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Mar 15, 2024

The week in GRC: US judiciary aims to curb ‘judge shopping’ and issuance of sustainability-linked bonds drops

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

Reuters (paywall) reported that Choice Hotels International said it had dropped its hostile bid for rival Wyndham Hotels & Resorts after failing to garner enough support from the target’s shareholders. The company will also withdraw its nomination of independent director candidates for election at Wyndham’s 2024 AGM.

‘While the support from Wyndham stockholders tendering into the exchange offer was significant considering the number of investors structurally prevented from participating at this stage, it was not sufficient for Choice to conclude that a path toward a transaction is available at this time,’ Choice said.

CNBC reported that Elliott Investment Management said it had decided not to make another takeover bid for UK electrical retailer Currys after being repeatedly rejected. The US investment firm, via its affiliate Elliott Advisors, said that following ‘multiple attempts to engage with Currys’ board, all of which were rejected’, it was not making an improved offer for the company. Elliott added that it did not have enough information to make an informed bid. The move opens the way for Chinese online retailer, which joined the takeover race earlier this year.

A spokesperson for Currys said the company would not be commenting on the announcement.

– According to The Wall Street Journal (paywall), Archer Daniels Midland (ADM) said it is under investigation by the US Department of Justice with current and former employees having received subpoenas from the agency. In January, the company said it was conducting an internal probe of accounting practices, which ADM said followed a document request from the SEC. On Tuesday, ADM said its accounting review found that some products sold internally between business divisions were priced at a discount compared with their market rate.

‘We have developed a remediation plan with respect to the identified material weakness to enhance the reliability of our financial statements with respect to the pricing and reporting of such sales,’ said ADM CEO Juan Luciano.

The company said its review covered the years 2018 through 2023. In its annual filing with the SEC, the company lowered some past operating profits from its nutrition business by tens of millions of dollars while slightly raising profits in its other two main units. The company said the revisions did not impact overall earnings because they were made between business segments.

– HESTA, one of Australia’s largest pension funds, has called on the country’s largest oil & gas firm, Woodside Energy, to consider appointing new directors who are equipped to manage climate-related challenges, Reuters reported. The fund pushed the energy company’s board to undertake its own due diligence of HESTA’s listed firm and other potential director candidates with similar skills through its existing internal processes. HESTA said continuing strong governance, culture and capabilities are required for Woodside to support the energy transition.

‘As part of this engagement, we shared with Woodside for its consideration independent and highly credentialed potential director candidates, whose new energy and business transformation skills we believe would add to the board’s current capabilities,’ HESTA said in a statement.

‘We have engaged extensively and listened carefully to feedback from our shareholders, who have asked for more detailed information about our climate action plans and the role of gas in a lower-carbon world,’ said Woodside CEO Meg O’Neill.

The Guardian reported that, according to analysis by Americans for Tax Fairness (ATF) and the Institute for Policy Studies (IPS), bosses at some of the largest US companies have received more in pay than their companies paid in federal taxes. Senior executives at 35 different companies received compensation worth more than the net tax payments of their respective employers between 2018 and 2022, the research found.

The analysis by ATF and IPS found the collective net federal income tax bill of all 35 companies was negative $1.72 bn over the five-year stretch – meaning they collectively received more money back from the government in refunds than they paid. Over the same period, executive compensation for senior executives at these companies was $9.49 bn. The advocacy groups urged Congress to increase the corporate tax rate, claiming that raising it from 21 percent to 28 percent would generate $1.3 tn in revenue over a decade.

– According to CNBC, JPMorgan Chase CEO Jamie Dimon endorsed Disney CEO Bob Iger in his proxy battle with activist investor Trian Partners. Dimon said in a statement: ‘Bob is a first-class executive and outstanding leader who I’ve known for decades. He knows the media and entertainment business cold and has the successful track record to prove it. It’s a complicated industry filled with creative talent, requiring the unique expertise and engagement skills Bob possesses. Putting people on a board unnecessarily can harm a company. I don’t know why shareholders would take that risk, especially given the significant progress the company has made since Bob came back.’

– The US federal judiciary adopted a new policy aimed at limiting ‘judge shopping’ by state attorneys general, whereby activists and companies file lawsuits challenging government policies in courts where one or two sympathetic judges had been virtually guaranteed to hear their cases, Reuters reported. The policy adopted by the US Judicial Conference follows calls by Democratic lawmakers and others for an end to a system used by conservatives to successfully block major elements of Democratic President Joe Biden’s agenda in court.

The new judicial policy would require lawsuits seeking to block state or federal laws to be assigned a judge randomly throughout a federal district and not be heard just by judges in a specific courthouse, or division, within the larger district.

– Academics wrote in the WSJ that although board members are taking more responsibility for cyber-security strategy at companies, they might be overlooking one of the biggest vulnerabilities: themselves.

‘Over the past decade, cyber-security oversight has become an added board mandate, with directors becoming more accountable for ensuring that organizations have robust defenses in place against attacks,’ the academics wrote. ‘That means directors now have access to detailed tactical information about a company’s cyber-defenses, in addition to a lot of other sensitive data.

‘Despite that, directors haven’t traditionally fallen within the scope of companies’ cyber-security efforts. Nor are most companies we surveyed preparing directors to anticipate, respond to or avoid cyber-attacks. The upshot? The board members themselves, the people responsible for making sure a company is well protected, could well become the weak link in an organization’s cyber-defenses.’

CNBC reported that UK oil company Shell announced plans to moderate its near-term carbon emissions cuts, while maintaining its pledge to become a net-zero company by the middle of the century. In its latest energy-transition strategy update, Shell said it is now aiming to reduce its net carbon intensity on the third-party use of products it sells by 15 percent to 20 percent by 2030, compared with a previous target of 20 percent. The firm said it had also cancelled its target of a 45 percent reduction by 2035, citing ‘uncertainty in the pace of change in the energy transition’. It said that by the end of 2023 it had achieved more than 60 percent of its target to halve emissions from its operations by 2030, compared with 2016.

Shell’s update comes as large European energy companies continue to tweak their plans in the transition to clean-energy technologies. For example, BP last year said it was targeting a 20 percent to 30 percent emissions cut by the end of the decade, compared with a previous commitment of 35 percent to 40 percent.

– Proposed revisions to International Accounting Standards Board (IASB) rules would mean public companies will have to give investors more detailed information on whether takeover deals meet their initial promise to spare markets unexpected ‘goodwill’ write-downs, Reuters reported. The proposed changes broaden an existing accounting rule on business combinations, known as IFRS 3, to bring a greater level of detail and comparability, said IASB chair Andreas Barckow.

– According to CNBC, a bid from Arkhouse Management and Brigade Capital to take Macy’s private has moved closer to due diligence after weeks of delay, but the activist group plans to continue its proxy fight while negotiations move forward. Macy’s sent the activist a draft confidentiality agreement earlier this week following months of meetings and engagements between the two sides, Arkhouse said in a proxy filing. Such an agreement is the first step in allowing Arkhouse and Brigade access to Macy’s books, enabling the activists to firm up their financing commitments. In February, Arkhouse nominated a nine-director slate for election at Macy’s AGM. A date for the meeting has not yet been set.

– According to the WSJ, it’s been a roaring start to the year for corporate bond issuance but sustainability-linked debt has plummeted since reaching a peak during the pandemic. Sustainability-linked bond issuance globally has fallen 51 percent this year through March 12 compared with the year-earlier period, to $9.6 bn, according to Dealogic. Sustainability-linked bonds’ interest rates rise if companies don’t meet the ESG targets they set for themselves. The bonds appeal to companies because the proceeds can be used for general purposes – unlike green bonds, the proceeds of which must be used for a designated environmental project – and they attract socially conscious investors.

Issuance took off globally early in the Covid-19 pandemic but since then has plunged as investors and regulators have become more skeptical of companies’ environmental promises, many of them seen as too ambitious and others too slack to be meaningful. US companies in particular have faced political pushback on ESG-linked projects and goals.

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...