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Aug 21, 2020

The week in GRC: DoJ issues rare FCPA opinion, and study finds frustrations with virtual AGMs

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

CNBC reported that, according to a court filing, former McDonald’s CEO Steve Easterbrook said the company’s lawsuit accusing him of fraud and trying to claw back an estimated $42 million of his compensation was ‘meritless’ and ‘misleading.’ McDonald’s has sued Easterbrook, alleging that he committed fraud and lied during the company’s probe into a relationship he had with an employee. The company said it found three alleged other relationships with employees he did not disclose before he was fired. McDonald’s is seeking to claw back the compensation he received as part of his separation agreement.

In court filings, Easterbrook requested that the case against him be dismissed, claiming that the equity award agreement mandates litigation in DuPage County, Illinois and that there is language in the separation agreement bars the company from reversing it.

McDonald’s said in a statement that it stands by its complaint, including both the factual assertions and the court in which it was filed. The company said it is incorporated in Delaware, and its bylaws require the lawsuit to be filed in the state.

– According to Nasdaq president and CEO Adena Friedman, the best way to make CEOs focus on inequality in the workforce is for shareholders to demand it, CNBC reported. Friedman said investors hold an ‘enormous amount of influence’ when it comes how companies can approach issues such as social injustice and economic inequality. ‘If I were to say what’s the number one way to make sure that I focus in the long-term on how to continue to make a positive difference for our community, our employees and the communities around us is having investors ask me about it every quarter,’ she said.

Friedman said ‘co-operative capitalism,’ which promotes partnerships between the private and public sectors, is a key to tackling economic disparities. ‘I don’t believe that the answer is to try to have the government play the entire role,’ she said.

– Shareholders faced obstacles such as not being able to ask questions or not having their inquiries addressed about 55 percent of the time in a sample of 88 virtual AGMs held this year and reviewed in a Hebrew University of Jerusalem study published this month, Reuters reported. The researchers did not provide such figures for in-person AGMs in previous years but estimated that this year’s virtual meetings had significantly increased the number of questions avoided.

Virtual shareholder meetings have been welcomed by many retail investors who would have otherwise had to travel to a company’s headquarters or other venue to attend amid the pandemic. Broadridge Financial Solutions said it helped run 1,494 virtual AGMs this year, up from 326 last year, preserving a key part of the corporate calendar. But many ESG activists say the virtual format can make it hard for them to hold companies accountable.

– According to The Wall Street Journal, the US Department of Justice (DoJ) has released a rare FCPA opinion letter, saying it doesn’t intend to bring an enforcement action against a US-based investment adviser over a fee the company planned to pay to a foreign government entity for services.

The letter, issued by the DoJ in response to questions from a company regarding a prospective transaction, has no binding application to other cases. But it highlights a means of communication through which companies can seek the department’s opinion on planned conduct that might raise bribery concerns. Companies can be reluctant to reach out to prosecutors for opinions for fear of raising potentially unwanted questions, preferring to seek guidance from outside lawyers, anti-bribery experts said.

– California’s Fair Political Practices Commission said it would investigate complaints regarding Yu Ben Meng, former chief investment officer (CIO) of CalPERS, Reuters reported. In a letter dated August 11, the commission notified Meng’s attorney that the agency had received anonymous complaints, which it said were based on a news article. It attached a Financial Times article regarding Meng’s investments and his disclosure of them and said it would investigate all allegations. The commission added that it had not made any determination about Meng’s culpability.

Meng resigned from CalPERS earlier this month, saying he needed to focus on his health and family. California state controller Betty Yee recently called for the CalPERS board to launch an inquiry into the abrupt exit of its CIO. CalPERS and Meng’s attorney did not immediately respond to requests for comment.

Bloomberg reported that more than 180 companies that declared bankruptcy in the US in 2020 blamed Covid-19 in part for their situation. Many were in serious financial trouble even before lockdowns of non-essential businesses designed to help curb the coronavirus and most will try to reorganize and emerge from bankruptcy smaller and less-indebted, but the hardest hit are selling prized assets and some are closing for good.

The companies on the list include familiar names such as Hertz and Brooks Brothers, but the majority are small and medium-sized businesses from across the country.

– The SEC said Diana Stoltzfus has been appointed as a deputy chief accountant with the professional practice group in the agency's office of the chief accountant.

In her new role, Stoltzfus will lead the activities of the office’s professional practice group, which includes supporting the commission in overseeing the activities of the PCAOB, managing rule-making and the resolution of auditor independence matters, and monitoring and addressing matters related to requirements for internal control over financial reporting and the auditing of financial statements. Stoltzfus was previously a partner with PwC.

– Airbnb said it confidentially filed paperwork with the SEC for an IPO, according to the WSJ. The home-sharing company said the number of shares and the price range for the proposed offering have not yet been decided. Airbnb is leaning toward listing its shares on Nasdaq, according to people familiar with the matter. There is no guarantee it will do so, and the company could still choose the NYSE.

Airbnb said late last year that it planned to go public, but its plans were hit as the pandemic shut down global travel. It initially had planned to make its debut on the public markets this year via a direct listing, but now plans to raise cash through a traditional IPO. Airbnb joins a wave of companies tapping investors after the IPO market emerged from a virtual standstill triggered by the pandemic.

– The SEC named Richard Best as director of the agency’s New York regional office. He succeeds Marc Berger, who has been named deputy director of the division of enforcement. Best joined the SEC in June 2015 as the regional director of the Salt Lake office and in 2018 he was named regional director of its Atlanta office.

– Porsche Automobil Holding said prosecutors in Stuttgart, Germany, have dropped a market manipulation probe against Volkswagen’s chair in exchange for a €1.5 million ($1.8 million) payment, Reuters reported. Proceedings have been dropped against Hans Dieter Poetsch and Matthias Mueller, a former CEO of Volkswagen, the Stuttgart prosecutor’s office said. In addition to their roles at Volkswagen, both Poetsch and Mueller were members of the board of parent company Porsche Automobil Holding.

A spokesperson for Porsche Automobil Holding said the company welcomed the settlement and reiterated that Poetsch and Mueller had not violated disclosure rules. Porsche Automobil Holding said it would pay the money to settle the case. In Germany, payments can be accepted by prosecutors in exchange for dropping criminal charges.

– According to the WSJ, US companies are writing down more of their assets during the Covid-19 pandemic than they have in years. CFOs are reducing the value of company assets such as airplanes, cruise ships and movie theaters in response to changes in consumer behavior that threaten the viability of their business models.

The 2,000 largest US companies by market capitalization have been recording higher pre-tax impairments as existing assets and investments produce poor returns amid the widespread economic downturn.

Reuters reported that Climate Action 100+, whose 450 members manage more than $40 trillion in assets, said it has added Mexican state-owned oil company Petroleos Mexicanos (Pemex) to its list of targets in its push for more corporate action on climate change. The group said it would look to step up talks with Pemex. ‘Pemex has been added to the list of firms engaged through Climate Action 100+ as part of a standard periodic review process,’ a spokesperson for Climate Action 100+ said.

The Pemex engagement will be led by asset managers Federated Hermes and BlueBay Asset Management, with other members of CA100+ currently being canvassed about formally joining the group.

Pemex did not immediately respond to a request for comment.


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...