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Aug 23, 2019

The week in GRC: Business Roundtable drops shareholder-first principle, and SEC issues proxy voting guidance

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

– The Business Roundtable (BRT) dropped the ‘shareholder primacy’ principle that has driven US capitalism for decades, urging companies to consider the environment and workers’ well-being alongside seeking profits, the Financial Times reported. A new ‘statement of purpose’ from the BRT places shareholders as one of five stakeholders, alongside customers, workers, suppliers and communities – a departure from the belief that businesses serve the owners of their capital. Companies should ‘protect the environment’ and treat workers with ‘dignity and respect’ while also delivering long-term profits for shareholders, the BRT said.

The change outlines a call to reform capitalism in a time when populism and concern about climate change have led politicians and shareholder activists to demand that companies consider their impact on the world beyond their balance sheets.

– According to The Wall Street Journal, US companies are gearing up to give the Equal Employment Opportunity Commission (EEOC) the most detailed information ever collected about how they compensate workers of all genders, races and ethnicities. All employers with more than 100 workers must disclose a broad array of pay information to the EEOC by September 30, a process that agency officials have said is part of government efforts to narrow long-standing earnings gaps.

EEOC officials have said the detailed data about typical salaries across different industries and regions will help investigators more quickly determine which discrimination complaints merit closer scrutiny. The new mandate increases the pressure on employers from lawmakers, workers and investors to tackle discrepancies in the way women and minorities are paid.

CNN reported that the Big Four accounting firms are distancing themselves from a newspaper advertisement in which people claiming to be their employees express support for protesters in Hong Kong. Deloitte, EY, KPMG and PwC said the advertisement, which was published in Hong Kong’s Apple Daily, does not represent the firms’ views.

The advertisement reiterated five demands by activists, including the complete withdrawal of a proposed bill that would have allowed extradition to mainland China, and that authorities drop criminal charges against protesters and establish an independent commission to investigate possible police misconduct.

The New York Times reported that a federal judge dismissed a lawsuit accusing consulting firm McKinsey & Company of intentionally filing false statements in several bankruptcy courts to secure contracts to work on big corporate restructurings. Jay Alix, a retired restructuring specialist, has accused McKinsey of repeatedly defrauding the bankruptcy courts from 2001 onward, and filed the suit under the Racketeer Influenced and Corrupt Organizations Act, which allows private citizens to file claims if they feel they have been harmed by a criminal enterprise.

McKinsey’s chair for North America, Gary Pinkus, said the firm was pleased a federal court had dismissed Alix’s lawsuit. In addition to that case, he said Alix had filed objections to McKinsey’s work as an adviser to six bankrupt companies, and three bankruptcy courts had found he did not have standing.

Alix said the ruling on Monday was ‘based on a technicality’, not on the merits of his allegations, and cited a passage where the judge acknowledged his ‘good reasons’ for bringing the case.

– The Federal Deposit Insurance Corp voted to approve a five-agency revision of the Volcker Rule, according to CNBC. If approved by all regulators, the change would help clarify the way in which banks trade securities using their own funds, or proprietary trading. The regulators hope to clarify the definition of proprietary trading and adjust the ban that prohibits banks from making short-term investments with their own capital, following industry complaints that the rules are too complex and burdensome.

– The WSJ reported that the US Department of Justice (DoJ) closed a foreign bribery investigation into medical device maker Misonix’s former distributor in China. Misonix received a letter from the DoJ saying there won’t be any enforcement action in connection with its China business, the company said in a securities filing. The decision follows a separate move by the SEC in June to end its own foreign bribery probe into the company.

The investigations came to a close almost three years after Misonix voluntarily alerted US authorities to potential issues at its business in China. Misonix co-operated with the government in the parallel investigations, the company said. It didn’t respond to a request for further comment.

– The SEC issued new guidance designed to clarify how investors and advisory firms that cast ballots on their behalf should vote in corporate elections on issues such as pay and diversity, Reuters said. The guidance, which expands guidance from 2014 on shareholder voting in corporate ballots, addresses some of the concerns US corporations have about proxy advisers, such as what they say are mistakes in reports the advisers issue on specific companies and conflicts of interest in their business models.

The SEC voted 3-2 to publish the new guidance, with Democratic commissioners dissenting because they say it could add risks to shareholders’ rights and costs for the proxy advisers. ISS CEO Gary Retelny said in a statement that the firm was ‘concerned the guidance will hamper our ability to deliver’ its research to investors. Both ISS and Glass Lewis could potentially seek legal action if they believe the guidance breaches federal law.

– According to the WSJ, some shale drillers are trying to show consumers that their natural gas was sustainably fracked. Amid mounting investor pressure over climate change, many of the companies behind the US shale boom are stepping up efforts to reduce greenhouse-gas emissions, toxic wastewater and other environmental impacts tied to fracking. Now, some are looking to monetize those investments by marketing their natural gas as a cleaner fossil fuel, akin to organic vegetables or fair-trade coffee.

Some environmental groups argue that regulation, not green marketing, is the way to ensure sustainable practices. Unlike fair-trade standards or federal rules that govern organic labeling, there is no widely accepted industry definition for responsibly fracked gas. ‘It’s hard not to be dismissive,’ said Andrew Logan, senior director for oil and gas at Ceres.

– Kraft and Mondelez are taking the Commodity Futures Trading Commission (CFTC) to court in an effort to prevent the agency from discussing a $16 million fine to settle allegations of manipulating the wheat markets, CNBC reported. The two food companies agreed to pay the fine as part of a deal with the CFTC that the companies got to restrict what the agency could say about the case. Kraft and Mondelez, which was created when Kraft split into two companies in 2012, are now suing the CFTC for contempt in relation to an August 15 press release announcing the deal.

‘The CFTC and its commissioners engaged in a deliberate, orchestrated effort to violate the court’s consent order within minutes of its entry,’ the companies said in the filing. The consent order included a clause that read ‘neither party shall make any public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case.’ The order also prohibited the CFTC from saying whether either defendant violated federal law.

The CFTC told the court that its public statements didn’t violate the order and that its individual commissioners were not bound by the agreement. The CFTC voluntarily removed the announcement from its website until the next court appearance. The CFTC and Kraft declined to comment for this article. Mondelez did not respond to a request for comment.

CNN said US companies’ buyback frenzy may be subsiding. S&P 500 companies responded to the 2017 corporate tax cut by rewarding shareholders with record amounts of buybacks in 2018, with each quarter setting an all-time high. But that record-shattering pace appears to be slowing. S&P 500 companies executed $165.7 billion of buybacks during the second quarter of 2019, according to preliminary estimates by S&P Dow Jones Indices. Although that’s still a stunning amount, it is a 13 percent decline from the same period a year ago.

– The WSJ reported that HP CEO Dion Weisler will step down later this year for family health reasons. Weisler, who took over as HP’s CEO in 2015, will be succeeded by Enrique Lores, the head of the company’s imaging, printing and solutions business. Lores, who joined the company as an intern 30 years ago, will take over the top job on November 1 and work with Weisler through January 2020 to help with the transition, the company said.

– Representatives Katie Porter, D-California and Nydia Velázquez, D-New York have asked the Financial Stability Oversight Council (FSOC) to consider direct oversight of the cloud services big tech companies provide to banks, saying they have become a key component of the global financial system, Reuters reported.

‘Cloud services have become an essential element of our modern banking system and should be overseen commensurately,’ the lawmakers, who both sit on the House Financial Services Committee, wrote in a letter to the FSOC. ‘Cloud services are not currently subject to an appropriate and enforced regulatory regime.’


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...