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Nov 18, 2022

The week in GRC: Activist urges Alphabet to cut costs and SEC reports rise in enforcement actions

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

Reuters reported that Tyson Foods’ board is overseeing a ‘thorough review’ of the arrest of CFO John Tyson on charges that he trespassed at a young woman’s house while intoxicated. Tyson, great-grandson of the company’s founder, apologized during a quarterly earnings call for his November 6 arrest for criminal trespassing and public intoxication in Fayetteville, Arkansas. ‘I’m embarrassed and I want to let you know that I take full responsibility for my actions,’ Tyson said. ‘This was an incident inconsistent with our company values, as well as my personal values.’

The board is independent, CEO Donnie King told analysts on the earnings call. He did not give details about the review.

– According to The Wall Street Journal (paywall), activist hedge fund firm TCI Fund Management urged Google parent company Alphabet to aggressively cut costs and reduce losses in long-term bets such as the self-driving car unit Waymo, arguing that the company would be more efficient with fewer employees.

TCI made the requests in a letter to CEO Sundar Pichai. ‘We are writing to express our view that the cost base of Alphabet is too high and management needs to take aggressive action,’ TCI wrote. ‘The company has too many employees and the cost per employee is too high.’ The move adds to the pressure on technology companies to lower costs following a period through the pandemic when they invested heavily in employees and facilities.

Alphabet declined to comment. On an earnings call last month, Pichai said the company had begun ‘realigning resources to invest in our biggest growth opportunities’ and that employee growth would be significantly lower in the fourth quarter.

– The SEC announced that it filed 760 total enforcement actions in fiscal year 2022, a 9 percent increase on the previous year. These included 462 new or ‘stand-alone’ enforcement actions – a 6.5 percent increase on fiscal 2021 – 129 actions against issuers that were allegedly delinquent in making required filings with the SEC and 169 ‘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.

Money ordered in SEC actions, comprising civil penalties, disgorgement and pre-judgment interest, totaled $6.44 bn, the most in the agency’s history and up from $3.85 bn in fiscal year 2021. Of the total money ordered, civil penalties, at $4.19 bn, were also the highest on record.

The Guardian reported that, according to the Tax Justice Network (TJN), governments around the world could collect almost $90 bn a year extra in tax revenues if they made public their data on the extent to which multinational companies use tax havens. The advocacy group said states were depriving themselves of $89 bn a year by allowing some of the world’s biggest companies anonymity over how they conduct their tax affairs.

In its State of Tax Justice 2022 report, the group called for an end to the concession made to multinational companies that they would not be named and shamed if they provided information about shifting profits into tax havens under a global initiative – country-by-country reporting – pioneered by the Organization for Economic Cooperation and Development. Some individual companies have voluntarily made their country-by-country reports public, and the TJN said that based on its calculations, governments could recoup 28 percent of the $316 bn lost in cross-border ‘tax abuse’ in 2021 if a loss of anonymity shone a light on the activities of all multinationals.

Reuters reported that, according to people familiar with the matter, activist investor Impactive Capital plans to ask for board seats at Envestnet to push the financial technology company to improve its stock price by cutting costs and overhauling pay. Impactive Capital, founded by Lauren Taylor Wolfe and Christian Asmar, owns a 7.2 percent stake in Envestnet and is laying the groundwork for a proxy fight after months of private negotiations broke down, the people said.

A representative for Envestnet was not immediately available for comment.

– Financial market participants want more regulations and better supervision to help curb exaggerated ESG claims, according to Bloomberg (paywall). Its survey of ESG-related issues found that 53 percent of 550 Bloomberg Terminal users want more rules to help them tackle environmental issues. Europeans were more in favor of extra regulations than Americans, while both regions gave green issues priority over social or governance matters.

Much of the concern among fund managers and companies centers on the lack of reliable data, with financial professionals citing ESG ratings as a key weakness. Scores intended to measure corporate performance on ESG factors remain largely unregulated.

‘There’s still no unified standard of how to rate a company’s ESG credentials, let alone what constitutes a good rating,’ said Joachim Klement, a strategist at Liberum. ‘The result isn’t only that we encounter many investors that are frustrated with the lack of transparency and comparability of different ratings providers, but also that more and more investors abandon the use of ESG ratings altogether.’

Reuters reported that eight former employees of SpaceX have filed unfair labor practice charges against the company, alleging they were let go for speaking up against CEO and founder Elon Musk. The employees said they were fired for being part of a group that had drafted and circulated a letter in June criticizing Musk and calling on executives to make the company’s culture more inclusive. The charges were filed with the National Labor Relations Board.

SpaceX did not immediately respond to a request for comment.

– According to the WSJ, companies seeking to comply with US sanctions against Russia are facing increasingly sophisticated evasion efforts by individuals and entities, forcing many to step up efforts to screen for potential violations. Some of those looking to bypass Russia sanctions are taking pages from the playbook of Iran and North Korea sanctions evaders, such as the use of front companies to transact in the country. These efforts are prompting companies to monitor their customers more closely and to introduce additional steps to remain within the law.

‘Compliance programs had to be… detectives to really try to ferret out some of these front companies and other companies that might be acting in a way to try to circumvent sanctions,’ said Brent Benoit, deputy general counsel and chief compliance officer of energy services company NOV.

CNBC reported that Visa named Ryan McInerney as its next CEO, succeeding Alfred Kelly who will step down from the role, effective February 1, 2023. McInerney has been president at Visa since 2013, overseeing the firm’s financial institutions, acquirers, merchants and partners. He was previously CEO for consumer banking at JPMorgan Chase and held operations and risk-chief roles at Chase’s consumer and home lending businesses.

Kelly will become Visa’s executive chair. He has served as the company’s CEO since 2016 and was elected board chair in 2019.