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Apr 27, 2018

The week in GRC: Study finds companies lagging on GDPR prep, and JPMorgan launches ESG bond index

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

Bloomberg reported that Elliott Management Corp, the activist fund firm headed by Paul Singer, stepped up its pressure on Hyundai Motor Group by saying the company’s planned merger of two units would shortchange minority shareholders and lacks business logic. Instead, Elliott Management proposed that Hyundai Motor Co be merged with Hyundai Mobis Co to form a holding company that would oversee the group.

In a statement, Hyundai Motor Group said it will ‘continuously communicate with shareholders and investors around the world, including Elliott Management, to explain the underlying goal and needs of the proposed restructuring plan.’

– The European Commission proposed new rules under which whistleblowers exposing fraud, tax evasion, data breaches and other misdeeds will be given more protection from retaliation, according to Reuters. The move comes in the wake of criticism from transparency campaigners about the lack of protection in EU laws for individuals who report such breaches.

The commission said its proposal was a game changer as it will require companies to set up internal channels for whistleblowers and also shield them from reprisals such as sackings, demotion and even litigation. There are safeguards against malicious or abusive reports, too.

Bloomberg looked at some of the major issues due to come up at company AGMs on both sides of the Atlantic in areas such as executive pay, activism, governance, diversity and climate change. Environmental and social proposals submitted in the US have outpaced governance proposals for the second year in a row, according to ISS. As with last year, companies in the UK that register a vote of 20 percent or more against any resolution will be listed on a public website of offenders.

– The Wall Street Journal reported that Wynn Resorts’ largest shareholder has launched a campaign to remove one of three board directors investigating allegations of sexual misconduct against former CEO Steve Wynn, who has denied wrongdoing. Elaine Wynn, who co-founded the company with Steve Wynn, said in an SEC filing that shareholders shouldn’t vote to re-elect director John Hagenbuch to the board based on what she alleges are close ties to Steve Wynn.

A Wynn Resorts spokesperson said the company ‘is focused on the future’ and the board ‘is working in an orderly fashion to refresh its composition’ and ‘intends to continue its work’.

Hagenbuch is part of a special, three-member special committee of the board, led by director Patricia Mulroy, set up  to investigate the claims against Steve Wynn. A representative for the special committee referred questions to Wynn Resorts’ spokesperson.

Reuters reported that, according to people familiar with the matter, the China Banking and Insurance Regulatory Commission (CBIRC) has launched a nationwide inspection of banks’ risky business practices, focusing on consumer loans and real estate lending in regions with high levels of household debt. The local branches of the CBIRC have deployed teams of officials to commercial banks where they will stay for at least a week and assess bank loans and client information, the people said. The CBIRC did not respond immediately to a request for comment outside business hours.

– With one month to go until the EU’s new General Data Protection Regulation (GDPR) comes into effect to govern all data companies hold on individuals, the Financial Times reported that businesses are still waking up to their new obligations and the risks they face if they do not comply with the rules. According to EY, almost 40 percent of 1,100 EU-based executives surveyed said they did not know the GDPR rules even fairly well. With fines for breaches possibly as high as 4 percent of annual global revenue, it is in the interests of companies to try to hit the deadline.

– Altaba, the company formerly known as Yahoo, agreed to pay a $35 million fine to settle SEC charges that it kept its 2014 cyber-security breach a secret from investors for more than two years, according to Reuters. The case is the first time the agency has gone after a company for failing to disclose a cyber-security breach. Altaba agreed to settle without admitting or denying any wrongdoing. A company spokesperson declined to comment.

Yahoo’s information security team learned just days after the December 2014 breach that Russian hackers had stolen email addresses, encrypted passwords and security questions and this was reported to Yahoo’s senior management and legal department, the SEC said. But the company failed to properly investigate and did not disclose it to the public until more than two years later, when it was being acquired by Verizon Communications, the regulator alleged.

– The WSJ noted that, although diversity advocates have for years been making a business case for women in high-ranking roles, blunt-force measures rather than financial arguments appear to be moving the needle. The US, which was at one time the leader in female directors, is lagging Europe where mandates have forced corporations to boost the ratio of women holding board seats.

In Italy, Germany and several other European nations, the number of women on big company boards has tripled and, in some cases, quadrupled in recent years, according to a report by the Corporate Women Directors International (CWDI). France passed a law in 2011 requiring that blue-chip firms fill at least 40 percent of board seats with women and gave them six years to meet the requirement. In that time, the share of directors at the country’s biggest companies more than doubled to 43 percent of board representation, CWDI data shows.

– The SEC named Eric Werner as associate regional director for enforcement in the agency’s Fort Worth office. He succeeds Jessica Magee, who left the agency in February. Werner joined the SEC in 1995 as an investigative staff attorney in the enforcement division in Washington, DC, where he later served in the division’s office of chief counsel. Upon joining the Fort Worth office, he was promoted to branch chief in 2004 and to assistant regional director in 2010.

– According to Reuters, JPMorgan launched a new emerging market bond index that takes ESG factors into account. The index, conceived in co-operation with BlackRock, will cater to investors who want a sharper focus on responsible investing, JPMorgan said.

‘Sustainable investing is about investing in progress and pioneering better ways of doing business,’ said Sergio Trigo Paz, head of BlackRock emerging market debt. ‘Strong ESG practices positively impact creditworthiness in the long term, and until now ESG in emerging market debt has been more bespoke and project-based, as opposed to providing solutions at scale.'

– Christopher Giancarlo, chair of the Commodity Futures Trading Commission (CFTC), set out a 100-page blueprint to pare back regulation of the swaps industry that was introduced after the financial crisis, calling it a software upgrade for the rules rather than an attempt to ‘burn down the house’, the FT reported.

Giancarlo said small banks should be exempt from collecting margin payments on over-the-counter swaps and that regulators should give banks more leeway to use their own internal models. The white paper penned by Giancarlo and Bruce Tuckman, the CFTC’s chief economist, contains a mix of short-term policy proposals and longer-term goals for reform of the rules governing swaps.

– The WSJ reported that General Electric (GE) shareholders approved KPMG as the company’s auditor for another year, but only after a great deal of opposition in the wake of GE’s accounting issues – the company has said the SEC is investigating some of its accounting practices – and criticism from proxy advisory firms.

Only 64.9 percent of GE shareholders voted to ratify KPMG as the company’s auditor, according to preliminary figures released at GE’s annual meeting. That represents one of the highest levels of shareholder opposition to an auditor at any company in recent years, according to data from consulting firm Audit Analytics.

GE said its audit committee ‘will certainly be taking this indication from our shareowners into account.’ A KPMG spokesperson couldn’t be reached for comment on the vote.

Reuters reported that more than 20 Democratic US senators urged Federal Communications Commission (FCC) chair Ajit Pai not to approve any transfers of broadcast TV licenses as part of proposed mergers pending a federal court ruling. The senators said the Republican-dominated FCC should ‘stop making further changes to the nation’s broadcast landscape until the agency has conducted and completed a holistic look at the state of broadcasting and the media and waited for a ruling.’

The FCC, the senators’ letter added, ‘should not adopt any additional changes to its media ownership rules, it should not implement any changes adopted over the last several months and it should not approve any pending transfers of control of broadcast licenses as part of proposed mergers or acquisitions.’

A spokesperson for Pai declined to comment on the letter.

– Aphria said it is taking steps to improve its corporate governance by adopting a formal policy for how company insiders can invest in other cannabis companies and sit on their boards, the Globe and Mail reported.

The grower of medical marijuana, which is based in Leamington, Ontario, announced the new policy for its directors, officers and other key employees, adding that non-compliance would result in sanctions. It didn’t disclose specifics and didn’t reply to a request for comment.

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...