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Mar 25, 2022

The week in GRC: Executives predict costs under SEC climate plan and Biden urges companies to strengthen cyber-defenses

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

Reuters reported that Kohl’s Corp said its board was reviewing multiple preliminary offers from buyers. The company has previously rejected buyout offers from Sycamore and Starboard Value-backed Acacia Research. Kohl’s, which is facing pressure from activist investors to sell itself, said the proposals received are non-binding and without committed financing.

Activist hedge fund Macellum Advisors last month said it was seeking to take control of the company’s board and had nominated 10 directors. Kohl’s, in a letter to shareholders on Monday, urged them to vote in favor of all the firm’s nominees and believes Macellum’s efforts to take control of the company are ‘unjustified, unwarranted and highly concerning.’

Macellum did not respond to a Reuters request for comment.

– US companies have adopted the ‘Rooney Rule’ – a practice of interviewing minority candidates for top jobs – but it hasn’t led to more diverse C-suites, according to Bloomberg. In recent years, the Rooney Rule has gone from barely being mentioned in the corporate world to being adopted by at least 100 public companies for recruiting people at all levels amid the backdrop of a national reckoning on race sparked by the 2020 murder of George Floyd.

But as more companies agree to release detailed information about the diversity of their workforces, the figures show little change. While women and people of color are well represented in the lowest rungs of company workforces, there’s little and sometimes no representation in the most powerful roles.

‘It’s kind of really like checking the box to say, We have the Rooney Rule, look how progressive we are,’ said Alina Polonskaia, global leader of the diversity and inclusion practice at executive recruiter Korn Ferry, which has researched the effectiveness of corporate diversity initiatives. The reality, she said, is that ‘there are a lot of companies that are doing it just for show.’

Reuters reported that global financial regulators are closely scrutinizing the use of crypto assets during the war in Ukraine after concerns they could be used to evade western sanctions on Russia. Some crypto exchanges have rejected calls to cut off all Russian users, raising concerns that crypto could be used as a way to circumvent sanctions. Ukraine has also raised more than $100 mn in cryptocurrencies after posting appeals on social media for donations for military and humanitarian needs in Bitcoin and other digital tokens.

‘We at the [Financial Stability Board (FSB)] are monitoring the conflict situation relative to cryptos,’ said Patrick Armstrong, a member of the FSB secretariat. The FSB, which guides financial regulators, central banks and finance ministry officials from the G20 economies, is sharing the information it obtains among its members, Armstrong said.

The Wall Street Journal (paywall) noted that under the SEC’s newly proposed rule changes many companies that have pledged to cut their carbon footprints to help limit climate change would have to disclose their emissions, including hard-to-measure data from their suppliers and customers.

The proposed rule changes would allow companies to choose how they work out their Scope 3 emissions, as long as that methodology is disclosed. That flexibility eases the reporting burden on companies but could allow for some marked differences in approach, according to the WSJ. The SEC proposal gives companies protection against being taken to court for inaccurate Scope 3 disclosures, provided the information is reasonable and given in good faith. The agency has also decided not to require Scope 3 numbers to be audited, unlike the planned requirement for Scope 1 and Scope 2 disclosures by larger companies.

– The WSJ also reported that CFOs said companies will likely face higher compliance costs and new disclosure challenges stemming from the SEC’s proposal. Companies will likely have to hire more people to assist with the work and tap an engineering or audit firm to attest to the accuracy of their estimates, said Julie Mediamolle, a partner at law firm Alston & Bird.

Eden Prairie, Minnesota-based CH Robinson plans to closely watch what the SEC ultimately requires on Scope 3 emissions, which it has found difficult and complex to measure, said CFO Mike Zechmeister. He said it is important that companies not be held liable for their Scope 3 estimates until measurement and reporting on those emissions becomes less challenging. The company expects its compliance costs would grow but not significantly because its reporting aligns with the proposal, Zechmeister said.

– President Joe Biden issued an urgent warning to US business leaders, telling them to strengthen their companies’ cyber-defenses immediately, CNN reported. Speaking at the Business Roundtable quarterly meeting in Washington, DC, Biden said Russian President Vladimir Putin is likely to use cyber-attacks as a form of retaliation against the US for its actions to counter Russia’s invasion of Ukraine. ‘The magnitude of Russia’s cyber-capacity is fairly consequential and it’s coming,’ Biden said.

He told business leaders the national interest is at stake, suggesting that it’s ‘a patriotic obligation that you invest as much as you can in making sure – and we will help in any way – that you have built up your technological capacity to deal with cyber-attacks.’

– Starbucks baristas at a Seattle location voted unanimously to unionize, a first in the company’s hometown, reported CNBC. The location joins six other company-owned Starbucks cafes in Buffalo, New York and Mesa, Arizona in deciding to form a union under Workers United, an affiliate of the Service Employees International Union. One location in the Buffalo area has voted against unionizing, giving Starbucks Workers United a win rate of 88 percent. Still, only a small fraction of the company’s overall distribution has been affected by the union push: Starbucks operates nearly 9,000 locations in the US.

At the firm’s recent AGM, chair Mellody Hobson said the company understands and recognizes its workers’ right to organize. ‘We are also negotiating in good faith, and we want a constructive relationship with the union,’ she said.

CNN reported that Disney employees staged a walkout in protest against the company’s response to Florida’s controversial Parental Rights in Education law, which critics call the ‘Don’t Say Gay’ bill. Although many employees at Disney headquarters in Burbank, California protested, it did not appear to be a major showing across the company.

‘We know how important this issue is for our LGBTQ+ employees, their families and allies, we respect our colleagues’ right to express their views and we pledge our ongoing support of the LGBTQ+ community in the fight for equal rights,’ a Disney spokesperson said. Some of Disney’s biggest brands also showed support for the LGBTQ+ community as the company-wide walkouts took place.

– The WSJ reported that Toshiba Corp’s shareholders rejected a management plan to split the company into two parts, reflecting opposition among foreign shareholders, some of whom want the company to be auctioned to the highest bidder. Under the plan, Toshiba would have spun off its electronic device business and the remaining unit would have focused on energy and infrastructure businesses.

Toshiba’s management, which originally proposed splitting the company into three before revising the plan, said the two-way split was the best way to maximize corporate value. It arranged the non-binding vote, hoping to get shareholder buy-in for the plan, and said it would respect the results. Toshiba board members said they had contacts with potential private equity investors but never received a concrete offer for the whole company.

– According to CNN, BlackRock CEO Larry Fink said Russia’s invasion of Ukraine has ended globalization as we know it. Fink told shareholders in a letter that Russia’s ‘decoupling from the global economy’ following its assault on Ukraine has caused governments and companies to examine their reliance on other nations. He predicted that Russia’s isolation will ‘prompt companies and governments worldwide to re-evaluate their dependencies and reanalyze their manufacturing and assembly footprints.’ But some countries could benefit from focusing on building up their domestic industries as companies onshore or ‘nearshore’ their operations, he said.

– According to CNBC, Bed Bath & Beyond announced Friday that it has struck a deal with activist investor Ryan Cohen. The company said three people chosen by Cohen’s firm, RC Ventures, will immediately join its board as independent directors. Bed Bath & Beyond said a four-person committee will look into alternatives for its Buybuy Baby chain and make recommendations to the board. 

The retailer’s CEO and president Mark Tritton said the company’s leaders ‘look forward to integrating our new directors’ ideas to drive our continued transformation’ as part of the deal with RC Ventures. ‘As we move forward, our goals will continue to focus on delivering value for our shareholders, enhancing experiences for our customers, executing on the transformation throughout our business and creating new and exciting opportunities for our dedicated employees across all our banners,’ he said.

Cohen called the resolution ‘a positive outcome for all of Bed Bath’s shareholders.’

– The SEC said Daniel Kahl, acting director of the division of examinations, will leave the agency after more than 21 years. Richard Best, director of the SEC’s New York regional office, will be acting director of the division of examinations following Kahl’s departure and Lara Shalov Mehraban will become acting director of the New York office.