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Dec 07, 2018

The week in GRC: SEC to consider proxy adviser changes; and directors see growing risks, report finds

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

The Wall Street Journal reported that US regulators said banks that find problems with legacy compliance programs when testing new technology won’t necessarily be penalized for previous failures. The pledge, in a statement from multiple agencies, comes as authorities encourage lenders to try out new technology and intelligence-gathering methods as they combat evolving illicit financial threats.

‘Private sector innovation, including new ways of using existing tools or by adopting new technologies, can be an important element in safeguarding the financial system against an evolving array of threats,’ said Sigal Mandelker, the US Department of the Treasury undersecretary for terrorism and financial intelligence.

The statement from the Federal Reserve, Federal Deposit Insurance Corp, Financial Crimes Enforcement Network, Office of the Comptroller of the Currency and National Credit Union Administration points banks in the direction of adopting new forms of technology, such as artificial intelligence, while recognizing that some of the new methods may be unsuccessful.

– The Financial Times reported that Daniel Kamensky, whose Marble Ridge hedge fund vehicle has taken a position in Neiman Marcus debt, accused Neiman’s board of allowing its private equity owners to ‘improperly strip’ a valuable subsidiary from the luxury department store chain. Kamensky criticized the retailer’s board for a transfer involving its fast-growing Mytheresa e-commerce unit.

Kamensky alleges that the transfer was in effect an improper dividend from the subsidiary to the owners of the parent company, private equity group Ares Management and the Canada Pension Plan Investment Board (CPPIB). Neiman, which declined to comment on Kamensky’s letter this week, has previously disputed his claims, calling the Mytheresa transfer an ‘organizational change’ that was allowed under the company’s debt agreements. Ares and CPPIB did not reply to requests for comment.

– According to CNN, Quora warned that hackers gained access to the personal data of as many as 100 million of the question-and-answer website’s users. Quora discovered that one of its systems had been hacked by ‘a malicious third party,’ CEO Adam D’Angelo said. The compromised information includes users’ names, email addresses and encrypted passwords as well as data from social networks such as Facebook and Twitter if people chose to link them to their Quora accounts.

‘The overwhelming majority of the content accessed was already public on Quora, but the compromise of account and other private information is serious,’ D’Angelo said. The site is now notifying affected users and logging them out. ‘We believe we’ve identified the root cause and taken steps to address the issue, although our investigation is ongoing and we’ll continue to make security improvements,’ D’Angelo added.

– The WSJ looked at a new report that finds directors and executives believe the business environment will become more perilous in the coming year and are increasingly concerned about the operational challenges surrounding digital transformation. Existing operations and legacy technology infrastructure pose a risk to companies that can’t transform quickly enough to compete against companies that were ‘born digital’, according to the study by North Carolina State University’s Enterprise Risk Management Initiative and management consulting firm Protiviti. This risk factor moved to the top spot for 2019, up from 10th place in the 2018 report.

This shift is an acknowledgement of the growing threat of risks facing companies, such as the viability and resilience of business models and shifting customer preferences. Workplace dynamics, such as resistance to change and the ability to hire in a tight labor market are also factors, the report states.

– A biennial survey by the Asian Corporate Governance Association (ACGA) and Asia-focused brokerage CLSA shows Japan sliding three places to seventh in a regional ranking of governance standards – the worst decline in performance of any country, Reuters reported.

Jamie Allen, secretary general of the ACGA, said the pay disclosure regime in Japan was weak. ‘Japan needs to have remuneration committees so that those committees will be deciding on executive pay, ensuring there is proper disclosure and making sure there are proper checks and balances in the system,’ he said.

Australia ranked top in the corporate governance survey with a score of 71 out of 100. Hong Kong and Singapore were next with 60 and 59, respectively. China, the Philippines and Indonesia ranked bottom. Japan scored 54.

– According to the FT, dozens of UK-listed companies have been warned they face shareholder unrest if they fail to address investor concerns that have already resulted in significant protest votes at their AGMs. The Investment Association wrote to 32 companies that appeared on the UK trade group’s public register of shareholder votes for the past two years. The ‘repeat offenders’ landed on the register for the ‘exact same resolution’ in consecutive years, suggesting they had not responded ‘sufficiently to investor views and in doing so are risking more shareholder dissent,’ the group wrote.

The register tracks significant shareholder dissent of more than 20 percent at company meetings. Of the 287 resolutions on the register, 102 (36 percent) were related to the re-election of directors, and a further 72 were connected to pay.

Reuters reported that ride-hailing company Lyft filed for an IPO. The company, which was last valued at roughly $15 billion, did not specify the number of shares it was selling or the price range for the offering in a confidential filing with the SEC.

High-profile tech unicorns dominated the US IPO landscape this year. Dropbox was valued at nearly $13 billion in its March debut, while music-streaming firm Spotify went public in April with a $26.5 billion valuation.

– According to the WSJ, Canadian authorities in Vancouver arrested Huawei Technologies CFO Meng Wanzhou at the request of the US government for alleged violations of Iran sanctions. A spokesperson for Canada’s justice department said Meng was arrested in Vancouver on December 1 and is sought for extradition by the US.

The US government has undertaken a campaign against Huawei, which it views as a national security threat. The Chinese authorities strongly protest the arrest and have urged both US and Canadian officials to free Meng, according to a statement released by the Chinese Embassy in Canada.

A Huawei spokesperson said Meng was arrested at an airport during a layover. ‘The company has been provided with very little information regarding the charges and is not aware of any wrongdoing by Ms Meng,’ he said. ‘The company believes the Canadian and US legal systems will ultimately reach a just conclusion.’ The spokesperson said Huawei complies with laws and regulations everywhere it operates. Huawei has long said it is an employee-owned company that has never conducted espionage or sabotage on behalf of any government.

– SEC chair Jay Clayton said the agency will consider whether to impose new disclosure requirements for proxy advisers, according to the WSJ. Clayton said the SEC would also take up recommendations to shore up the ‘plumbing’ of the shareholder voting process, which some investors have said is opaque and error-prone. The commission will also consider raising the ownership thresholds for shareholders to submit proposals for shareholder votes and for the amount of support a proposal must receive for it to be reconsidered in subsequent years.

‘It is clear to me that these issues will not improve on their own with time, and I intend to move forward with the staff recommendations,’ Clayton said. At an SEC roundtable last month, leaders of ISS and Glass Lewis made clear they oppose new regulations on their firms and say that existing disclosures serve investors sufficiently well.

Reuters reported that Tesla has hired Dane Butswinkas as its general counsel. Butswinkas, chair of Washington, DC law firm Williams & Connolly, is replacing Todd Maron at Tesla, who had led the company’s legal department since 2013.