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Mar 01, 2019

The week in GRC: Companies face record number of climate proposals, and Caesars reaches deal with Icahn over directors

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

The Wall Street Journal reported that activist investor Voce Capital Management thinks Argo Group International Holdings’ board is letting its CEO, Mark Watson, misuse the Bermuda-based insurer’s assets at the expense of shareholders and could nominate four directors to the board, according to a draft of a letter to Argo shareholders viewed by the WSJ.

Voce questions whether endeavors allegedly spearheaded by Watson, such as flying a corporate jet to the Art Basel art fair in Miami Beach, are justified expenses. Voce says some of Watson’s actions appear to violate Argo’s code of conduct and any improper personal use of company assets could have regulatory and tax implications. A person familiar with Argo’s thinking said the company has procedures to ensure compliance with all laws as they relate to corporate expenses.

Argo said in response to the letter’s content that its board and management welcomes input from its shareholders. It didn’t specifically comment on Voce’s allegations concerning Watson, and he didn’t respond to requests for comment.

– According to Reuters, Canada’s Barrick Gold offered to buy US rival Newmont Mining Corp for nearly $18 billion in stock, a hostile takeover bid that seeks to combine the world’s two largest gold producers. Newmont responded by saying it had already reviewed and rejected possible deals with Barrick and said its own $10 billion pending purchase of Goldcorp made more business sense.

Barrick said its acquisition of Newmont would be contingent on the company scrapping the deal to buy Toronto-listed Goldcorp, adding that its offer was a ‘significantly superior’ option for Newmont shareholders. Newmont CEO Gary Goldberg pointed to a joint venture as a better way of extracting value from the two companies’ mines in Nevada, the country’s largest producer of gold and silver. Newmont’s board of directors would ‘fully evaluate the Barrick proposal and respond in due course,’ the company said.

– Former Federal Reserve chair Paul Volcker stepped up his criticism of bank culture, saying it has become too focused on incentives and not enough on customer service, CNBC reported. Volcker said bank boards have largely misplaced priorities. ‘There have been... increasing concerns about the culture of the financial system, banking in particular,’ he said. ‘The Holy Grail has been that the only thing that matters is how much profit the firm (and you) make, which [economist] Milton Friedman pushed. This is deeply in the interest of the people running these banks and non-banks, and it is losing some of its attractiveness.

‘You now have this situation with incentive pay dominating corporate and individual decision-making. If the top executives are not getting as much pay as their competitors, the directors will worry about it and feel impelled to match the competition to show they value your work. ‘[It] has gotten all out of context, it seems to me. The amount of pay involved at the banks themselves is worrisome, but it also mirrors what is going on outside the banks.’

– According to CNBC, Federal Reserve chair Jerome Powell said before the US Senate that conflicting federal and state laws on the sale of marijuana and other cannabis products put bank supervisors in a ‘very difficult place.’ Asked by Sen Robert Menendez, D-New Jersey, about the Fed’s thoughts on the cannabis space, the leader of the central bank said further regulatory guidance would be helpful for bank overseers.

Cannabis has proven a puzzling topic for both Washington, DC and Wall Street, which is discovering new hurdles as it explores the burgeoning marijuana and hemp markets, ranging from lending restrictions to divergent local laws. Marijuana remains illegal on a federal level in the US, but 10 states and the District of Columbia have allowed its use for recreational purposes.

– The WSJ reported that a federal judge decided Tesla CEO Elon Musk has until March 11 to answer SEC claims that tweets he issued in February violated an enforcement settlement he reached last year. The WSJ previously said the SEC asked the judge to hold Musk in contempt of court over tweets he made discussing the company’s 2019 projected production volumes.

In a court filing, the SEC said Musk violated a condition of his settlement with the agency last year, when he was accused of tweeting misleading information about taking Tesla private. The deal required that Tesla officials preapprove any statements from Musk that could affect the company’s stock price. A Tesla spokesperson and Musk didn’t respond to requests for comment.

In its response to the SEC, Tesla stated that the content of the tweet at issue had previously been preapproved for a January 30 release by the company’s general counsel and designated securities counsel. Tesla’s designated securities lawyer monitors Musk’s Twitter account and saw the February 19 tweet, according to Tesla’s outside counsel. The designated securities lawyer and Musk drafted a tweet to clarify the original one, the counsel wrote.

– The WSJ reported that eBay and activist investors Elliott Management and Starboard Value are approaching a settlement deal that would give the activists board seats and may open the door to eBay breaking itself up. The three parties are discussing a deal in which Elliott and Starboard would receive multiple board seats, according to people familiar with the matter. Under the deal, the company would also agree to perform an operational review focused on improving profitability and a full-company strategic review. This is expected to involve considering a range of potential sales or spin-offs of units and a sale of the core company, the people said.

The activists and the company are still working through some issues that could cause the talks to collapse, according to people familiar with the matter. If a deal isn’t reached, Elliott and Starboard have until March 1 to seek board seats through a proxy fight, though companies in discussions with investors sometimes agree to extend the deadline to allow more time for negotiation.

– The SEC said Vanessa Countryman has been named acting secretary at the agency. She will replace Brent Fields, who is stepping down as secretary, effective March 11, to take up a position in the SEC’s division of investment management. For the past five years, Countryman has served as chief counsel in the SEC’s division of economic and risk analysis.

The office of the secretary plays a central role in ensuring the effective processing of commission business. Office staff, among other things, review and track all documents submitted to the commission, schedule commission meetings, maintain records of official commission actions and provide public notice of those actions.

– According to the WSJ, the Nevada Gaming Commission levied its largest fine in the state’s history against Wynn Resorts after the company admitted that it systematically ignored employees’ sexual-misconduct allegations against founder and former CEO Steve Wynn – who has previously said the notion that he ever assaulted any woman was preposterous. A lawyer for Wynn didn’t immediately respond to a request for comment for this article.

Wynn Resorts agreed to many of the findings in the Nevada Gaming Control Board’s complaint, marking the first time it acknowledged that high-level executives failed to respond to employees’ allegations against Wynn. It also previously agreed not to contest any fine issued by the commission. Matthew Maddox, the current CEO of Wynn Resorts, told the commission the company had transformed itself, revamping its board, investing in its employees and working to show it is bigger than one person.

John Michela, an attorney for Nevada, acknowledged that Wynn Resorts had made changes but urged the commissioners to take into consideration that the company didn’t institute the changes until media reports brought the issues to light. The executives mentioned by name in the report are no longer at the company, Wynn Resorts has said.

Reuters reported that top US pension funds are asking electric utilities to boost efforts to cut carbon emissions but will not force the issue with proxy resolutions this spring, hoping market shifts and falling prices for renewable energy have made executives and directors receptive to the goal.

Investors including New York City comptroller Scott Stringer and leaders of CalPERS are asking the 20 largest publicly traded electric generators in the US for detailed plans for achieving carbon-free electricity by 2050 at the latest, according to material seen by Reuters. They also seek other steps such as board commitments and linking progress to executive pay. In a statement, Stringer termed decarbonization a ‘financial necessity’: ‘This initiative makes clear that mobilizing for the planet goes hand-in-hand with protecting our pensions, and we need these commitments now.’

– Meanwhile, the WSJ noted that companies are projected to face a record of 75 or more climate-related shareholder proposals in the coming season, up from 17 in 2013, according to ISS Analytics. For example, DowDuPont received a proposal for its 2019 proxy ballot that asked for more disclosures about risks from expanding chemical-plant operations near the Gulf of Mexico. Major storms there, such as Hurricane Harvey, can cause damage and spills. A spokesperson for DowDuPont declined to comment.

Beyond individual company initiatives, BlackRock, Vanguard, State Street Global Advisors and others are among institutional investors backing the Sustainability Accounting Standards Board, which wants to standardize and increase corporate environmental disclosures.

Reuters reported that casino operator Caesars Entertainment has reached a deal with investor Carl Icahn that appoints three new directors to its board, although Icahn continues to push for a sale of the company. Caesars said it had come to an agreement with Icahn on the appointment of the next CEO and the composition of its board that involves three existing directors stepping down. The deal gives the Icahn Group the right to appoint a fourth representative to the board if a new CEO who is acceptable to new directors is not named within 45 days.

– Roadrunner Transportation Systems completed a rights offering that brings the trucking company an infusion of more than $30 million in cash and brings the business under the control of activist investor Elliott Management, the WSJ reported. Elliott, already a major Roadrunner shareholder, backstopped the $450 million offering and now holds roughly 90.4 percent of the common stock, Roadrunner said, including subscription rights to the offering.

Roadrunner CEO Curt Stoelting said the offering will simplify the company’s capital structure and ‘increase the speed and likelihood of a full operational recovery for Roadrunner.’

– According to Reuters, PG&E Corp investor BlueMountain Capital Management named 13 people it hopes to install as directors at the utility owner weeks after the company filed for bankruptcy in the wake of California’s catastrophic wildfires. The hedge fund firm’s slate of director nominees includes an expert in resolving victim claims, a former treasurer of the state of California, a prominent hedge fund manager and people with banking and energy industry expertise.

BlueMountain in January announced plans for a proxy contest, criticizing the company for filing for Chapter 11 protection, which it said was unnecessary and harmful to investors. PG&E previously promised to make board changes, saying that only five of its existing board members would stand for re-election at the May 21 AGM.