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Dec 06, 2019

The week in GRC: GOP privacy bill would go beyond CCPA, and Alexion’s board rejects sale push

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

Reuters reported that Dutch specialty chemicals maker DSM said its CEO of almost 13 years would step down on February 15 and be replaced by two top managers who will share the role. DSM said Feike Sijbesma was leaving to ‘pursue other business and personal roles.’ Geraldine Matchett and Dimitri de Vreeze are his replacements. Matchett will retain her responsibilities as CFO, and De Vreeze will continue his COO work.

‘This dual-leadership structure is rooted in the long history of collaboration between them, which has been keenly observed by the supervisory board and is expected to create a strong basis for continued profitable growth,’ DSM said in a statement.

– US corporate jet use is approaching pre-financial crisis levels and CEOs take an increasing number of personal trips on the company tab, with many investors being kept in the dark about the true cost of the perk, according to Reuters. For the S&P 500 companies that pay for their CEOs to use corporate jets for private trips, the estimated median value of that flying climbed 11 percent last year to $107,286 from $96,532 in 2017, according to figures from Equilar. That’s up 27 percent from $84,636 in 2007, the year before the financial crisis.

This is taxable income for executives. Companies paying the full cost of those personal flights and they may find their tax bills can be significantly higher because of lost deductions. The SEC does not require disclosure of such lost deductions, however, meaning investors are unaware.

– The SEC appointed Kristina Littman chief of the division of enforcement’s cyber unit. She succeeds Robert Cohen, who left the agency in August. Littman joined the division of enforcement in 2010 as a staff attorney in the Philadelphia office. Since then, she has held senior attorney positions in the market abuse unit and the trial unit. Since August 2017, she has served as senior adviser to SEC chair Jay Clayton.

– According to Reuters, telecoms equipment maker Nokia intends to appoint its former networks chief Sari Baldauf as chair – the top executive role at the company. She will succeed Risto Siilasmaa, who will step down after eight years in the job. Baldauf will be one of the most high-profile female executives in the telecoms industry globally. She led Nokia’s networks unit between 1998 and 2005 and currently sits on the Nokia board.

In a statement, she said she sees a clear opportunity to help create long-term shareholder value, working with CEO Rajeev Suri. Her appointment is subject to shareholder approval at the group’s AGM in April 2020.

– Few risk managers in the financial services industry say they have the expertise to properly analyze the potential downsides of artificial intelligence (AI), according to The Wall Street Journal. AI has been used for years to make trading decisions, but financial services firms have also started exploring potential uses in consumer lending, transaction monitoring and other areas. That has created a new challenge for risk managers by forcing them to understand algorithms and identify potential dangers with how the technology is applied, executives said.

Eleven percent of risk managers in banking, capital markets and insurance say they aren’t fully capable of assessing AI-related risks, according to a survey of risk managers in nine countries by Accenture. Respondents expressed a similar comfort level with assessing the possible downsides associated with blockchain technology, quantum computing and other emerging technologies.

Reuters reported that a draft consumer privacy bill written by the staff of Senator Roger Wicker, R-Mississippi, would set nationwide rules for handling personal information online and elsewhere and override state laws such as the California Consumer Privacy Act (CCPA) that will take effect in January. Wicker, who chairs the Senate commerce committee, said the draft bill is ‘better, stronger, clearer’ than the California privacy law.

Compared with the CCPA, the bill has more detailed consumer protections, covers more companies and has more explicit requirements that companies collect the minimum amount of personal data needed for their purpose, Wicker said. The office of California Governor Gavin Newsom did not comment immediately.

CNN reported that Larry Page and Sergey Brin are giving up their executive roles at Google parent company Alphabet. Page and Brin are stepping down as CEO and president, respectively, of Alphabet, the company said. Sundar Pichai, the current CEO of Google and a long-time executive at the company, will take over as CEO of Alphabet in addition to his existing role.

The co-founders will continue to serve on Alphabet’s board of directors and will maintain voting control over the business, all but guaranteeing their ability to influence the direction of Alphabet with or without their executive titles. ‘We’ve never been ones to hold on to management roles when we think there’s a better way to run the company. And Alphabet and Google no longer need two CEOs and a president,’ Page and Brin wrote in a letter.

– Activist investor Carl Icahn criticized HP’s board for rejecting Xerox’s takeover bid in an open letter to HP shareholders, according to CNBC. ‘I cannot believe the recalcitrance of HP’s board is driven by any real confidence in its stand-alone restructuring plan, which the market, shareholders and analysts met with extreme indifference and which seems to amount to little more than rearranging the deck chairs on the Titanic,’ Icahn said.

He urged HP shareholders to appeal to the company’s directors to look into the possibility of an acquisition by Xerox. HP’s board voted unanimously last month to reject Xerox’s bid to acquire the company, saying the offer was not in the best interests of its shareholders and would undervalue the company.

– A group of financial regulators clarified the compliance requirements for banks whose customers produce hemp, stating that banks are no longer required to file suspicious activity reports on customers who cultivate the plant, the WSJ said. A farm bill signed into law last year removed hemp from a list of federally controlled substances. The legislation also directed the US Department of Agriculture (USDA) to regulate domestic production of the crop.

Banks must still file reports on customers in the hemp business if they suspect suspicious activity, regulators said. The Financial Crimes Enforcement Network will issue additional guidance after further evaluation of the USDA’s rules governing hemp production, regulators said.

– United Airlines announced that CEO Oscar Munoz will turn over day-to-day management of the airline next spring to president Scott Kirby, who will become the company’s chief executive, CNBC reported. The change will happen in May, when Munoz becomes executive chair, succeeding Jane Garvey, who is retiring from the board.

‘With United in a stronger position than ever, now is the right time to begin the process of turning over the baton to a new leader,’ Munoz said in a statement.

– According to CNBC, Senator Elizabeth Warren, D-Massachusetts, is drafting a bill that would ban ‘mega-mergers’ between the nation’s largest companies. The legislation would bar mergers that include a company with more than $40 billion in annual revenue or two companies each with at least $15 billion in annual revenue, according to a person familiar with the matter.

The proposal would broaden antitrust law beyond the consumer welfare standard. Under existing regulation, the federal government’s antitrust policies assess mergers based on their potential to hurt US consumers with monopolistic prices or diminished quality. Warren’s legislation would also compel the government to consider the potential impact on workers and entrepreneurs.

– Companies are becoming more likely to correct accounting problems by quietly updating past numbers, rather than alerting investors and reissuing financial statements, according to the WSJ. Major problems require ‘Big R’ restatements, in which a company must alert investors and reissue its financial statements. The number of Big R restatements, according to Audit Analytics, has fallen from a peak of 973 in 2005, just after the requirement to alert investors came into effect, to 119 last year.

At the same time, companies have been minimizing the importance of their accounting issues. For minor problems, the SEC requires ‘Little r’ revisions, in which the company updates its past financial statements without having to alert investors. In 2005, less than one third of all restatements were revisions but last year it was roughly three quarters, according to Audit Analytics.

– The US Department of Justice (DoJ) is giving increasing consideration to companies’ compliance efforts as they try to avoid legal infractions before they happen. But according to the WSJ an official said even the best legal compliance programs can’t outweigh particularly egregious misconduct.

The DoJ’s criminal division, which oversees investigations into a range of business crimes, is trying to better explain how it assesses the strength of a company’s compliance program during the course of an investigation, said Matthew Miner, a deputy assistant attorney general. Miner said the division also was trying to be more transparent about how compliance evaluations impact prosecutors’ thinking about the form a potential settlement could take and the size of a monetary penalty.

But he said that although compliance efforts were given a lot of weight, they couldn’t completely offset other, aggravating factors. ‘It can never outweigh considerations of culpability where you have truly pervasive, high-level misconduct,’ he said.

Reuters reported that Alexion Pharmaceuticals said its board of directors had unanimously decided against Elliott Management’s push for a ‘proactive sale’ process, arguing it would not be in the best interest of shareholders. Alexion said it took into account the hedge fund’s views but concluded it was ‘highly unusual, if not unprecedented’ for a company of its size to proactively launch a sale process. ‘To eliminate confusion and inaccurate information in the marketplace, to-date, Alexion has not received any indications of interest to acquire the company nor have we rejected any such inbound proposals,’ the company said.

Alexion said that it had added five new directors since 2017 with input from investors including Elliott.