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Nov 12, 2021

The week in GRC: Campaigners warn of potential climate litigation against boards and SEC names PCAOB members

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

– The SEC appointed Nicole Creola Kelly as chief of the agency’s office of the whistleblower. Kelly is at present senior special counsel in the office of the general counsel and has more than 20 years of experience with the SEC. Among her former roles, she was counsel to former SEC chair Mary Jo White, counsel to former SEC member Kara Stein and held stints in the enforcement division’s complex financial instruments unit, as well as the whistleblower’s office.

Reuters reported that union-affiliated pension fund adviser SOC Investment Group, which is pressing Rivian on human rights and environment concerns in the electric vehicle (EV) start-up’s battery supply chain ahead of an IPO, said the company’s response fell short of expectations.

SOC executive director Dieter Waizenegger said he was disappointed by the lack of substance in the company’s response to earlier concerns the fund manager raised. ‘[Rivian] sent us a lot of words, but it’s really raising a lot of questions and we expect more substance than aspirations,’ Waizenegger said. ‘It’s particularly lacking on firm commitments to address critical environmental and human rights risks.’

In an October 29 response to SOC, board member Rose Marcario said Rivian was committed to ethical and sustainable growth in the EV space. ‘We have already taken extensive measures to protect the environment and human welfare in the course of our business operations, we have always understood that we must grow our policies as we grow our company and we are intent on setting new industry standards for human rights and environmental diligence,’ she said.

A Rivian spokesperson said the company was not commenting further during the quiet period ahead of its IPO.

– The SEC announced the appointments of Erica Williams as chair and Christina Ho, Kara Stein and Anthony Thompson as board members of the Public Company Accounting Oversight Board (PCAOB). Duane DesParte will continue as a board member and will remain acting chair until Williams is sworn in.

‘Finance is about trust, and the PCAOB has a critical role to play in ensuring that public company financial disclosures can be trusted by investors,’ said SEC chair Gary Gensler in a statement. ‘With these additions to the board, the PCAOB will have the leadership to meet the mission given to it by Congress.’ The Sarbanes-Oxley Act established the PCAOB to oversee the audits of public companies and registered broker-dealers through registration, standard-setting, inspection and disciplinary programs.

– Environmental activist Clara Mayer and the heads of Greenpeace Germany sued Volkswagen in a German court, accusing the company of failing to do its part to combat climate change, Reuters reported. The claimants had given Volkswagen eight weeks to consider their demands, which included ending production of internal combustion engine cars by 2030 and reducing carbon emissions by at least 65 percent from 2018 levels by then, before filing the suit. Volkswagen rejected the demands on October 28.

‘Volkswagen stands for climate protection and decarbonizing the transport sector, but it cannot tackle this challenge alone,’ a spokesperson said. ‘The task of designing appropriate measures belongs to parliament. Civil court disputes through lawsuits against singled-out companies are not the place or way to do justice to this task of great responsibility.’

The Wall Street Journal reported that General Electric (GE) said it would split into three public companies, breaking apart the more than century-old firm. The move is the culmination of a years-long process of shrinking the company. GE has already sold off its locomotive and home appliances business and has spun off its oil-and-gas business operations. What remain are three businesses in the aviation, healthcare and power industries. The company will now spin them off into separate publicly traded companies.

The GE board began to consider the plan in spring, CEO Larry Culp said, as efforts to cut GE’s debt and improve operations had progressed enough to consider such a move. ‘We looked at this and other options,’ he said. ‘It was clear this is the right path for GE.’

Trian Fund Management, an activist investor whose partner Ed Garden sits on GE’s board, said it welcomed the split.

– The White House on Monday said companies should move forward with President Joe Biden’s vaccine and testing requirements for private businesses despite a federal appeals court ordering a temporary halt to the rules, according to CNBC. ‘People should not wait,’ White House deputy press secretary Karine Jean-Pierre told reporters. ‘They should continue to move forward and make sure they’re getting their workplace vaccinated.’

The Biden administration asked the court to lift the pause, dismissing the states’ and companies’ claims of harm as ‘premature’ given that the deadlines for vaccination and testing are not until January. The administration claimed that pausing the requirements ‘would likely cost dozens or even hundreds of lives per day’ as the virus spreads. The departments of labor and justice also argued that the Occupational Safety and Health Administration acted within its authority as established by Congress.

Reuters reported that Royal Caribbean Group’s CEO, Richard Fain, is stepping down after more than three decades with the company. CFO Jason Liberty will take over as CEO, Royal Caribbean said, and will be tasked with taking the company back to pre-pandemic levels as sailing operations slowly restart more than a year after operations were suspended.

Royal Caribbean teamed up with rival Norwegian Cruise Line Holdings to form a task force to help develop safety standards for restarting the industry. Fain, who will step down in January 2022, said ‘it was the right time to step down’ with most of the company’s ships operating and the group nearing a full return to cruising.

Reuters said that, according to a new analysis of campaign contributions by University of Iowa law professor Derek Muller, attorneys and staff at major law firms donated nearly six times more to Democrat Joe Biden than to then-Republican president Donald Trump in the 2020 election.

Only three of the 100 highest-grossing US law firms sent more money to Trump’s campaign and related political action committees through individual contributions than to Biden’s, Muller found. That’s a greater imbalance than in the last presidential match-up he analyzed eight years ago, Muller said.

CNBC reported that, according to campaigners, financial institutions and individual board members could be the next targets of climate litigation cases. ‘We have litigated against countries and been successful,’ said Roger Cox, lawyer for Milieudefensie, an environmental campaign group and the Dutch branch of Friends of the Earth.

‘Now we have shown that one can successfully litigate against fossil fuel corporations and I think the next step is to start also litigating against the financial institutions that make these emissions and fossil fuel projects possible. I even think… board members of these large private institutions who continue to willingly frustrate achieving the Paris Agreement might become liable in years to come under direct liability regulations.’

CNBC reported that Johnson & Johnson announced plans to split its consumer products business from its pharmaceutical and medical device operations, creating two publicly traded companies. The move will separate its household products unit – which makes products such as Band-Aid bandages, Aveeno and Neutrogena skincare products and Listerine – from its division that makes and sells prescription drugs and medical devices, including its Covid-19 vaccine.

‘Following a comprehensive review, the board and management team believe the planned separation of the consumer health business is the best way to accelerate our efforts to serve patients, consumers and healthcare professionals, create opportunities for our talented global team, drive profitable growth and – most importantly – improve healthcare outcomes for people around the world,’ outgoing CEO Alex Gorsky said in a statement.

The company said it hopes to complete the transaction in 18-24 months. Gorsky said the decision to break up the company had been discussed by its board for ‘some time’ as it would bring ‘tremendous opportunity’ to stakeholders.

– In a week of similar announcements, the WSJ reported that Toshiba Corp said it planned to split into three by March 2024 in response to shareholder pressure for a more-focused structure. Under the plan, one of the three units will focus on infrastructure and a second on electronic devices such as power semiconductors. The third, which will retain the Toshiba name, will manage the company’s stake in flash-memory company Kioxia Holdings Corp and other assets.

The Toshiba board’s strategy committee said it envisioned further asset disposals by the units and described extensive contacts with private equity firms interested in buying parts of the company.