Skip to main content
Mar 08, 2024

The week in GRC: GOP-led states sue over SEC climate rules and DoJ plans to pay more whistleblowers on corporate crime

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

The Wall Street Journal (paywall) reported that JetBlue Airways and Spirit Airlines terminated their merger agreement, weeks after a judge ruled that the $3.8 bn deal would reduce competition and harm cost-conscious fliers. The airlines had appealed the judge’s January ruling but said on Monday they had come to the conclusion that they probably couldn’t overcome the legal and regulatory hurdles. JetBlue CEO Joanna Geraghty told employees the federal court ruling and the US Department of Justice’s (DoJ) continued opposition made the probability of prevailing anytime soon extremely low. Spirit CEO Ted Christie also said the airlines concluded that regulatory obstacles would likely be insurmountable.


Reuters (paywall) reported that ISS will offer a new ‘ESG skeptic’ option. The new offering is ‘in keeping with our long-standing mission to provide a wide array of voting policy choices,’ said ISS global head of investment stewardship Lorraine Kelly in a statement. A positive reception for the guidelines could dampen criticism of ISS from Republican politicians, who have said the company backs too many shareholder resolutions on ESG topics.

ISS currently offers seven types of specialty voting guidelines, beyond its benchmark guidelines, for investors such as climate-focused groups or religious funds. ISS last year added ‘board-aligned’ investment voting guidelines that opposed many ESG resolutions, although the new offering may appeal to clients that want to go further against ESG. Kelly said the firm is making available the new guidelines in partnership with Bowyer Research, a fund consulting business, for the upcoming AGM season.


– The European Commission (EC) fined Apple €1.8 bn ($1.95 bn) for abusing its dominant position in the market regarding the distribution of music-streaming apps, according to CNBC. The commission said it found Apple had applied restrictions on app developers that prevented them from informing iOS users about alternative and cheaper music subscription services available outside of the app. Apple also banned developers of music-streaming apps from providing any instructions about how users could subscribe to these cheaper offers, the commission alleged. The commission opened an investigation into Apple after a complaint from Spotify.

‘The primary advocate for this decision – and the biggest beneficiary – is Spotify, a company based in Stockholm, Sweden. Spotify has the largest music-streaming app in the world and has met with the EC more than 65 times during this investigation,’ said Apple in a statement. It added that a ‘large part’ of Spotify’s success is thanks to Apple’s App Store, ‘along with all the tools and technology Spotify uses to build, update and share its app with Apple users around the world.’

Spotify in a statement called the commission’s decision ‘an important moment in the fight for a more open internet for consumers’. ‘Apple’s rules muzzled Spotify and other music-streaming services from sharing with our users directly in our app about various benefits, denying us the ability to communicate with them about how to upgrade and the price of subscriptions, promotions, discounts or numerous other perks,’ Spotify said.


CNBC reported that President Joe Biden launched a new task force to take on ‘unfair and illegal’ corporate pricing, which Biden sees as a major reason why consumers are not yet feeling the impact of cooling inflation and a strong economy. The task force will be jointly led by the Federal Trade Commission (FTC) and the US DoJ. Jonathan Kanter, assistant attorney general for the DoJ’s antitrust division, will co-chair the strike force along with FTC chair Lina Khan.

‘Here at the Justice Department, we are confronting some of the world’s most powerful corporations so that we can improve the lives of American families,’ Kanter said.

‘Over the last year supply chains have returned to normal and inflation has come down,’ said National Economic Council director Lael Brainard. ‘Some corporations aren’t passing those savings on to consumers.’


– According to Reuters, a three-judge panel of the 11th US Circuit Court of Appeals held that a Florida law championed by Republican Governor Ron DeSantis that banned mandatory workplace diversity training promoting progressive concepts violates employers’ constitutional free speech rights. The law states that employers cannot require workers to attend training that promotes eight specific concepts, such as that individuals are inherently racist or sexist and that people should feel guilty about the actions of members of their race or sex.

US Circuit Judge Britt Grant said the law violated the free speech protections of the US Constitution’s First Amendment by barring discussions about topics the state finds ‘offensive’. ‘Florida may be exactly right about the nature of the ideas it targets,’ Grant wrote. ‘Or it may not. Either way, the merits of these views will be decided in the clanging marketplace of ideas rather than a codebook or a courtroom.’


The Guardian noted that according to a new report from the World Bank, no country in the world affords women the same opportunities as men in the workforce and the global gender gap is wider than previously thought. Closing the gap could raise global gross domestic product by more than 20 percent, the report said. For the first time, the bank investigated the impact of childcare and safety policies on women’s participation in the labor market in 190 countries. It found that when these two factors were taken into account, women on average had just 64 percent of the legal protections men do, down from the previous estimate of 77 percent


– The WSJ reported that an Alabama federal judge ruled the Corporate Transparency Act, a bipartisan anti-money-laundering law passed in 2021, was unconstitutional, leaving its future in doubt. The law became effective on January 1. Congress hoped it would help stop money laundering by rooting out the use of anonymous shell companies and would help follow the flow of illicit money and protect US national security interests. The law creates a beneficial ownership database and reporting requirements for companies to file ownership information to the US Department of the Treasury, similar to existing requirements in the UK and the EU.

A spokesperson for the Treasury Department said the agency is complying with the court’s injunction but didn’t indicate whether the government would appeal the ruling. ‘Congress overwhelmingly voted to enact the bipartisan Corporate Transparency Act in 2021 to crack down on illicit shell companies and combat financial crime,’ the spokesperson said, referring to the DoJ for any further information about the case.

A DoJ spokesperson declined to comment.


– A group of labor unions said it was ending its proxy fight at Starbucks after the two sides agreed to work toward a ‘foundational framework’ on collective bargaining, according to CNBC. ‘We feel that now is the time to acknowledge the progress that has been made and to allow the company and its workers to focus on moving forward,’ the Strategic Organizing Center (SOC) said in a release, adding that it was withdrawing the three nominees it had put forward for election to Starbucks’ board.

A Starbucks spokesperson said the company appreciated the SOC’s decision and that the board remained focused on ‘driving long-term value for all stakeholders, including partners, shareholders, customers and farmers.’ ISS and Glass Lewis had both recommended that shareholders vote for management board nominees.


– According to Reuters, Norway’s sovereign wealth fund will urge emerging market companies in which it invests to appoint more women to their boards, making the policy global for the first time. Since 2021, the fund has pushed companies to increase the number of women on their board and to consider targets if fewer than 30 percent of directors are female, focusing first on Europe and the US and expanding the policy to Japan last year. The policy will now be applied to companies in emerging markets, including from nations such as India, South Africa, Brazil and Egypt, the fund said in its updated voting guidelines.

Since 2021, the fund has seen ‘great improvements’ on gender diversity on boards, said Carine Smith Ihenacho, its chief governance and compliance officer, highlighting Europe where a combination of state regulation and best practice guidelines has increased the number of female directors. But ‘we have been thinking for a long time that we also need to vote in countries where this is actually more of an issue,’ she said.


Reuters reported that 10 Republican-led states have sued to challenge the SEC’s rule changes on climate risk disclosures, a spokesperson for the West Virginia Attorney General’s Office said hours after the commission’s decision. The states, which include Georgia, Alabama and Alaska, filed the petition at the 11th US Circuit Court of Appeals, according to the spokesperson. Meanwhile, the Sierra Club environmental group said it was considering suing the SEC because it believed the new rules did not go far enough. An SEC spokesperson said in a statement that the agency crafts rules that are consistent with its legal authority and that it will ‘vigorously defend’ the climate disclosure rules in court.

West Virginia Attorney General Patrick Morrisey on Wednesday said the Biden administration is trying to act as a ‘puppeteer’ using public companies to drive forward its climate agenda. Republican-led states had been signaling their intent to challenge the rules for years, arguing in public comments that they are effectively back-door environmental regulations that go beyond the SEC’s legal authority. Anticipating legal challenges, the SEC dropped more ambitious elements of the rules requiring companies to disclose Scope 3 emissions, which for many businesses account for 70 percent of their carbon footprint, according to Deloitte.


– The DoJ plans to pay whistleblowers who tell prosecutors about corporate crime, adding a new incentive to attract more tipsters to aid the government, the WSJ reported. The DoJ will begin the effort as a pilot program aimed at cases where whistleblowers aren’t already eligible for payments from other government programs, Deputy Attorney General Lisa Monaco said. The department will develop rules for the program over the next 90 days and plans to launch it later this year, according to Monaco.

The DoJ’s program would seek to fill gaps in the federal whistleblower framework. It could be used, Monaco said, to pay people who tell the government about domestic or overseas business corruption and aren’t eligible to be rewarded under the SEC’s system. It could target misconduct at private companies, which aren’t overseen by the SEC.


– The US House of Representatives will fast-track a vote that would give China’s ByteDance six months to divest from the social media app TikTok or face a national ban, after a committee unanimously approved the measure on Thursday, according to Reuters. The Energy and Commerce Committee voted 50-0 to ban TikTok in the US, where it has around 170 mn users, marking the most significant move against it since then president Donald Trump unsuccessfully tried to ban the app in 2020. House Majority Leader Steve Scalise said lawmakers will vote next week ‘to force TikTok to sever its ties with the Chinese Communist Party’.

TikTok, which says it has not and would not share US user data with the Chinese government, argues the bill amounts to a ban and it is not clear whether China would approve any sale, or that it could be divested in six months.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...