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Sep 20, 2019

The week in GRC: We Company postpones IPO, and investors urge governments to tackle climate change

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

Reuters reported that London Stock Exchange (LSE) shareholder Royal London Asset Management (RLAM) said it agreed with the board’s decision to reject a £32 billion ($39.8 billion) offer from Hong Kong Exchanges and Clearing (HKEX). LSE rejected the bid in favor of an agreed $27 billion deal with Refinitiv.

‘The risk of the HKEX deal not completing, and the high level of shares in the consideration offered, do not compensate for the lost potential of a combination between London Stock Exchange Group and Refinitiv,’ said Mike Fox, head of sustainable investments at RLAM.

The Wall Street Journal said that, according to a person familiar with the matter, Boeing’s board is expected to consider revamping the company’s engineering department as among the first tangible internal changes following two deadly crashes of its 737 MAX airliner. Instead of reporting to airplane program managers, top engineers would report to the chief engineer of Boeing’s commercial airplane division, the person said. The board committee’s report is not expected to specifically address the two accidents.

Company officials have said the plane’s development and certification were part of a methodical, six-year process, similar to how it created previous models. The board created the four-person committee in April to examine its design process on the MAX as well as current and future aircraft programs and the broader certification process.

CNN reported that Purdue Pharma filed for Chapter 11 bankruptcy in New York as part of its framework for settling litigation with multiple states and governments. The company, which makes OxyContin, said in a statement that the bankruptcy was the next step in implementing the agreement to pay billions of dollars to the states and local and tribal governments that accuse the pharmaceutical company of helping to drive the opioid crisis. The company has denied any wrongdoing.

‘This court-supervised process is intended to, among other things, facilitate an orderly and equitable resolution of all claims against Purdue, while preserving the value of Purdue’s assets for the benefit of those impacted by the opioid crisis,’ the company said.

‘This settlement framework avoids wasting hundreds of millions of dollars and years on protracted litigation, and instead will provide billions of dollars and critical resources to communities across the country trying to cope with the opioid crisis. We will continue to work with state attorneys general and other plaintiff representatives to finalize and implement this agreement as quickly as possible,’ said Steve Miller, chair of Purdue’s board, in the statement.

– Sony rejected a call by Daniel Loeb’s activist hedge fund firm Third Point to spin off its chips business, arguing that the business is ‘a crucial growth driver’ for the Japanese company, according to Reuters. Sony’s board and management agreed that retaining the chips business was ‘the best strategy for enhancing Sony’s corporate value over the long term,’ the company wrote in a letter to shareholders.

Sony said staying within the group would help the chips business enhance its competitiveness as it aimed to combine sensors with artificial intelligence for use in autonomous driving, games and advanced medicine. Third Point did not immediately respond to a request for comment outside business hours.

– The WSJ reported that WeWork parent We Company postponed its IPO after investors questioned how much the company is worth and raised concerns about its corporate governance. The shared-workspace company shelved the offering until at least next month, according to people familiar with the matter. The move reflects the difficulty the company has had getting the offering going even after dropping its valuation and revamping its governance.

‘The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,’ it said in a statement. ‘We want to thank all of our employees, members and partners for their ongoing commitment.’

– The SEC proposed rules to update the statistical disclosures that bank and savings & loan registrants give to investors, and eliminate disclosures that overlap with other SEC, US GAAP or IFRS. The proposed rules would replace Industry Guide 3 – statistical disclosure by bank holding companies – with updated disclosure in a new subpart of Regulation SK.

The proposed rules would require disclosures including: distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential; weighted average yield of investments in debt securities by maturity; and information about bank deposits including amounts that are uninsured.

– According to CNN, a group of 515 investors managing assets worth a combined $35 trillion urged policymakers to act with the ‘utmost urgency’ to comply with the goals of the 2015 Paris climate agreement, which seeks to limit global warming. ‘Much more needs to be done by governments to accelerate the low-carbon transition and to improve the resilience of our economy, society and the financial system to climate risks,’ the investors said in a statement ahead of next week’s UN Climate Action Summit. Signatories include CalPERS, UBS Asset Management, Allianz Global Investors and Nomura Asset Management.

The group urged governments to phase out thermal coal power and fossil fuel subsidies and set a price for carbon emissions. They called on companies to provide more information on climate risks. ‘With the immense power and influence investors hold in our global economy, they have a tremendous opportunity and responsibility to act at the urgent pace and scale required,’ said Ceres CEO Mindy Lubber.

– The WSJ reported that new research suggests a rule requiring public companies to identify an individual audit partner in financial reporting has not had a major impact on audit quality. The PCAOB in 2017 began requiring US public companies to disclose the name of individuals overseeing independent audits in an attempt to promote accountability and transparency. Companies now name the lead audit engagement partner on a form that must be filed within 35 days of the annual report.

The rule doesn’t appear to have had the effect the PCAOB sought, according to a study to be published by the American Accounting Association. Although researchers saw an increase in audit quality, they were able to determine that the rule had little to do with the improvement, according to the study, which was conducted by accounting professors at the University of Tennessee, the University of Kansas, Virginia Tech and James Madison University. They also found that the rule hasn’t led to an apparent increase in audit costs.

The study states that the findings are preliminary and that further research on the rule’s long-term effects is necessary. A representative for the PCAOB declined to comment.

Reuters said the Consumer Financial Protection Bureau (CFPB) will keep consumer complaints against financial firms public despite pressure from the companies, but the agency will make changes to the way those complaints are filed. ‘After carefully examining and considering all stakeholder and public input, we are announcing the continued publication of complaints with enhanced data and context that will benefit consumers and users of the database while addressing many of the concerns raised,’ said CFPB director Kathy Kraninger.

– The Financial Industry Regulatory Authority (FINRA) said Susan Schroeder plans to leave the self-regulatory organization after leading its department of enforcement since 2017. Schroeder led the consolidation of FINRA’s enforcement functions into a new, unified group. ‘The transformation of the enforcement programs under Susan’s leadership has enhanced FINRA’s ability to advance that mission and target developing issues that can put investors and markets at risk. I would like to thank Susan for her dedication and service to FINRA,’ said the body’s president and CEO Robert Cook in a statement.

Jessica Hopper, deputy head of enforcement, has been named acting head of enforcement. FINRA said it will undertake a search for a new head of enforcement that will consider both internal and external candidates.

The Guardian reported that Airbnb said it plans to go public ‘during 2020’. The service, which claims 7 million Airbnb listings in more than 100,000 cities and 8.2 million guest arrivals in the year to July, was last valued at $31 billion in September 2017. Airbnb did not clarify whether it has confidentially filed its S-1 IPO paperwork, which would include financial information for potential investors to consider. The company did not release any details about how it intends to list its shares, whether using underwriters or taking a less costly, direct-listing route to investors.

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...