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Jan 25, 2019

The week in GRC: PG&E faces proxy fight, and more companies split chair and CEO roles

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

The Washington Post reported that Google has been fined almost $57 million by French regulators, which said the company violated the EU’s General Data Protection Regulation (GDPR). It is the first major penalty brought against a US technology firm since the rules took effect last year. France’s top data-privacy agency, known as the CNIL, said Google failed to fully disclose to users how their personal information is collected and what happens to it. Google also did not properly obtain users’ consent for the purpose of showing them personalized ads, the agency said.

Despite Google’s recent changes to comply with the EU rules, the CNIL said in a statement that ‘the infringements observed deprive the users of essential guarantees regarding processing operations that can reveal important parts of their private life [because] they are based on a huge amount of data, a wide variety of services and almost unlimited possible combinations.’

In response, Google said it is ‘studying the decision to determine our next steps’. It added: ‘People expect high standards of transparency and control from us. We’re deeply committed to meeting those expectations and the consent requirements of the GDPR.’

– According to The Wall Street Journal, the US government shutdown is forcing some companies to seek alternative routes to go public while the SEC is unable to greenlight IPOs. Biotechnology companies Gossamer Bio and TCR2 Therapeutics have been exploring a little-used workaround that would let them begin trading without the usual SEC approval, according to people familiar with the matter.

The move involves changing language in an IPO filing to make it automatically effective after 20 days. It is legal, and the SEC reminded companies after the shutdown began that the option was available. If they don’t opt for the 20-day workaround, companies are left with no apparent way to go public. Gossamer and TCR2 responded to rounds of SEC questions about their disclosures before the government shut down, people familiar with the matter said.

An SEC spokeswoman declined to comment about any particular deals.

– The Financial Industry Regulatory Authority (Finra) released its 2019 risk monitoring and examination priorities letter, highlighting areas it will continue to review in the coming year. Among the emerging issues identified in the letter are: online distribution platforms, firms’ compliance with the Financial Crimes Enforcement Network’s customer due diligence rule, and companies’ compliance with their mark-up or mark-down disclosure obligations on fixed-income transactions with customers.

In addition, Finra will continue to review firms’ compliance in areas identified in prior years, such as sales practice risks, hiring and supervision of associated people with a problematic regulatory history, cyber-security and fraud, insider trading and manipulation across markets and products.

– Hedge fund firms Elliott Management and Starboard Value have taken stakes in eBay and are pressing for changes including the sale of some of the e-commerce company’s businesses, according to Reuters. In a letter to the company’s board, Elliott asked eBay to spin off its StubHub ticket sales business and eBay Classifieds Group as part of a plan Elliott says could double the company’s value.

Starboard has also been pushing for changes including asset sales in the past few months, according to a person familiar with the matter. Starboard did not respond to a request for comment. ‘While we believe execution missteps and unclear focus have impaired value, eBay is far from broken and its future should be bright,’ Elliott’s Jesse Cohn wrote.

In response, eBay said it would review the proposal and is looking forward to engaging with Elliott. ‘The eBay board and leadership team regularly engage with our shareholders and value their input,’ the company said.

– The WSJ reported that Commodity Futures Trading Commission (CFTC) chair Christopher Giancarlo plans to abandon a proposal on swap trading and rewrite it after incorporating industry feedback. Since 2014, most swaps have been required to trade on swap execution facilities (SEFs), whose construction Giancarlo has criticized. But his proposal was met with skepticism from big swaps players that have spent the past five years adjusting their businesses to Dodd-Frank Act requirements.

A largely over-the-counter market before 2014, many of the most popular swaps products such as interest-rate swaps now mostly trade electronically on SEFs. The retreat follows a series of meetings with top swap-dealing global banks, trading platforms and asset managers. ‘I have no disappointments to hear from folks that this doesn’t work or that doesn’t work,’ Giancarlo said. ‘That’s why we’re engaged on this.’

Reuters reported that, according to the US Department of Justice, Walgreens Boots Alliance will pay $269.2 million to settle two whistleblower lawsuits accusing it of civil fraud for overbilling federal healthcare programs.

The pharmacy company will pay $209.2 million to resolve claims it improperly billed Medicare, Medicaid and other federal programs from 2006 to 2017 for hundreds of thousands of insulin pens it dispensed to patients it knew did not need them. Walgreens will also pay $60 million to resolve allegations that it overcharged Medicaid from 2008 to 2017 by failing to disclose and charge the discount drug prices it offered the public through its Prescription Savings Club program.

The company said it ‘admits, acknowledges and accepts responsibility’ for conduct alleged by the federal government, according to the settlement agreements. In a separate statement, Walgreens said it ‘has admitted no wrongdoing’ and that the settlements were in the best interests of customers, patients and other stakeholders.

– The WSJ reported that EY is creating an independent panel to advise it on how to improve its audits. The three-member panel, which EY’s US partnership announced on Wednesday, is intended to give the firm an outside perspective on aspects of its operations, culture or strategy that relate to audit quality. The panel will be made up of experts drawn from the groups EY deals with regularly and who rely on its audit work, such as investors, corporate audit clients and regulators.

‘It is helpful to have the perspective of these experts,’ said Kelly Grier, EY’s US chair and managing partner. The independent audit-quality committee is an advisory body as opposed to a monitor of the firm’s activities, but it ‘will set [its] own agenda,’ Grier said. ‘It will have unfettered access to all aspects of the firm.’

Reuters reported that PG&E Corp shareholder BlueMountain Capital Management is preparing to launch a proxy fight to oust the California utility owner’s board, arguing that the company is harming investors with its plan to seek bankruptcy protection in the wake of catastrophic wildfires.

BlueMountain is trying to rally support from other shareholders to replace all 10 board members at this year’s annual meeting (expected in May), according to a letter reviewed by Reuters. ‘When sound governance is restored, and structural issues addressed, the company will resolve its financial issues,’ BlueMountain wrote.

PG&E’s CEO recently resigned and chair Richard Kelly said the company is committed to ‘further change’ and searching for a new leader with ‘extensive operational and safety expertise’ while its general counsel helms operations on an interim basis. According to the WSJ, PG&E said Thursday that its board is working with a search firm on its ‘board refreshment process.’

– The WSJ said France’s finance minister announced that Carlos Ghosn had resigned as CEO and chair of Renault. On Thursday, Renault’s board tapped Michelin CEO Jean-Dominique Senard to succeed Ghosn as chair of the car maker and appointed Thierry Bolloré, Renault’s deputy CEO, to take over as chief executive.

Ghosn has been charged by Japanese prosecutors with understating his compensation on eight years of Nissan financial reports and causing Nissan to pay the company of a Saudi friend who helped him with a personal financial problem. He denies any wrongdoing.

– The WSJ reported that efforts by corporate governance experts, shareholders and, in some cases, regulators to untangle the chair and CEO positions at US public companies is making progress. The percentage of S&P 500 companies whose CEOs also serve as chair was 45.6 percent in 2018, down from 48.7 percent the year before and the lowest percentage in at least a decade, according to data compiled for the WSJ by ISS Analytics.

The campaign to separate the positions is based on the idea that a stand-alone chair can act as a counterweight to a stand-alone CEO. The trend of businesses employing a separate CEO and chair brings US companies more in line with their European counterparts. The percentage of STOXX Europe 600 companies with the roles combined was 9.2 percent in 2018, down from 11 percent in 2013, according to ISS.

– A Deutsche Bank board member said there is no desire among the bank’s supervisory board members for a merger with rival Commerzbank in the near term, according to Reuters. ‘At the moment conditions are definitely not ripe,’ said Frank Bsirske, a member of Deutsche Bank’s supervisory board and chair of Germany’s Verdi trade union.

Merger speculation has heated up under Germany’s finance minister Olaf Scholz, who has spoken in favor of strong banks in Germany and whose team has met frequently with executives of Deutsche Bank, Commerzbank and major shareholders. ‘There is currently no one on Deutsche Bank’s supervisory board who would want to merge with Commerzbank in the short term,’ Bsirske said. The banks and the Finance Ministry declined to comment.