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Mar 08, 2019

The week in GRC: Bristol-Myers Squibb urges shareholders to back Celgene deal, and Papa John’s founder to leave board

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

CNN reported that Ted Baker’s founder and CEO Ray Kelvin resigned as the fashion company investigates allegations he behaved inappropriately toward staff. The company said Kelvin had left with immediate effect. He had been on a voluntary leave of absence since December following allegations of harassment, including ‘forced hugging’ of staff members.

Kelvin denies all claims that he acted inappropriately toward employees. A third-party investigation into the allegations against him and into Ted Baker’s policy on handling sexual harassment complaints is due to wrap up before the end of June. ‘In light of the allegations made against him, Ray has decided it is in the best interests of the company for him to resign so that the business can move forward under new leadership,’ executive chair David Bernstein said in a statement. Kelvin wasn’t immediately available for comment.

Bloomberg reported that a group comprising hundreds of working mothers is waging a campaign to persuade Amazon founder and CEO Jeff Bezos that providing backup daycare benefit for employees – helping parents deal with flu outbreaks, school closures and other emergencies – is not simply humane but also good for the company.

The group has been collecting anecdotal evidence to show how a lack of daycare support can derail the careers of talented women who might otherwise be promoted to more senior jobs, according to an email reviewed by Bloomberg. The campaign is the latest example of employee activism in the tech industry, which in recent months has seen standoffs between workers and management over everything from Pentagon contracts to binding arbitration.

In a statement, Amazon said it provides valuable benefits to its 250,000 US workers, including health benefits that begin on the first day, flexible paid leave for new parents and discounts at daycare centers.

– According to The Wall Street Journal, the US Department of Justice (DoJ) is having more success at prosecuting banks than going after individual bankers. Cases have stumbled for various reasons: some defendants have successfully argued that their actions were encouraged by their employers, leading juries to decide their conduct was unseemly rather than illegal and vote for acquittal. Appeals courts have also overturned cases after finding problems with the evidence used at trial.

‘There is a Greek chorus telling prosecutors to put people in jail,’ said Aitan Goelman, a former federal prosecutor who ran the enforcement division of the Commodity Futures Trading Commission and is now in private practice as a defense lawyer. ‘But cases are harder to make against individuals.’

A DoJ spokesperson said the agency is ‘firmly committed to holding individuals and companies accountable for the roles they play in complex financial crimes’, adding that criminal penalties are subject to review by courts.

The New York Times reported that Papa John’s pizza chain founder and former chair John Schnatter agreed to give up his board seat in exchange for getting a say in choosing an acceptable successor. Under a settlement laid out in a securities filing, Schnatter and the company have agreed to take steps toward ending a dispute that has continued since his departure last July as head of one of the world’s largest pizza delivery chains.

In the securities filing, Papa John’s said Schnatter had effectively agreed to break his ties to the company by relinquishing his board seat after a successor is selected and not to seek re-election. He also agreed to drop two lawsuits he had brought against the company. The company agreed to jettison a provision of the so-called poison pill program it put in place last summer that limited shareholder communication.

In a statement, Schnatter said the agreement would help ‘avoid a costly and expensive proxy contest by identifying a mutually acceptable and independent director.’

– Germany’s Merck called on shareholders of Versum Materials to put pressure on the electronic materials maker’s management to consider its jilted takeover proposal over a rival offer, according to Reuters. Versum had rejected Merck’s unsolicited cash offer worth $5.9 billion, and said it was committed to a no-cash merger with US rival Entegris agreed in January.

‘We urge you to let the Versum board know that Versum shareholders will not support the Entegris acquisition in light of our proposal, which is unquestionably superior,’ Merck said in an open letter to Versum investors. ‘Our offer to engage directly with Versum to understand the rationale for the Versum board’s determination has not been accepted.’

Versum officials were not immediately available for comment.

– According to the WSJ, Barrick Gold’s largest shareholder said it prefers a joint venture with Newmont Mining rather than a full-blown acquisition. Joe Foster, who runs the VanEck International Investors Gold Fund and is also a major shareholder in Newmont, said that because the cost savings of any tie-up are concentrated in the two firms’ Nevada operations, the pair should focus on a joint venture of those assets.

VanEck’s shareholdings in Barrick and Newmont aren’t enough to stop a deal. But the fund’s preference for a joint venture may add pressure on both sides to engage in such discussions. A spokesperson for Barrick declined to comment.

– The WSJ reports that efforts to curb Wall Street pay are back on the agenda as regulators turn to initiatives left unfinished following the Dodd-Frank Act. Banking regulators are discussing reviving a proposal that would require big banks to defer some compensation for executives and to take back more of their bonuses if losses pile up at a firm, according to people familiar with the matter.

The talks are in early stages and involve top officials from at least three bank regulators: the Federal Deposit Insurance Corp (FDIC), the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, the people said. The rules are required under Dodd-Frank and were twice proposed during the Obama administration but weren’t finalized, in part because of industry pushback.

Spokespeople for the Fed and OCC said their agencies are committed to finishing the incentive-compensation rule. An FDIC spokesperson declined to comment.

– According to Reuters, Bristol-Myers Squibb urged shareholders to back its planned $74 billion takeover of Celgene Corp amid opposition from at least two investors to what could be the largest ever pharmaceutical deal. The drug maker said buying Celgene was the ‘best path forward’ for its shareholders, a message that is in line with its recent statements even as Starboard Value and Wellington Management oppose the deal.

Activist investor Starboard maintained its view on Wednesday that the merger was ‘ill-advised’ and recommended that fellow Bristol-Myers shareholders vote against it at a shareholder meeting slated for April 12. The hedge fund firm has also presented a slate of five nominees to Bristol-Myers’ board, including Starboard CEO Jeffrey Smith.

– The WSJ said European banks are investing more resources in staff and technology to identify financial crime following a series of money-laundering scandals. In some cases they’re cutting costs elsewhere in the enterprise to fund the initiatives. Banks with global operations, not just in Europe, have been spending more on compliance-related technology, such as systems powered by artificial intelligence, and hiring employees with advanced training in areas such as data science, said Walter Mix, managing director at Berkeley Research Group. The investments have put pressure on banks’ bottom line, he said.

– The WSJ reported that shareholder activist Kimmeridge Energy Management Co will challenge PDC Energy in an effort to change the way the oil producer pays its executives, part of a broader push by investors to force US energy producers to focus more on profitability than growth. Kimmeridge said it is putting forward a slate of directors to challenge the three board members whose terms expire this year. PDC’s chief executive, Barton Brookman, is among those up for re-election.

Kimmeridge said it wants the company to align executive compensation more with shareholder returns than production growth. The firm is also advocating for a dividend, exploration of potential deals with rivals and a reduction of administrative costs at PDC.

PDC said its current directors ‘bring financial and operational experience and relevant expertise, including in the areas of oil and gas, leadership, corporate management, accounting and finance, and mergers and acquisitions.’

– According to the WSJ, regulators have dialed back a practice of publicly shaming the nation’s biggest banks through ‘stress test’ exams. In doing so, they have taken one of the biggest steps yet to ease scrutiny put in place after the financial crisis.

The Federal Reserve said it would end a system of giving pass or fail grades to the largest domestic banks on a portion of their annual stress tests, which measure whether the firms could keep lending during a severe downturn. Meanwhile, the Financial Stability Oversight Council proposed raising the standards under which financial firms that aren’t banks, such as insurance companies or asset managers, would have to face tougher supervision.

CNBC reported that Senator Elizabeth Warren, D-Massachusetts, unveiled a plan to break up large technology companies. The Democratic presidential candidate wrote that she wants to make ‘big, structural changes to the tech sector to promote more competition.’ Those overhauls would include ‘breaking up’ Amazon, Facebook and Google. ‘Today’s big tech companies have too much power – too much power over our economy, our society and our democracy,’ Warren wrote.

Amazon, Apple, Google and Facebook did not immediately respond to requests for comment on Warren’s plan.

– According to the WSJ, Norway’s $1 trillion sovereign wealth fund took a major step toward selling off some of its substantial holdings in oil and gas companies. The Norwegian finance ministry proposed that the fund remove energy exploration and production companies from its portfolio, following a 2017 recommendation made by the central bank. The country faces a world where oil demand and prices may be on a lasting decline and the authorities have decided that its economy is too tied to the price of crude oil.