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Feb 23, 2018

The week in GRC: Facing proxy fight, Newell Brands adds to board, and Honeywell reports CEO-worker pay ratio

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

The Wall Street Journal reported that Qualcomm raised its bid for NXP Semiconductors to roughly $44 billion in an effort to win shareholder support for the acquisition. The move is intended to appease Elliott Management and several other hedge fund firms that had argued the original bid was too low. Elliott said Tuesday it had agreed to tender its shares in NXP in response to the higher offer.

Reuters reported that, according to people familiar with the matter, SoftBank Group is working with Nomura Holdings as it makes early preparations for an initial public offering (IPO) of its domestic telecoms business that could raise more than ¥2 trillion ($19 billion). SoftBank is considering marketing most of the offering to Japanese individuals, the people said. Although no official mandates have been assigned, Nomura is advising the company on matters such as its strategy for distributing the shares, corporate governance and documentation needed to list on the Tokyo Stock Exchange, the people said. Spokespeople for Nomura and SoftBank declined to comment.

– According to the Financial Times, Germany’s likely next government is ready to give global banks something they want: less job protection for highly paid executives. In an effort to increase Frankfurt’s allure for international banks, the coalition treaty agreed by Angela Merkel’s conservatives and the Social Democrats contains an outline for the first loosening of employment protection laws in the country in 15 years. The plan, which would make it easier for banks to fire highly paid staff in a manner more familiar in London or New York, is a sign of Germany’s intention to attract post-Brexit business from the UK.

– Spotify is counting on its surging private market value to bolster the music-streaming service’s appeal to investors in an unorthodox public debut, according to the WSJ. The listing, which is expected as soon as the end of March, isn’t an IPO, in which underwriters set a price and place shares with chosen investors before trading. Instead, the Swedish company will float the shares on the NYSE and let the market find a price, in what is known as a direct listing.

The company and its banks are expected to have a role in helping guide the market to a price and connecting buyers and sellers initially, according to people familiar with the matter. Private trading is expected to be a key part of the company’s effort to guide the market to a price, people familiar with the matter said. There is little precedent for the kind of direct listing Spotify is attempting.

Bloomberg reported that UK Brexit secretary David Davis tried to reassure the EU that the UK will not try to undercut the bloc by tearing up regulations after the split, making the case for mutual trust between regulators on each side. Mutual recognition of regulatory standards should continue after the divorce, Davis said. ‘A crucial part of any such agreement is the ability for both sides to trust each other’s regulations and the institutions that enforce them,’ the text of Davis’s speech read. ‘Such mutual recognition will naturally require close, even-handed co-operation between these authorities and a common set of principles to guide them.’

– The FT reported that a group of experts warned that rapid advances in artificial intelligence (AI), if left unchecked, could soon lead to malevolent new strains of cyber-attacks, fake news and assaults on the world’s physical infrastructure. In a new report, the authors warn that if breakthroughs in AI continue at their recent pace, the technology will soon become so powerful that it could outflank many of the defense mechanisms built into digital and physical systems.

– BHP Billiton signaled that it may be willing to yield to an activist investor’s latest assault on its corporate structure, even as it lifted its dividend by 38 percent, according to the WSJ. Hedge fund firm Elliott Management earlier this month launched a fresh attack on BHP’s Sydney-London dual listing. Though BHP on Tuesday defended the structure, CEO Andrew Mackenzie said he will discuss it over the next few weeks with investors, including Elliott.

– The Los Angeles Times said Honeywell was the first major company to make SEC-mandated disclosure of the ratio of CEO-median worker pay. In a proxy statement, the technology company disclosed that its CEO, Darius Adamczyk, was paid 333 times as much as a median Honeywell employee last year: Adamczyk earned $16.8 million, the median employee $50,296. The 333-to-1 ratio is in the neighborhood of what informal surveys have been projecting for public corporations in general.

– An activist investor is calling for Bloomin’ Brands to spin off some of its restaurant brands, overhaul its board of directors and adopt more aggressive cost-cutting goals, arguing that the Outback Steakhouse operator is lagging behind its industry peers, according to the WSJ.

In a letter to Bloomin’ Brands CEO Elizabeth Smith, Barington Capital Group said the company should spin off its three smaller brands and let Outback operate as a stand-alone entity. Bloomin’ Brands said in a statement that it looks forward to engaging with shareholders to further enhance the company’s value. ‘The Bloomin’ Brands board of directors and management team have a record of taking deliberate actions to drive long-term value creation and will continue to take actions to advance this objective,’ the company said.

Reuters reported that the US Supreme Court refused to broaden protections for corporate insiders who report misconduct, ruling that they must take claims of wrongdoing to the SEC in order to be shielded against retaliation. The justices ruled 9-0 in favor of Digital Realty Trust, throwing out a lawsuit brought against the California-based real estate trust by a fired former employee who had reported alleged wrongdoing only internally and not to the SEC.

The Dodd-Frank Act is unambiguous in offering no protection from retaliation such as firing or demotion to employees who report claims of securities law violations only in-house, the court ruled. John Stewart, Digital Realty’s senior vice president of IR, said in an email: ‘We welcome the court’s decision on this important legal issue and the clarity it provides employers.’ An attorney for the former employee declined to comment.

– According to the FT, the Trump administration is proposing to recast a central pillar of post-crisis financial regulation with a new Chapter 14 bankruptcy process designed to eliminate the risk that taxpayers end up paying for a bank failure. The US Department of the Treasury, which was ordered to examine the area by President Donald Trump, took aim at the orderly liquidation regime established to deal with collapsing banks.

Both Wall Street and overseas regulators have warned the administration about the dangers of dismantling the system, but the Treasury said it wanted to narrow its use so it could serve only as a last resort. In its place, the Treasury recommended the creation of an ambitious bankruptcy process for financial companies, dubbed Chapter 14, which it said should become the ‘resolution method of first resort.’

– The WSJ reported that, according to people familiar with the matter, securities regulators hoping to spur more IPOs are considering a deregulatory move that would allow all companies – not just smaller firms – to have private talks with investors before announcing they will sell stock.

Congress in 2012 gave smaller companies and some startups the freedom to ‘test the waters’ for an IPO through the Jumpstart Our Business Startups (Jobs) Act. A decision by the SEC to expand the Jobs Act’s benefit for smaller companies to all companies regardless of size could help advance agency chair Jay Clayton’s goal to boost the number of public companies.

– According to the WSJ, the SEC plans to pare back Obama-era requirements that would require mutual funds to tell shareholders about large holdings of hard-to-sell assets. The commission had planned to propose rolling back the disclosures, set to go into effect in 2019, on Wednesday. But it postponed the action because commissioners are divided over the scope of the rollback, according to people familiar with the matter.

The SEC is preparing to allow funds to keep private their quarterly estimates of how much of their portfolio includes hard-to-sell debt or other securities, these people said. The data would still have to be shared with regulators. An SEC spokesperson declined to comment.

– Newell Brands is adding three new board members ahead of a proxy fight with an activist investor seeking to oust the entire board and CEO, the WSJ reported. Earlier this month, activist investor Starboard launched a proxy fight, blaming Newell management for a sales slump. Two Newell directors who resigned last month have joined Starboard.

Newell CEO Mike Polk said the new directors, all former CEOs, aren’t a direct response to Starboard’s offensive. He said the company had been in talks with potential board nominees for months as part of a larger effort to create a more diverse board with deeper operating expertise. He said the new directors will help carry out a restructuring plan to address the decline of bricks-and-mortar retailers that drive the vast majority of Newell’s sales.

Bloomberg reported that Royal Bank of Scotland (RBS) pays its female staff on average 37 percent less than men at the bank, revealing an acute gender imbalance between employees under new disclosure requirements. Women at RBS receive average bonuses that are 64 percent lower than male employees, the bank said in its annual report, blaming the disparity on the disproportionate number of men in senior roles.

The gender pay gap ‘is not where we want to be,’ RBS CEO Ross McEwan said. ‘We need to have more females in senior roles and we set some ambitious targets in the next three years to improve it – that’s what affects the gender pay gap.'

– The WSJ said China’s insurance regulatory agency took temporary control of Anbang Insurance Group, saying the action is needed to avoid a collapse of the firm following suspected illegal activity and the departure of its former chair. The China Insurance Regulatory Commission published a letter to Anbang management saying duties of the board and management will now be overseen by a working group of regulators from various agencies for one year.

Separately, ​Wu Xiaohui, who led Anbang until he was detained eight months ago, has been indicted on charges of fraudulent fund-raising and abusing his position, according to a notice by prosecutors in Shanghai. The insurance regulator’s statement refers to Wu as Anbang’s former chair. An Anbang spokesperson declined to comment. It isn’t known whether Wu has a lawyer.