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Nov 01, 2019

The week in GRC: ISS sues SEC over proxy adviser guidance, and AT&T reaches deal with activist

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

The Wall Street Journal reported that AT&T reached a truce with activist investor Elliott Management, which had been pressing the telecom company to change its strategy, and said its CEO will stay in his post through next year. Chair and CEO Randall Stephenson has used big acquisitions of Time Warner and DIRECTV to turn the company into a major media business, a move Elliott Management had queried. ‘I believe we’re on the threshold of something really remarkable,’ Stephenson said. ‘I have every intention of being here.’

AT&T’s deal with Elliott includes a commitment to regular stock buybacks and a plan to appoint two new directors to its 13-member board. AT&T will nominate the new appointees who will replace retiring board members over the next 18 months. The company said it would review its portfolio, avoid major acquisitions and pay down debt from its takeover of Time Warner. AT&T also agreed to separate the roles of chair and CEO when Stephenson retires. Elliott has no restrictions on its ability to publicly criticize the company in the future.

– According to CNN, French luxury goods company LVMH offered to buy Tiffany & Co. LVMH confirmed its interest following media reports of an offer. The French fashion firm said it held ‘preliminary discussions’ regarding a ‘possible transaction’ with Tiffany. ‘There can be no assurance that these discussions will result in any agreement,’ it added.

– Lobbying spending by Facebook, and Apple is on track to reach record highs this year, the WSJ reported. Facebook increased spending by almost 25 percent, to $12.3 million, during the first nine months of the year over the same period in 2018, according to disclosures of lobbyists’ compensation filed with the federal government. Amazon increased lobbying spending by 16 percent to $12.4 million, making it the top spender so far in 2019 among all companies, according to quarterly reports.

These lobbying increases come amid heightened scrutiny of tech companies in Washington, DC. Amazon took over a busy pedestrian square near the National Mall this month to showcase the mom-and-pop sellers on its marketplace, a response to those who say the e-commerce company is suffocating small businesses. Google has papered turnstiles and walls in subway stations and at Reagan National Airport, touting its privacy controls. It also opened pop-up kiosks where consumers could get personalized guidance to set their privacy settings to secure their data.

A Google spokesperson said the privacy kiosks and ads were designed to help consumers and tied to national cyber-security awareness month. Nicholas Denisson, Amazon’s vice president of small business, said the small-business event was a first but that the company has long recognized small sellers in other ways. Facebook and Apple declined to comment.

– The Vancouver Sun reported that a special committee of Canadian lumber firm Canfor’s board approved an almost C$1 billion ($765 million) offer from a Jim Pattison company to take full control of the company. Canfor issued a news release stating an agreement had been struck in which Pattison’s company Great Pacific Capital Corp would acquire all of the Canfor shares it does not already own for a cash consideration of C$16 per share.

Once the transaction is complete – subject to a shareholder vote – Canfor will become a private company under the Pattison umbrella that includes supermarkets, fisheries and billboards. The special committee gave shareholders five reasons to accept the offer. ‘The special committee believes the transaction represents fair value for shareholders and is the correct path forward for Canfor, Canfor employees, communities and shareholders,’ the statement read.

– According to Reuters, major auto companies in a filing with a US appeals court said they are siding with the Trump administration in its efforts to prevent California from setting its own fuel efficiency rules or zero-emission requirements for vehicles. The move follows legal challenges from California and 22 states and environmental groups seeking to undo the Trump administration’s determination that federal law bars California from setting stiff tailpipe emissions standards and zero-emission vehicle mandates.

John Bozzella, president and CEO of Global Automakers, a trade group representing major foreign firms, said the companies had little choice but to back the administration. ‘It’s been the federal policy for the better part of 40 years that the federal government has the sole responsibility for regulating fuel economy standards, but it doesn’t have to get to that,’ Bozzella said on behalf of an ad-hoc group, the Coalition for Sustainable Automotive Regulation. Bozzella said companies still support a ‘middle ground’ between California and the administration.

– The Financial Action Task Force (FATF) said in a new report that countries should establish systems that use one or more different methods to identify the beneficial ownership of an entity, the WSJ reported. FATF said countries that rely on a single approach are less effective in obtaining accurate and timely information about the ownership of an entity.

FATF said its members have found it challenging to implement existing standards. Some common challenges include inadequate ways to ensure authorities could access the information in a timely manner and a lack of effective and proportionate fines on companies that do not give accurate information on beneficial ownership.

Reuters reported that Yngve Slyngstad, CEO of Norway’s sovereign wealth fund, announced that he will step down after nearly 12 years in the role, saying just days after the fund hit a record value that it was a good time for a leadership change. Slyngstad also said the fund does not plan to invest in Saudi Aramco when the oil company carries out its long-awaited IPO. He has overseen a fivefold rise in asset values while in charge.

Slyngstad will take up a new job with the fund, based in London, where he will create a unit to invest in ‘unlisted infrastructure projects’ such as wind power and other renewable energy. Finance minister Siv Jensen said in a statement: ‘He has done a tremendous job, delivering results that will benefit us all for a long, long time.’

– According to the WSJ, Fiat Chrysler Automobiles and Peugeot automaker PSA Group said they were in merger talks, which could lead to the creation of a roughly $46 billion trans-Atlantic auto company that would be the world’s fourth largest by volume. Both companies separately confirmed talks but neither provided further details. ‘There are ongoing discussions aimed at creating one of the world’s leading mobility groups,’ Fiat Chrysler said in a short statement. Both Peugeot and Fiat Chrysler are major operations in Europe, so any proposed combination may face regulatory challenges.

– The WSJ reported that Marathon Petroleum CEO and chair Gary Heminger is stepping down and the company is spinning off its gas-station chain in the face of pressure from activist investors including Elliott Management. Heminger plans to step down next year after more than eight years leading the company, Marathon said. The company, which has been under pressure by various shareholders in recent weeks, is also planning to review its pipeline business. Elliott last month proposed that Marathon separate its refining, pipeline and gas-station businesses.

‘I am grateful to Gary for his distinguished and successful leadership of this great company, for which he has earned the unqualified and unanimous support of the board,’ said James Rohr, the company’s lead independent director, in a statement. The company said it has begun a search to replace Heminger.

– According to Reuters, investors said a global inquiry into how mining companies store billions of tons of waste in huge dams, launched after a collapse in Brazil killed hundreds of people, has found that roughly a tenth of the structures have had stability issues. The research relied on companies’ disclosures about their dams holding mining waste, known as tailings. The review was led by the Church of England and fund managers.

The investors, which manage assets worth a combined $13.5 trillion, wrote to mining companies in April asking for information about tailings dams to be disclosed about every mine they control. They warned they might divest their shares unless they had clear information on potential risks, in what has become one of the largest shareholder mobilizations in response to a single event.

‘Tailings dams are among some of the largest engineered structures in the world and we have seen the catastrophic consequences earlier this year in Brazil when they collapse,’ said Adam Matthews, ethics director at the Church of England Pensions Board. ‘We note that many companies already operate to a very high standard, as evidenced by some of the disclosures, but this is not universal across the sector, and dams are continuing to fail, putting lives and the environment at risk.’

– The UK’s Financial Reporting Council (FRC) has urged audit committee chairs and finance directors to improve the quality of their company’s financial reports, the WSJ reported. In an annual review of corporate reporting, the FRC pointed out continued errors in cash-flow statements and related disclosures in many of the 207 annual and interim reports it analyzed. ‘As these errors can be identified from a desktop review of the accounts, it remains a concern that companies’ own quality control procedures and those of their auditors are failing to spot such matters,’ the FRC said.

Bloomberg reported that ISS is taking action against changes to the regulatory regime for proxy advisers with a lawsuit challenging what it calls ‘unlawful’ SEC guidance. According to the complaint ISS filed in the US District Court for the District of Columbia, the commission should withdraw the guidance it issued in August, which came after companies called for additional oversight of proxy firms. It tells proxy advisers to give more details about their methods and sources of information. It also warns that their advice on how institutional investors vote their shares in public companies is subject to anti-fraud rules.

‘We believe litigation to be necessary to prevent the chill of proxy advisers’ protected speech and to ensure the timeliness and independence of the advice that shareholders rely on to make decisions with regards to the governance of their publicly traded portfolio companies,’ said ISS CEO Gary Retelny in a statement.

An SEC representative declined to comment.

– According to CNN, AT&T’s decision this week to split the role of board chair and CEO when its current chair and CEO Randall Stephenson steps down puts the company among a majority of large, publicly traded US companies that are now keeping those roles separate. Today, 53 percent of S&P 500 companies do so, up from just 30 percent in 2005, according to data from ISS.

There continues to be debate over the best way to structure boards. But there has been a growing belief – particularly among institutional and activist investors – that the more independent the leadership of a board, the better. In surveying institutional investors this year, ISS found that while some strongly believe it’s important to keep the chair and CEO roles separate, others can live with a combined chair/CEO role provided there is also a strong lead independent director.