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Nov 17, 2023

The week in GRC: SEC releases enforcement results and ECB warns banks about managing climate risk

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

Reuters (paywall) reported that Goodyear Tire & Rubber Co said longtime CEO Richard Kramer has decided to retire next year. It also revealed initiatives to streamline its business, months after settling with activist investor Elliott Investment Management. Goodyear said its board is considering both internal and external candidates to succeed Kramer, who has been CEO since 2010. Kramer will also step down as president and chair.

The company will pursue strategic alternatives for its chemical business, Dunlop brand and Off-the-Road tire business. Earlier this year, Goodyear said it would add three directors in agreement with Elliott Investment Management.

– According to Bloomberg (paywall), the European Central Bank (ECB) wants finance executives to know that they will be held to account for the industry’s continued failure to adequately manage climate and environmental risks. Frank Elderson, executive board member of the ECB, said the ESG risk growing in some bank books ‘increasingly calls into question the fitness and propriety’ of the executives in charge.

Banks are taking too long to treat climate and environmental risks as a material threat that can impact their finances, according to the ECB. Elderson’s speech is one of the ECB’s sternest warnings on the subject. Banks that don’t meet the ECB’s risk-management requirements for climate and the environment ‘will have to pay a penalty for every day the shortcoming remains unresolved,’ he said.

Last month, the European Banking Authority said it was revising the framework that sets capital requirements so that lenders reflect environmental and social risks in so-called Pillar 1 buffers.

Reuters reported that Charter Communications agreed to pay $25 mn to settle SEC charges related to unauthorized stock buybacks. From 2017 to 2021, Charter used a provision that changed the total dollar amounts available to buy back stock and the timings of the buybacks after the plans took effect, the SEC said. Those provisions, which the agency found the company used in nine separate pre-approved trading programs over those four years, contravened SEC rules for such plans.

Charter settled without admitting or denying the SEC findings. The company said in a statement that it fully co-operated with the SEC’s inquiry and that its share repurchase plans were well documented and disclosed in financial statements. ‘We remain committed to a share buyback program and our previously stated leverage targets,’ Charter said.

– The SEC announced that it filed 784 total enforcement actions in fiscal year 2023, a 3 percent increase over fiscal year 2022. These included 501 original or ‘stand-alone’ enforcement actions, an 8 percent increase over the previous fiscal year. The SEC also filed 162 ‘follow-on’ administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions or other orders, and 121 actions against issuers that were allegedly delinquent in making required filings with the SEC.

The stand-alone enforcement actions spanned the securities industry and charged violations by a range of market participants, from public companies and investment firms to gatekeepers and social media influencers. In fiscal year 2023, the SEC obtained orders for $4.95 bn in financial remedies, the second-highest amount in the agency’s history, after the record-setting financial remedies ordered in fiscal year 2022.

– Thousands of unionized Starbucks employees went on strike on Thursday in an effort to bring the company back to the negotiating table, according to The Wall Street Journal (paywall). Baristas walked out on the company’s annual ‘Red Cup Day’ promotion for the second straight year, the union representing them said.

The union, Starbucks Workers United, said it wanted the company to bargain over pay raises, increased staffing and other concerns. Starbucks said Thursday morning that it was aware of the move by the union, which impacted a few dozen stores. Starbucks Workers United said the strike was its biggest ever.

Reuters reported that, according to a new study, artificial intelligence (AI) chatbot GPT-4 outperforms most aspiring lawyers on the legal ethics exam required by nearly every state in order to practice law. GPT-4 answered 74 percent of the questions correctly on a simulated Multistate Professional Responsibility Exam (MPRE), compared with an estimated 68 percent average among human test takers nationwide, according to a report by LegalOn Technologies, which sells AI software that reviews contracts. ‘Our study indicates that in the future it may be possible to develop AI to assist lawyers with ethical compliance and to operate, where relevant, in alignment with lawyers’ professional responsibilities,’ the study notes.

It joins a growing body of research examining AI within legal education and attorney licensure. A recent study found that GPT-4 can pass the bar exam. Earlier this month, researchers found that access to GPT-4 improved speed on legal writing assignments, though it didn’t improve the quality of law students’ work.

A spokesperson for the National Conference of Bar Examiners, which develops the MPRE, said it could not assess the LegalOn report’s claims that GPT-4 can pass its ethics test. ‘The legal profession is always evolving in its use of technology, and will continue to do so,’ the spokesperson said, adding that ‘attorneys have a unique set of skills that AI cannot currently match.’

– The WSJ reported that EY executives picked Janet Truncale, head of EY’s US financial services business, as the new global chair to succeed Carmine Di Sibio. Truncale will be the first woman to serve as global chair and CEO of the roughly 395,000-person firm, effective July 1, 2024. The 18-person global executive committee told partners they had elected her to a four-year term.

Truncale will also be the first woman to run a Big Four accounting firm, holding both chair and CEO titles. Anna Marks is Deloitte’s global chair, a role in which she was preceded by Sharon Thorne, but Deloitte’s structure is such that the global CEO, Joe Ucuzoglu, leads the organization.