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Jun 21, 2024

The week in GRC: Judge dismisses ExxonMobil lawsuit against shareholder activist

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

The Wall Street Journal (paywall) reported that Adidas said it is investigating potential compliance violations in China after receiving a letter alleging senior executives in the country received millions of dollars in kickbacks from service providers. Adidas said it is now investigating the matter with external legal counsel.

‘Adidas takes allegations of possible compliance violations very seriously and is clearly committed to complying with legal and internal regulations and ethical standards in all markets where we operate,’ a spokesperson said.

Reuters (paywall) reported that US District Court Judge Mark Pittman dismissed a lawsuit ExxonMobil filed against shareholder activist group Arjuna Capital after the group had agreed not to pursue future proxy filings at the company’s AGMs. The lawsuit had raised alarm among activists and public pension investors who argued it would stifle debate among shareholders and public companies.

Pittman ruled that ExxonMobil’s claim was no longer valid after Arjuna ‘unconditionally and irrevocably’ agreed not to submit a future proposal regarding the company’s greenhouse gas emissions. Arjuna’s pledge not to file a similar resolution in the future ‘has eliminated any case or controversy,’ the judge wrote.

‘Our lawsuit put a spotlight on the abuse of the shareholder-access system,’ ExxonMobil said in a statement. ‘The court has made absolutely clear that Arjuna cannot continue abusing the process. Shareholder democracy is only as strong as the rules that govern it, which must be fairly and consistently applied.’

Arjuna did not respond to Reuters’ requests for comment.

Pittman last month dropped Follow This from the case as the group was outside his court’s jurisdiction.

– According to Reuters, Toyota chair Akio Toyoda and nine other members of the company’s board were re-elected at the firm’s AGM, with shareholders shrugging off concerns about governance and certification-test scandals. Two leading proxy advisers had recommended against Toyoda’s re-election but his re-appointment was widely expected given shareholdings in the company owned by other Toyota group firms, record business results and his popularity among Japanese retail investors.

New York City’s public employee pension funds voted against Toyoda. ‘Setting a tone at the top is critical,’ said Michael Garland, who oversees corporate governance for the funds.

Shareholders also rejected an investor proposal urging greater disclosure of climate lobbying.

– Senator Elizabeth Warren, D-Massachusetts, accused Federal Reserve chair Jerome Powell of doing the financial industry’s bidding by considering changes to a set of regulations intended to increase the capital cushion large US banks would be required to hold, CNBC reported. In a letter obtained by CNBC, Warren asked Powell for a response to reports that ‘you are advocating for slashing in half’ the increase in capital required under the proposals, known as the Basel III Endgame.

‘I am disappointed by press reports indicating that you are personally intervening – after numerous meetings with big bank CEOs – to delay and water down the Basel III capital rules,’ Warren wrote.

A Fed spokesperson said: ‘We have received the letter and plan to respond.’

Reuters reported that the National Labor Relations Board (NLRB) has ordered a Las Vegas casino operator to recognize and bargain with a union, in the first ruling of its kind by the agency since it created a path for unions to organize workers even after losing elections. The board said in a decision that NP Red Rock, which owns the Red Rock Casino and two others, had engaged in ‘egregious and pervasive unlawful conduct’ that tainted a 2019 election and warranted a bargaining order even though workers voted 627-534 against joining a union.

‘[NP Red Rock’s] extensive coercive and unlawful misconduct stemmed from a carefully crafted corporate strategy intentionally designed at every step to interfere with employees’ free choice,’ the NLRB said.

Lawyers for NP Red Rock and UNITE HERE, the union that represents its workers, did not immediately respond to Reuters’ requests for comment.

– Starboard Value sued software maker Autodesk to delay the company’s AGM, reopen the board-nominating window and allow the activist to mount a proxy fight, CNBC reported. Starboard said in its lawsuit that Autodesk, in ‘an apparent effort to prevent a proxy challenge’, deliberately waited until the nomination window had closed before disclosing to shareholders that it would delay its annual report and had launched an internal investigation into accounting irregularities and financial misreporting.

‘Manipulating corporate governance and disclosure obligations to give stockholders only one choice of directors effectively gives them no choice at all,’ Starboard said in its complaint.

The probe found that Autodesk executives made significant business decisions around how it billed customers and spent money to improve its free cash flow and operating margin.

An Autodesk representative referred CNBC to its previous statements on the matter, where it said it would refuse Starboard’s requests to reopen the nominating window and delay the AGM. ‘Starboard is seeking to leverage a now-completed internal investigation that resulted in no financial restatement as a pretext for re-opening the advance notice period,’ the company said.

– According to the WSJ, white-collar companies that had previously championed programs to recruit diverse employees are now moving away from them. The shift comes after the ‘anti-woke’ movement took aim at US companies and the US Supreme Court ruled against affirmative action in college admissions.

Employers’ embrace of diversity, equity and inclusion initiatives peaked in 2021. In the years since, access to diversity programs has been slowly declining, a Glassdoor study found in April. Companies have made the changes quietly, often broadening access to programs once reserved for diverse applicants to everyone. Minority students are concerned about what the cutback means for their future in an already tight job market.

Some companies are no longer tracking demographic data related to diversity because of concerns fear that it poses a litigation risk if they make hiring decisions based on identity or race, said Jailany Thiaw, founder and chief executive of Upskill, a job-recruitment platform.

– The Financial Crimes Enforcement Network (FinCEN) issued an alert asking banks to screen for money flows related to the production of illicit fentanyl, according to the WSJ. It comes as FinCEN convenes meetings with banking representatives as part of a broader effort by the Biden administration to counter fentanyl trafficking.

The alert describes red flags related to complex procurement networks behind the production of illicit fentanyl, which mainly takes place in Mexico and is overseen by drug trafficking groups. Officials say they have seen shell companies and cryptocurrencies used to purchase fentanyl precursor chemicals and equipment. Transactions related to the procurement of fentanyl precursor chemicals routed through banks or money services businesses have been sent from Mexico or the US to mainland China.