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Mar 29, 2019

The week in GRC: SEC delays transaction-fee pilot, and California governor criticizes PG&E board revamp plans

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

The Wall Street Journal reported that Newmont Mining Corp will issue a special dividend in an attempt to quash a brewing shareholder revolt that could have sunk the company’s takeover of Goldcorp. Two large Newmont shareholders said the company’s $10 billion merger with Goldcorp transferred away significant gains from a recently announced Nevada joint venture between Newmont and Barrick Gold Corp. The January merger deal had been struck before the Nevada agreement was completed.

On Monday, Newmont said it would pay 88 cents per share to its own investors if the Goldcorp deal is approved by both companies’ shareholders next month. The move reflects feedback from investors, Newmont COO Tom Palmer said. ‘The special dividend allows us to pass on the full after-tax synergies that would have gone to the Goldcorp investors,’ he said. Goldcorp declined to comment.

– According to Reuters, French activist fund firm CIAM will ask reinsurance company SCOR’s CEO Denis Kessler to give up his chairmanship of the company’s board after he prevented a takeover bid earlier this year. CIAM will ask the reinsurer’s shareholders to oust Kessler from the board at the next general meeting on April 26, although it wants Kessler to remain as CEO.

Earlier this year, Kessler successfully opposed an €8.5 billion ($9.62 billion) takeover attempt by SCOR’s largest shareholder Covéa. Unlisted French insurance company Covéa holds just over 8 percent of SCOR and had wanted full control. A spokesperson for SCOR did not respond to an email seeking comment.

– Brazil’s Petroleo Brasileiro has scheduled a shareholders meeting for April 25 to approve the new composition of the company’s board and its 2019 budget, among other measures, Reuters said. Shareholders in the state-run oil firm, which is known as Petrobras, will deliberate on the 54.7 billion reais ($14.1 billion) in planned expenditures in 2019, the company said. Shareholders will also vote on the approval of five new board members, appointed by the government, shareholders and employees, as well as the removal of one current board member.

– According to Reuters, Bed Bath & Beyond’s long-time CEO Steven Temares came under pressure on Tuesday when activist investors called for his removal and the replacement of the whole board. An investor group comprising Legion Partners Asset Management, Macellum Advisors and Ancora Advisors disclosed a combined stake of about 5 percent in the company and said it was seeking a review of options, including a sale, for all of the home furnishing retailer’s non-core brands.

In response, the company said it was ‘open to the views’ of its shareholders and valued constructive input. ‘Our board of directors and management team remain committed to creating value for all shareholders by transforming our company to best position Bed Bath & Beyond for long-term success, and will continue to take action to achieve these objectives,’ a company spokesperson said.

– Methanex Corp’s largest shareholder plans to nominate four directors to the company’s board, arguing that new leadership is needed to oversee the development of a methanol plant in Louisiana, according to Bloomberg. M&G Investment Management said in a letter to shareholders that it has raised concerns with management about the risks of building the plant without a partner.

M&G said it plans to nominate the directors at the company’s shareholder meeting in April because it doesn’t believe Methanex takes seriously its concerns that building the plant alone could stress its balance sheet and make it harder to pay dividends and repurchase shares.

Methanex said in a statement that it already put forth its slate of 11 directors for the AGM on April 25. Ten of those are independent and four of them have joined since 2016. ‘Methanex is committed to acting in the best interest of all shareholders and gives due consideration to constructive recommendations for strategies or actions that have the potential to create value,’ the company said. ‘Through an ongoing private dialogue with M&G over the last two years, it is clear M&G has developed a short-term focus on share buybacks.’

– The WSJ reported that banks will be able to more easily hedge against the risks of the loans they originate without triggering stricter regulatory requirements under rule changes made Monday by the Commodity Futures Trading Commission (CFTC). Both Democratic CFTC members opposed easing the post-financial crisis rules, which were put in place to limit activities by banks that contributed to the crisis. The new rules allow banks more flexibility in how they count interest-rate swaps that are intended to hedge the credit risk of loans.

Bloomberg said that, according to people familiar with the matter, a group of investors in TransAlta Corp plans to nominate directors to the board of the Canadian power producer because they think it may be able to find better deals than an investment from Brookfield Asset Management. The group, comprising Mangrove Partners and an entity controlled by Bluescape Energy Partners, will put forward five people for TransAlta’s board, according to a statement late Monday from the Calgary-based company.

‘TransAlta will review Mangrove’s notice, consider the suitability of its nominees and communicate fully with its shareholders in due course,’ the company said. Representatives for the activist group and TransAlta declined to comment.

– The SEC announced awards totaling $50 million to two whistleblowers whose high-quality information assisted the agency in bringing a successful enforcement action. One whistleblower received an award of $37 million and the other received an award of $13 million. The $37 million award is the commission’s third-highest award to date after the $50 million award made in March 2018 to joint whistleblowers and the more than $39 million award announced in September 2018. The commission has now awarded roughly $376 million to 61 individuals since issuing its first award in 2012.

CNBC reported that McDonald’s will no longer take part in efforts to lobby against raising the minimum wage at the federal, state or local level. Genna Gent, vice president of US government relation at McDonald’s, said in a letter to the National Restaurant Association that the company believes wage increases ‘should be phased in and that all industries should be treated the same way.’

‘The conversation about wages is an important one; it’s one we wish to advance, not impede,’ Gent wrote. The fast-food chain also stated that outlets owned by the company have an average starting wage that exceeds $10 per hour while franchisees pay ‘likely similar’ wages in their own restaurants.

– The WSJ reported that, according to a committee of advisers appointed by Nissan Motor Co, the auto maker needs to overhaul its corporate governance structure to curtail the power of its most senior executives. The Special Committee for Improving Governance was set up by Nissan in the wake of then-chair Carlos Ghosn’s arrest for alleged financial misconduct.

The committee’s report blamed a lack of oversight of Ghosn for the alleged wrongdoing. The board and audit committee didn’t fulfill their responsibility to provide oversight of Ghosn’s decision-making, said Seiichiro Nishioka, co-chair of the special committee. The committee – comprising Nissan’s three independent directors and four outside advisers – determined that ‘there are facts sufficient to suspect violations of laws and regulations’ by Ghosn and Greg Kelly, a Nissan board member. Ghosn and Kelly have said they are innocent.

Nissan’s board will review the committee’s findings and determine which recommendations it will put for a vote at the company’s shareholder meeting in June.

– The Financial Times reported that Kazuo Hirai will step down as Sony chair a year after he relinquished his role as chief executive. The departure of Hirai is relatively unusual among Japanese companies where former chief executives often remain on the board and retain their influence for an extensive period.

In a statement, Hirai said he decided to leave Sony after overseeing the leadership transition over the past year to Kenichiro Yoshida, the former CFO who helped to execute the company’s successful turnaround plan. ‘I am confident everyone at Sony is fully aligned with Mr Yoshida’s strong leadership, and is ready to build an even brighter future for Sony,’ Hirai said. The group chair role held by Hirai will remain vacant after June. But Sony said it will nominate Shuzo Sumi from Japanese insurer Tokio Marine to become the new chair.

– According to the WSJ, the Department of Housing and Urban Development (HUD) said it was charging Facebook with violating fair housing laws by enabling real estate companies to improperly limit who can view advertisements on its platform. The charges under the Fair Housing Act accuse the company of unlawfully discriminating based on race, color, national origin, religion, and more, ‘by restricting who can view housing-related ads.’

A Facebook spokesperson said the company was surprised by HUD’s action because the company had been working with the department to address its concerns and said it had taken steps to prevent advertising discrimination. The spokesperson said Facebook last year eliminated thousands of targeting options subject to misuse, among other measures.

‘While we were eager to find a solution, HUD insisted on access to sensitive information – like user data – without adequate safeguards,’ the spokesperson said. ‘We’re disappointed by today’s developments, but we’ll continue working with civil rights experts on these issues.’

– The WSJ said that California governor Gavin Newsom criticized what he described as plans by PG&E to stack its board with hedge fund financiers interested in ‘prioritizing quick profits for Wall Street over public safety.’ The California utility, which sought bankruptcy protection in January, has said it plans to announce a new slate of directors and a new CEO.

In a letter on Thursday, Newsom made clear he disapproved of those board selections, referring to them as ‘hedge fund financiers, out-of-state executives and others with little or no experience in California and inadequate expertise in utility operations, regulation and safety.’ Newsom had been briefed on the company’s proposed slate.

PG&E said in a statement: ‘We understand and recognize the serious concerns expressed by the governor and share [his] urgency for action.’ PG&E’s annual meeting is set to take place in May. A vote on directors is expected at the meeting.

CNN reported that Wells Fargo CEO Tim Sloan was stepping down, effective immediately. Sloan, a three-decade veteran of the bank, said it was his decision to relinquish control as a way to help the bank move forward. The lender’s board pledged to find an outsider to replace Sloan, who plans to retire at the end of June.

Wells Fargo has faced calls from politicians to find new leadership that will fix its culture. ‘I have decided it is best for the company that I step aside,’ Sloan said in a statement. Wells Fargo tapped general counsel Allen Parker to take over on an interim basis. Sloan, who became CEO in 2016 in the midst of the bank’s fake-accounts scandal, said Wells Fargo has made progress in some areas but still has more work to do.

– According to Reuters, the SEC has delayed a controversial plan aimed at evaluating how stock exchange fees and incentives affect the way brokers trade, while the exchanges sue the regulator in an attempt to kill the experiment. The SEC approved its so-called transaction fee pilot in December, aimed at testing how rebate payments from exchanges to brokers for stock orders that others can trade against influences brokers’ behavior.

Nasdaq, Cboe Global Markets and the NYSE filed lawsuits against the SEC in February saying the plan was an exercise in government price-setting and would put controls on competition. ‘Without addressing the merits of petitioners’ challenges to the rule or the pilot program, the commission has determined to exercise that discretion to grant a stay, in part. Pending a decision by the court of appeals,’ the SEC said.