The week in GRC: Glass Lewis to continue including board diversity in advice and Kenvue settles proxy fight with Starboard Value

– The Wall Street Journal reported that Kroger CEO Rodney McMullen resigned from the company following a board investigation into his personal conduct. Kroger said that although the conduct was unrelated to the company’s business, it was inconsistent with its ethics policy. Lead director Ronald Sargent will be chair and interim CEO while the company looks for a permanent replacement for McMullen.

The company said its board was made aware of certain personal conduct by McMullen, who also served as chair, on February 21 and immediately retained outside independent counsel to conduct an investigation, which was overseen by a special board committee.

McMullen’s conduct wasn’t related to Kroger’s financial performance, operations or reporting, and didn’t involve any Kroger associates, the company said. McMullen could not be reached by the WSJ for comment.

– Reuters reported that, according to people familiar with the matter, activist investor Engaged Capital is ready to run a boardroom fight at restaurant chain Portillo’s and has nominated two director candidates to the company’s eight-member board. Engaged has been pressing for improvements at the company such as boosting restaurant-level performance, modernizing outdated locations and strengthening national marketing, according to the people.

The nominees, restaurant operator Charlie Morrison and marketing executive Nicole Portwood, will be on the ballot at the company’s AGM later this year unless the two sides reach a settlement beforehand.

A Portillo’s representative was not immediately available for comment, Reuters said.

– Meanwhile, Reuters reported that Daktronics said activist investor Alta Fox would withdraw all its litigation against the company and support its reincorporation in Delaware. Daktronics added that it would appoint Alta Fox-recommended independent candidate Peter Feigin to its board and seek the hedge fund firm’s input on its search for a new CFO.

‘We are pleased to move forward in a constructive manner and work with the board and management to enhance value for shareholders,’ said Connor Haley, managing partner of Alta Fox.

– According to The Guardian, State Street has quietly ended some of its diversity policies as US companies continue to retreat from diversity goals. Last year in its proxy voting and engagement policy State Street said it expects companies in its index funds to have boards with at least 30 percent female directors. The firm warned that it may vote against the nominating committee or the board leader if a company fails to meet the expectation.

‘We believe effective board oversight of a company’s long-term business strategy necessitates a diversity of perspectives, especially in terms of gender, race and ethnicity,’ State Street’s policy said last year.

This year, the firm’s outlook appears to have changed. In its updated policy, the 30 percent gender requirement is gone. Also missing are requirements for companies to disclose the gender, racial and ethnic composition of their boards to State Street and to have articulated diversity, equity and inclusion (DEI) goals that contribute to the company’s overall strategy.

Instead, State Street says it believes ‘nominating committees are best placed to determining the most effective board composition and we encourage companies to ensure that there are sufficient levels of diverse experiences and perspectives represented in the boardroom.’

State Street did not immediately respond to The Guardian’s request for comment. In a statement to Reuters, the firm said it reviews its proxy voting and engagement policy annually ‘to ensure alignment with global protocols and local laws and regulations, guided by our core principles of effective board oversight, disclosure and shareholder protection and a singular focus on value creation.’

– Albertsons said its CEO Vivek Sankaran will retire and insider Susan Morris will take over the top role, CNBC reported. Sankaran, who became CEO in 2019, led the company through its scuttled merger with Kroger. Morris, who has been Albertsons’ chief operating officer since 2018, will take over the new role on May 1. She will also replace Sankaran on the company’s board. The succession plan comes as Albertsons is trying to move on from its two-year-long efforts to merge with Kroger.

– Reuters reported that, according to people familiar with the matter, Elliott Investment Management nominated seven directors to Phillips 66’s board, laying the groundwork to push for changes such as spinning off or selling the company’s midstream business. Elliott wants Phillips 66 to raise its stock price, improve its refinery operations and upgrade its board, the firm said in a public letter last month.

Elliott privately nominated executives with investment, financial, legal and energy experience, the people said, adding that seven nominees give the investor flexibility ahead of planned board changes. The board has 14 members but will shrink to 12 after the company’s AGM in May.

A Phillips 66 representative was not immediately available for comment and Elliott declined to comment, Reuters said.

– The US Department of the Treasury said it won’t take enforcement action against US companies for not divulging ownership information under the Corporate Transparency Act (CTA), the WSJ reported. The suspension came as the CTA was put into effect again after a federal judge in Texas reversed a national injunction last month. The Financial Crimes Enforcement Network, which oversees the enforcement of the law, already said it was extending the filing deadline for most companies until March 21 and would not issue any penalties or fines or take any enforcement actions over non-compliance before that deadline.

The Treasury announcement went further by saying it would not enforce any penalties or fines against US citizens or companies or their beneficial owners after the forthcoming rule takes effect and would issue a proposed rule that will narrow the scope of the CTA to foreign reporting companies only.

– Reuters reported that Glass Lewis will continue to consider boardroom diversity when advising how to vote at US AGMs, but plans to be clearer about the counter argument for critical vote recommendations to help clients avoid rising political risks. The decision by Glass Lewis to remain largely committed to diversity follows a review of its policies and after ISS last month said it would no longer consider diversity when making its boardroom recommendations.

In an e-mail to clients seen by Reuters, Glass Lewis said it will stand by its 2025 benchmark guidelines for US companies, which include that shareholders vote against certain directors at some of the largest US companies whose boards lack gender, racial or LGBTQ+ diversity. But when it recommends votes against a director in any way related to diversity, Glass Lewis said it will also flag information that could support an alternative vote by the client.

‘This approach allows Glass Lewis to deliver the vote recommendations expected by clients while also clearly flagging the potential risk that may result from an [against] vote decision and providing a clear path should some clients choose to vote [for] the proposal,’ the firm said.

A Glass Lewis spokesperson said it also will likely include more context when making recommendations on diversity-related shareholder proposals.

– Kenvue settled its proxy fight with activist investor Starboard Value, adding three new directors to its board, CNBC reported. Starboard’s Jeff Smith will join the board of the Johnson & Johnson spinoff along with Sarah Hofstetter, president of e-commerce performance analytics platform Profitero, and Erica Mann, former head of pharmaceutical company Bayer’s consumer health division.

‘Sarah’s brand building and digital marketing expertise, Erica’s global consumer health industry experience and Jeff’s investor perspective and extensive service on corporate boards will further strengthen the board with complementary, value-additive skillsets,’ Larry Merlo, chair of Kenvue’s board, said in a statement.