internet-based companies may have the same incentives to offer equity compensation to gig workers as they do to employees. Until now SEC rules have not allowed companies to pay gig workers in equity.

Democratic SEC members Allison Herren Lee and Caroline Crenshaw opposed the proposal, saying alternative work arrangements, including independent contractors and freelancers, have existed for decades across a range of industries and it was not clear why tech companies should be given special treatment.