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Nov 30, 2018

The week in GRC: Marriott reveals huge Starwood cyber-breach, and Deutsche Bank offices raided in AML probe

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

The New York Times reported that the board of Mitsubishi Motors removed Carlos Ghosn as chair, a week after he was arrested in Tokyo on suspicion of financial misconduct. Following the arrest, the Nissan board had also voted to remove him as chair. Ghosn is being questioned by prosecutors after Nissan said he underreported his income to Japanese regulators over several years. He has not been charged with any crime. Ghosn’s lawyer in Japan did not return calls seeking comment. Ghosn has also retained New York law firm Paul Weiss.

In a statement, Mitsubishi CEO Osamu Masuko said the board had removed Ghosn because ‘he lost the trust of Nissan and he cannot execute his duties as chairman and representative director any longer.’ Masuko added that if Ghosn remained as chair, it could expose Mitsubishi to ‘reputation risk.'

– Campbell Soup on Monday released the terms of a truce it had reached with Third Point, which will add two of the activist fund firm’s nominees to its board – former Blue Buffalo CEO Kurt Schmidt and Comscore president Sarah Hofstetter – according to CNBC. The announcement came before a Campbell shareholders meeting on Thursday.

Third Point had pushed for a sale of the soup company before saying it would accept other strategic moves. It went from lobbying to replace Campbell’s entire 12-member board to seeking to add only five directors. As part of the deal, Campbell will expand the size of its board by at least two board seats. Campbell can expand the board to 14 with board approval and its by-laws could be amended to boost the board even more. Third Point will have input on a third director that Campbell plans to add by its meeting in May 2019. It will also have input on Campbell’s CEO search.

– Condé Nast said CEO Bob Sauerberg is stepping down, The Wall Street Journal reported. Sauerberg will stay on in his role until the appointment of his successor, who will oversee both Condé Nast and Condé Nast International in the newly created role of global CEO. The two companies had previously operated independently, each with its own CEO, senior team and publications, which include Vanity Fair, Vogue and the New Yorker in the US, and Vogue Paris and GQ overseas.

Unifying the two businesses under one chief executive will enable the company to streamline its corporate structure, reduce costs and make it simpler for advertisers to access all of Condé Nast’s publications, the company said. Sauerberg declined to comment through a spokesperson. Condé Nast said he would keep representing Advance Publications on the board of Reddit, which Condé Nast spun off in 2011.

– Democrats are preparing to take control of the House of Representatives following this month’s midterm elections, and senior members say they plan to subject the financial services industry to far greater scrutiny than has been the case in the past two years, according to the Financial Times.

‘For the last two years, Republicans in Congress have served as accomplices to Trump and have completely neglected Congress’ oversight responsibilities, enabling corruption and destructive policies to run rampant,’ said Maxine Waters, D-California, who is poised to take over as head of the House Financial Services Committee. ‘It is critical that we bring accountability to the Trump administration and the regulatory agencies under the committee’s jurisdiction.’

– The WSJ reported that, according to people familiar with the matter, Silicon Valley’s plan to build a stock exchange for the nation’s hottest startups hit a snag earlier this year when a member of the SEC opposed it. The proposed Long-Term Stock Exchange (LTSE) was criticized by SEC commissioner Robert Jackson, who questioned whether the exchange’s model could entrench the power of founders and early investors in startup companies while hurting other shareholders, the people said. LTSE aims to be the only stock exchange to require ‘long-term voting’, a system in which shareholders accrue more voting power the longer they own stock.

The exchange that joined with LTSE to advance its listing rules, IEX Group, withdrew its proposal in August after Jackson voiced his concerns but before the full commission could vote on it. An IEX spokesperson said the firm withdrew the plan to give institutional investors more time to study LTSE’s tailored rules. ‘While we have decided to end our work together, IEX continues to support LTSE’s mission and focus on long-termism in the market,’ the spokesperson said.

– The FT reported that criminal antitrust enforcement under the Trump administration has fallen to its slowest rate since the 1970s. Fewer than 20 new cases were publicly filed by the US Department of Justice (DoJ) in the most recent fiscal year, a level last seen in 1972. The analysis did not include cases that may remain under seal.

The slowdown in fiscal year 2018 followed a similar drop in cases filed the previous year, suggesting a prolonged lull in new indictments of criminal cartels as long-running probes into the auto parts industry and financial services wind down. As a result, there has been a fall in the number of penalties and fines, which have declined to their lowest level since the early 2000s.

Eric Meiring, a former acting chief of one of the antitrust division’s criminal units, said the number of new cases in 2018 was ‘surprisingly low’. He attributed the decline to the conclusion of big probes that the department had pursued for years and the ‘general cyclical nature of antitrust investigations’. A spokesperson for the DoJ declined to comment.

– The FT reported that Unilever CEO Paul Polman will retire in January, ending a decade at the helm of the consumer products company months after he lost a fight with shareholders over moving the company headquarters out of London. Alan Jope, who has been running Unilever’s beauty and personal care business, its biggest division, will succeed Polman.

Polman’s effort to simplify Unilever’s Anglo-Dutch corporate structure by consolidating its headquarters in Rotterdam exposed tensions between the company’s leading duo – Polman and chair Marijn Dekkers – and UK shareholders. Dekkers rejected the idea that Polman’s departure was linked to the aborted corporate simplification effort. Unilever’s shares have far outperformed the FTSE 100 index during Polman’s tenure.

Reuters reported that the public prosecutor’s office in Frankfurt said police raided six Deutsche Bank offices in and around the city over money-laundering allegations linked to the so-called Panama Papers. Investigators are looking into the activities of two unnamed Deutsche Bank employees alleged to have helped clients set up offshore firms to launder money, the prosecutor’s office said.

‘Of course, we will co-operate closely with the public prosecutor’s office in Frankfurt, as it is in our interest as well to clarify the facts,’ Deutsche Bank said, adding it believed it had already provided all the relevant information related to the Panama Papers.

– According to the WSJ, regulators are taking steps to ease requirements for banks to submit ‘living will’ plans for winding themselves down in a crisis without a taxpayer-funded bailout. Federal Deposit Insurance Corp (FDIC) chair Jelena McWilliams said her agency and the Federal Reserve are reviewing how to make the tests less burdensome on the nation’s largest banks and regional firms. The Dodd-Frank Act requires big banks to periodically file in-depth living-will plans.

‘We recognize the progress that has been made and are exploring how to make those plans more targeted,’ McWilliams said, referring to the requirements for the eight largest and most complex banks. ‘For regional banks, we recognize the considerably lesser threat posed to [US] financial stability.’ She said the FDIC and the Fed were working together on modifying rules that require banks to submit to the two regulators their living wills for bank holding companies every year.

– Marriott International has admitted that the personal details of up to 500 million guests have potentially been compromised since 2014, in what may be one of the biggest data breaches of its kind, according to the FT. The hotel company said its Starwood Hotels & Resorts guest reservation database had been accessed unlawfully. Payment card information held on the database could also have been taken, Marriott said.

Marriott said that for roughly 327 million people, the exposed information included some combination of their name, mailing address, phone number, passport number, Starwood Preferred Guest reservation number, date of birth and other identifying information. ‘We fell short of what our guests deserve and what we expect of ourselves,’ Marriott CEO Arne Sorenson said. ‘We are doing everything we can to support our guests, and using lessons learned to be better moving forward.’

– The SEC said that Jina Choi, director of the agency’s San Francisco regional office, will leave the commission today. She has been with the SEC for 16 years and has led the San Francisco office since 2013. The office has jurisdiction over nearly 1,200 investment advisers with more than $6 trillion in assets under management, more than 50 mutual fund complexes and more than 240 broker-dealers, as well as many public and pre-IPO companies in Silicon Valley, San Francisco, Seattle and Portland, Oregon.

‘Jina is an exceptional attorney and a dedicated public servant who has led and supervised an array of complex and high-impact actions,’ said Stephanie Avakian, co-director of the SEC’s division of enforcement, in a statement.

– According to Reuters, a federal judge raised the prospect of not approving CVS Health’s deal to buy insurer Aetna, which closed earlier this week, during a routine portion of the legal process. Judge Richard Leon of the US District Court for the District of Columbia objected to what he said was the government’s and companies’ treatment of him as a ‘rubber stamp’ for the deal, noting that CVS had closed its deal to buy Aetna for $69 billion on Wednesday.

CVS said in a statement: ‘It’s commonplace for acquisitions to close before this final step in the process is complete, and our focus remains on delivering on the combined company’s potential.’ The DoJ, which approved the merger in October on condition that the health insurer sell its Medicare Part D drug plan business to WellCare Health Plans, did not immediately respond to a request for comment. The court must approve the agreement between the government and merging companies.

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...