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Mar 15, 2019

The week in GRC: FCPA self-reporting program said to make progress, and SEC accuses Volkswagen of fraud

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

The Wall Street Journal reported that Barrick Gold and Newmont Mining agreed to form a joint venture, thus cancelling Barrick’s almost $18 billion offer to buy its rival but creating the world’s single largest gold-producing operation in Nevada. The two sides said they had sealed a joint venture that will allow them to save an estimated $500 million in average annual pre-tax costs in the first five full years of the combination. Barrick said it has withdrawn its proposal to acquire Newmont.

‘We listened to our shareholders and agreed with them that this was the best way to realize the enormous potential of the Nevada goldfields’ unequaled mineral endowment,’ Barrick CEO Mark Bristow said in a statement. Some investors, including Barrick’s largest shareholder VanEck, had said they would rather see a joint venture than a takeover, given it would achieve most of what the merger set out to do but without the risks of a full-blown deal.

– Shareholders of CoreCivic and Geo Group, which run conventional prisons and immigrant detention facilities, have filed proposals to try to make the firms more accountable for the treatment of people in custody amid concerns about the safeguarding of human rights of immigrants coming across the Mexican border, the Financial Times reported.

The resolution at Geo calls on the company to report annually on areas such as how it assesses its human rights performance and remedies any shortcomings. The resolution at CoreCivic calls on the compensation committee ‘to incorporate respect for inmate and detainee human rights into incentive compensation arrangements for senior executives.’

Both companies have contacted the SEC to challenge the proposals and try to stop them coming up for a vote at their annual meetings. Geo said it was committed to human rights and welcomed ‘a continued dialogue with stakeholders’ but said the resolution was ‘overly vague’ and that it ‘would also require the disclosure of information that only the government can disclose.’

CoreCivic said: ‘The human rights and welfare of detainees, residents and offenders housed in any of our facilities are critical responsibilities of the company. We believe our existing compensation practices appropriately account for our commitment to respect for inmate and detainee human rights.’

– The WSJ reported that, according to people familiar with the matter, Deutsche Bank’s top executives have agreed to hold discussions with Commerzbank about a potential merger. The informal talks reflect a deepening willingness by Deutsche Bank’s management board to engage in a possible tie-up, some of the people said.

The management board is composed of top executives and is responsible for setting its strategy with oversight from the bank’s so-called supervisory board. The supervisory board appoints, oversees and fires senior executives and is directly involved in any major decisions, such as a merger, that would reshape the bank. People close to the banks said any formal mandate by their supervisory boards to pursue a merger likely would require public disclosure.

CNBC reported that attorneys for Tesla CEO Elon Musk argued that the SEC was broadly overreaching and infringing on Musk’s First Amendment rights by seeking to hold him in contempt of court. Musk had until Monday to explain why he shouldn’t be held him in contempt of court over a tweet on February 19, published outside trading hours, which the SEC said violated a September settlement agreement.

Musk’s lawyers disagreed, arguing that the tweets in question complied with the earlier SEC settlement terms. They said the CEO ‘has dramatically reduced his volume of tweets generally and regarding Tesla in particular’ and has been diligent – even self-censoring – in his efforts to comply with the terms of that previous settlement.

– According to The Guardian, Levi Strauss will seek a valuation of almost $6.2 billion in a stock market float that will restore it to public ownership after three decades as a private company. The company, credited with the invention of blue jeans, said it expected to raise $587 million in a Wall Street listing aimed at transforming the business into a global fashion and broader lifestyle brand.

– The heads of Renault, Nissan Motor Co and Mitsubishi Motors Corp overhauled the leadership structure of their alliance designed by Carlos Ghosn, the WSJ reported. The companies said they were establishing an operating board to replace a structure set up by Ghosn, which the company chiefs called unwieldy.

The new board will meet every month in Paris or Tokyo and will be chaired by Renault’s new chair, Jean-Dominique Senard. Its other members will be the CEOs of the three auto makers. The board replaces two Netherlands-based subsidiaries, one of which linked Nissan and Renault, and the other Nissan and Mitsubishi.

Ghosn is charged with violating two Japanese laws, one governing corporate financial disclosures and the other barring corporate executives from abusing their positions for personal gain. He has said he is innocent and called the charges against him meritless. A spokesperson for Ghosn didn’t immediately respond to a request for comment.

– The WSJ said that, according to an official in the US Department of Justice’s (DoJ) FCPA unit, a program that incentivizes companies to self-report foreign corruption is making headway as prosecutors look for ways to hold individuals accountable for wrongdoing. ‘Individual prosecutions remain our chief goal,’ said Ephraim Wernick, assistant chief of the department’s FCPA unit. ‘We do recognize that is the primary deterrent of misconduct, and we want to ensure that those who are actually committing the crimes are going to be held accountable.’

The DoJ in 2016 launched a pilot program offering lenient penalties and limited prosecution to companies that reported wrongdoing under the FCPA, co-operated with government investigators, strengthened compliance practices and disgorged profits. The department has publicized at least 12 FCPA-related cases that have resulted in prosecutors declining to charge companies that self-reported. Prosecutors charged 31 individuals for FCPA-related offenses in 2018, up from the previous record of 24 in 2017.

Bloomberg reported that Elliott Management’s efforts to revamp the boards of Hyundai Motor and Hyundai Mobis were given a boost with ISS supporting some of its director nominees. ISS urged investors in Hyundai Motor to support two of Elliott’s three nominees for the board, and supported two of Elliott’s nominees at Mobis.

But ISS didn’t support Elliott’s call for the car-maker and its biggest shareholder to return almost KRW7 trillion ($6.2 billion) in excess cash to shareholders through special dividends. Glass Lewis came out against the New York-based hedge fund firm’s effort at Hyundai Motor.

Hyundai Motor said its own outside-director nominees will enhance transparency of the board, while welcoming ISS’ support for the company’s shareholder return policy. Elliott welcomed the advisory firm’s support for its director recommendations and urged shareholders to vote for all its proposals at a meeting on March 22. Mobis referred to its recent statement that backed the current nine-member board system.

Bloomberg reported that Carlsberg CEO Cees ’t Hart is unlikely to get a pay rise this year after the board bowed to public pressure to curb remuneration. Hart, whose total pay increased 22 percent last year to roughly $8 million, will essentially have his salary frozen, according to chair Flemming Besenbacher. The decision follows criticism in local media.

‘Aside from marginal adjustments, we don’t expect to see increases in next year’s report, even if the results continue to be as strong as they’ve been in recent years,’ Besenbacher said, according to a transcript of his comments at the company’s AGM.

– A bipartisan pair of US senators wants to give the SEC more power to recover funds for harmed investors, the WSJ reported. The legislation would allow the SEC to recover money based on wrongdoing that occurred as long as a decade ago. The measure would help restore some of the muscle the SEC lost when the US Supreme Court unanimously decided in 2017 that federal regulators are bound by a five-year statute of limitations. Senators John Kennedy, R-Louisiana, and Mark Warner, D-Virginia, said the bill would give the agency more time to spot hard-to-detect financial crimes.

‘Financial fraudsters can sometimes go on for years, even decades, before they finally get caught,’ Warner said in a statement. ‘They shouldn’t be able to rip off investors just because some arbitrary five-year window has expired.’ Last year, SEC chair Jay Clayton told a House committee that regulators should have the authority to seek restitution for harmed investors beyond the five-year window.

The New York Times reported that the SEC accused Volkswagen (VW) of undertaking a ‘massive fraud’ and lying to investors. The commission said it was suing Volkswagen and former CEO Martin Winterkorn in a case related to a decade-long scheme undertaken by the carmaker to fudge its diesel emissions testing. Volkswagen admitted that 11 million of its vehicles were equipped with software that was used to cheat on emissions tests. The company made ‘false and misleading statements to investors and underwriters about vehicle quality, environmental compliance and VW’s financial standing,’ the SEC said.

Volkswagen said in a statement that it had raised money from sophisticated investors who got back their principal and interest, and that the SEC ‘is now piling on to try to extract more from the company.’ The company said in the statement: ‘The SEC’s complaint is legally and factually flawed, and Volkswagen will contest it vigorously.’ Winterkorn has denied wrongdoing in the past, including in testimony in front of the German Parliament. His attorney did not immediately respond to a request for comment.

– The WSJ said that, according to people familiar with the matter, activist investor Land & Buildings Investment Management is seeking a seat on the board of Marriott International and believes the world’s biggest hotel company should narrow its brand portfolio, among other changes. Land & Buildings has a small stake in the hotel chain and earlier this year nominated its founder, Jonathan Litt, to take a seat on Marriott’s board, the people said.

Marriott said it is evaluating Litt’s nomination. It added that ‘Marriott has a strong, diverse and independent board of directors with deep experience’ and that its shares have outperformed those of peers and the S&P 500 over the past three years. The company said its top priority is to strengthen the company’s expertise in data security, privacy and cyber-security, among other things.