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Apr 05, 2024

The week in GRC: SEC delays climate rules during litigation and ISS recommends CEO/chair split at Goldman Sachs

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

Reuters (paywall) reported that cloud communications company Twilio appointed a partner at Sachem Head Capital Management to its board amid pressure from several activist investment firms to make changes. Twilio added Andy Stafman and expanded the size of the board to 10 people. The change removes the chance of a boardroom challenge from Sachem Head in 2024 when three Twilio directors, including CEO Khozema Shipchandler and board chair Jeff Epstein, are scheduled to stand for election.

Twilio has come under pressure from activist investors including Legion Partners and Anson Funds. Both have been pressing the company to explore strategic alternatives, including divesting its data and applications business or selling the whole company.

CNBC reported that, according to a company release, two Warner Bros Discovery directors, Steven Miron and Steven Newhouse, are resigning following a US Department of Justice (DoJ) investigation into a potential antitrust violation. The company said Miron and Newhouse, who were both appointed as directors in April 2022 as part of the WarnerMedia and Discovery merger, were being investigated as to whether their sitting on the board was in violation of Section 8 of the Clayton Antitrust Act, which largely bars the same directors from serving simultaneously on the boards of competitors.

Rather than contest the DoJ matter, the company said Miron and Newhouse voluntarily elected to resign from their positions, effective immediately. Neither director admitted any violation. ‘We are proud to have played a role in the building of this great company and remain a large stockholder. We are disappointed to leave the board but wish to do the right thing for [Warner Bros Discovery],’ Newhouse said in a statement.

– A coalition of progressive advocacy groups and civil rights organizations urged Senator Dick Durbin, D-Illinois, who chairs the US Senate Judiciary Committee, to use his oversight power to address ‘judge shopping’, Reuters reported. In a letter to Durbin, 23 groups including Alliance for Justice, Demand Justice and Reproductive Freedom for All said it appeared that the judiciary’s top policymaking body had ‘watered down’ a policy designed to curb judge shopping following Republican opposition.

If implemented, the policy would disrupt a tactic used by conservative litigants whereby cases are filed in small divisions in Texas’ four federal districts whose one or two judges were appointed by Republican presidents and often rule in their favor. Following pushback from Senate Republicans, however, judicial policymakers clarified it was up to each district court to decide how to implement it. The Northern District of Texas, a favored venue for conservative litigants, has since said it will not adopt the policy.

– Jonathan McKernan, a board member of the Federal Deposit Insurance Corp (FDIC), is championing an order that would direct FDIC staff to regularly examine large asset managers that own a stake of more than 10 percent in FDIC-regulated banks to ensure they are not improperly influencing their operations, Reuters reported. McKernan said he plans to bring such an order up at the FDIC’s April board meeting. A spokesperson for FDIC chair Martin Gruenberg referred questions on the matter to McKernan and declined to comment further.

At present, asset managers operate under ‘passivity commitments’, promising to refrain from certain influential activities in banks where they hold large investments in exchange for less onerous regulatory oversight than would usually face a party with a large bank stake. In a speech earlier this year McKernan said regulators should do more to ensure firms are meeting those commitments.

The Wall Street Journal (paywall) reported that The Walt Disney Company defeated activist investor Nelson Peltz in a proxy contest for influence in the company’s boardroom. Disney said shareholders voted to elect its entire slate of board nominees, while Peltz – who has argued that Disney needs a fresh voice to hold management accountable – lost his bid to become a director.

Disney said its slate of 12 directors won shareholder support ‘by a substantial margin’, according to preliminary results. Around 75 percent of retail investors who cast votes backed the company’s slate. The outcome of the vote leaves control of the board firmly in the hands of directors friendly to CEO Bob Iger, with all but one having been appointed on his watch as the company looks to achieve several major goals.

‘With the distracting proxy contest now behind us, we’re eager to focus 100 percent of our attention on our most important priorities: growth and value creation for our shareholders and creative excellence for our consumers,’ said Iger in a statement. He told shareholders at the firm’s AGM on April 3 that the company is on a more solid foundation, strengthened by its action over the last year.

‘We are proud of the impact we have had in refocusing this company on value creation and good governance,’ said Peltz’s Trian Partners in a statement after the results emerged.

Wei Jiang, a professor of finance at Emory University’s Goizueta Business School, said the Disney-Trian fight stood out because of the focus on succession planning, a relatively rare issue in activist campaigns.

CNBC reported that the media company Donald Trump recently took public is suing its co-founders, accusing them of failing ‘spectacularly’ to get the company off the ground and then trying to ‘thwart the deal’. The lawsuit seeks to bar Trump Media & Technology Group co-founders Wesley Moss and Andrew Litinsky from appointing members to the company’s board or from owning any of its shares. The lawsuit was filed in late March, around the same time that shareholders in the shell company Digital World Acquisition Corp voted to approve a merger with Trump Media.

Moss and Litinsky claim that a 2021 agreement Trump signed with a company they founded, United Atlantic Ventures, guarantees them an 8.6 percent share of Trump Media’s total stock, undiluted by the issuance of new shares. Moss and Litinsky were responsible for establishing Trump Media’s corporate governance structure, preparing the launch of Truth Social and finding a shell company for a merger to take the media company public, the lawsuit says. But the pair failed ‘at every turn,’ Trump Media alleges.

Lawyers for Trump Media did not immediately respond to CNBC’s request for comment on the lawsuit. Litinsky and Moss could not be contacted immediately, CNBC said.

– The WSJ reported that, according to research conducted at the Drucker Institute, Accenture scored highest for social responsibility among the latest Management Top 250 companies, followed by HP and Microsoft. The Management Top 250 ranking compares companies using the late management guru Peter Drucker’s principles to identify the most effectively managed businesses.

The five main components of the ranking are social responsibility, customer satisfaction, employee engagement and development, innovation and financial strength. Accenture is ranked 15th overall with HP at number eight and Microsoft number one. Accenture also made the top 10 for customer satisfaction and Microsoft is in the top 10 for financial strength, employee engagement and development and innovation.

– According to Reuters, a federal judge in Kentucky ruled that a Biden administration rule requiring states to set climate targets for vehicles using the national highway system was unlawful but he declined to vacate it as he criticized what has become a ‘race to the courthouse’ by litigants trying to block government policies from being enforced nationwide.

US District Judge Benjamin Beaton agreed with 21 Republican-led states that the Federal Highway Administration’s (FHWA) rule lacked a statutory basis and was invalid. The rule was published in December and requires states to measure and report greenhouse gas emissions from vehicles using the national highway system, establish declining carbon dioxide targets and report on progress toward those targets.

The FWHA did not respond to a request for comment, Reuters said.

– According to Reuters, ISS recommended that Goldman Sachs should separate the CEO and chair roles currently held by David Solomon. ‘Shareholders would benefit from more independent oversight,’ ISS wrote in a report ahead of the bank’s AGM on April 24. Solomon has been CEO since 2018 and became chair the following year. Goldman Sachs’ size and complexity makes it difficult for any one person to run both the company and the board, ISS said.

A shareholder resolution calling for the roles of chair and CEO to be separated was filed by the conservative-leaning National Legal and Policy Center. It filed a similar measure last year that won support from just 16 percent of votes cast. ISS also recommended votes in favor of all the bank’s director nominees and said ‘cautionary support’ was warranted for its executive pay, although the bank’s compensation program relied too much on discretion.

A Goldman Sachs spokesperson cited the bank’s recommendation to vote against the independent chair proposal as laid out in its proxy statement.

– The SEC said it would pause the implementation of its new climate disclosure rules during litigation over the changes, the WSJ reported. The SEC will stay the rules, in part to avoid regulatory uncertainty as litigation proceeds, the agency said in a filing with the US Court of Appeals for the Eighth Circuit. An appeals court last month ordered a temporary stay blocking the rule’s enforcement, although the SEC could have fought it. The agency said it still believes the rules are lawful and within its power to order, but it wants to focus on defending the rule’s merits against legal challenges.

‘A commission stay will facilitate the orderly judicial resolution of those challenges and allow the court of appeals to focus on deciding the merits,’ the SEC 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...