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Nov 06, 2020

The week in GRC: San Francisco voters back pay inequity measure, and SEC releases enforcement report

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

The Wall Street Journal noted that major US companies are asking the law firms they hire to explain how many diverse lawyers they employ and whether those attorneys are assigned meaningful work. Firms that don’t have good answers could lose out on bonuses or not get hired. ‘What gets done is what gets rewarded,’ said Shannon Klinger, chief legal officer of Novartis, which withholds 15 percent of legal fees if diversity benchmarks are not met.

Roughly 2 percent of partners at US law firms and less than 5 percent of attorneys in the lower ranks are black, figures that have barely shifted in decades, according to the National Association for Law Placement. Although law firms have improved at recruiting minority associates, black lawyers say they aren’t given enough high-profile work to ensure a place on the partnership track.

– The SEC‘s division of enforcement released its annual report for fiscal year 2020. During that period, the agency brought 715 enforcement actions, including 405 stand-alone actions, in areas such as issuer disclosure and accounting violations, foreign bribery, investment advisory issues, securities offerings, market manipulation, insider trading and broker-dealer misconduct.

Through these actions, the SEC obtained judgments and orders totaling roughly $4.68 billion in disgorgement and penalties – a record sum for the agency – and returned more than $600 million to harmed investors. The SEC also awarded a record $175 million to 39 whistleblowers in fiscal year 2020, the highest dollar amount and the highest number of individuals awarded in any fiscal year.

CNBC reported that Ant Group’s world record-setting IPO in Shanghai and Hong Kong was suspended. According to a statement from the China Securities Regulatory Commission, Ant Group’s controller Jack Ma, executive chair Eric Jing and CEO Simon Hu were summoned and interviewed by regulators in China. In a statement, the Shanghai Stock Exchange referenced this meeting in explaining why it had suspended the IPO.

‘Recently, your company’s actual controller, chairman and general manager have been jointly summoned and interviewed by the relevant regulatory authorities,’ the exchange said, according to a CNBC translation of its Mandarin comments. ‘Your company has also reported significant issues such as the changes in financial technology regulatory environment. These issues may result in your company not meeting the conditions for listing or meeting the information disclosure requirements.’

Shortly after, Ant Group put out a statement saying the listing of the Hong Kong shares will also be suspended. A spokesperson for Ant Group was not immediately available for comment.

Reuters reported that the Spanish government wants a say in Air Europa’s potential M&A operations as well as two board seats in exchange for a €475 million ($556 million) state aid package. The Spanish airline is in the process of being taken over by airlines group IAG. The government also wants to participate in the nomination of the airline’s CEO and in any layoff plans.

– CVS Health Corp named its next CEO, according to the WSJ. It plans to promote Karen Lynch, president of CVS’ Aetna insurance unit, upon the retirement of the current CEO leader Larry Merlo next year. Lynch, who has worked at Aetna since 2012, will take the job on February 1. Merlo will serve as a strategic adviser until his retirement in May.

CNBC reported that San Francisco voters, in an effort to address the growing wage gap between CEOs and workers, overwhelmingly approved what is believed to be the nation’s first tax aimed at combatting pay inequity. The Overpaid Executive Tax, formally known as Proposition L, will charge any company that does business in San Francisco and has a top executive earning more than 100 times more than its ‘typical local worker,’ according to the tax’s author, Matt Haney, a member of the city’s Board of Supervisors.

Companies with top executives who fall into this category must pay a 0.1 percent surcharge on their annual business taxes. The surcharge increases by 0.1 percent per factor of 100, to a maximum of 0.6 percent. Under the tax plan, top earners making 200 times more than the average worker pay a 0.2 percent tax, and so on. A study published by the Economic Policy Institute found that CEO compensation rose 14 percent in 2019 to $21.3 million. Chief executives now earn 320 times as much as a typical worker.

– Apple has been ordered to face a proposed class-action lawsuit by shareholders who accuse CEO Tim Cook of concealing falling demand for iPhones in China, resulting in billions of dollars of investor losses, Reuters reported. US District Judge Yvonne Gonzalez Rogers said shareholders led by a UK pension fund can sue over Cook’s comment on a November 1, 2018 analyst call that although Apple was facing sales pressure in some emerging markets, ‘I would not put China in that category.’

Apple and Cook have said there was no proof they defrauded or intended to defraud the plaintiffs. The company did not immediately respond to requests for comment.

– The WSJ reported that the US Department of Justice (DoJ) filed an antitrust lawsuit seeking to block Visa’s $5.3 billion deal to acquire financial technology company Plaid. The DoJ brought the case in a Northern California federal court, alleging that the deal would eliminate the nascent but significant competitive threat Plaid poses to Visa in the online debit market. ‘If allowed to proceed, the acquisition would deprive American merchants and consumers of this innovative alternative to Visa,’ said Assistant Attorney General Makan Delrahim, the department’s antitrust chief.

A Visa spokesperson said the lawsuit is ‘legally flawed and contradicted by the facts… The combination of Visa and Plaid will deliver substantial benefits for consumers seeking access to a broader range of financial-related services, and Visa intends to defend the transaction vigorously.’ The spokesperson added: ‘Visa’s business faces intense competition from a variety of players – but Plaid is not one of them.’

Plaid declined to comment.

– The SEC announced two separate whistleblower awards for combined payments of more than $4.3 million. In one order, the commission awarded a whistleblower more than $3.6 million for providing important information that alerted the SEC to misconduct occurring abroad, it stated. The whistleblower provided ‘substantial and ongoing assistance to enforcement staff, which included traveling to another country at the whistleblower’s own expense to meet with staff in person and providing extensive supporting documentation,’ the SEC said.

In the other order, the commission awarded $750,000 to a whistleblower who provided significant information that led the commission to uncover a continuing fraud, it said.

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...