The week in GRC: GE's CEO plans executive compensation changes, and BlackRock criticizes market index providers

--The Wall Street Journal reported that General Electric’s (GE) new CEO John Flannery plans to shake up executive compensation at the company, among other things, but that his options may be limited. Flannery said he was working with the board ‘on comprehensive changes’ to the company’s compensation plans to ‘better align the team with investors.’ The company declined to elaborate on those plans. Setting compensation policy is the responsibility of independent board members. But Flannery, who is also board chair, will have a strong hand in guiding policy changes.

‘It’s absolutely the board that makes that decision in the end,’ said Dan Marcec, director of content for research firm Equilar. But ultimately, ‘Flannery is going to make some changes to company strategy and as a result it wouldn’t be surprising to see performance measures change to align with that strategy,’ he added.

--The BBC reported that the Financial Conduct Authority (FCA) fined Bank of America's Merrill Lynch £35 million ($46 million) for allegedly breaking reporting rules. According to the FCA, the US bank failed to report nearly 69 million derivatives transactions over two years.

Merrill Lynch's fine was reduced by 30 percent because the bank agreed to settle at an early stage, the regulator said. The firm said it had reported the issue as soon as it was discovered and was ‘wholly committed’ to following financial regulations. A spokesperson for the bank said it had improved its systems and that no clients were affected financially.

--Activist investor Daniel Loeb’s Third Point took a stake in Dover Corporation, calling on the industrial company to separate its energy business and improve results, according to the WSJ. The hedge fund manager said in a letter to his investors that he has been in ‘constructive’ talks with the company and believes it is already taking the right steps. Dover last month announced a strategic review for its energy business.

A spokesperson for the company said it has a ‘strong and substantive dialogue’ with shareholders, including Third Point, and welcomes ‘constructive discussions.’

--The Washington Post reported that the Trump administration, in a highly unusual move, attacked a rule proposed by one of its own agencies. The rule at issue, which was approved by the Consumer Financial Protection Bureau (CFPB), would block mandatory arbitration clauses, allowing more people to file or join a lawsuit to press their complaints against companies.

The rule ‘fails to account for significant costs of class action litigation and benefits of arbitration in a meaningful way,’ the US Department of the Treasury said in a report, adding that it ‘would upend a century of federal policy favoring freedom of contract to provide for low-cost dispute resolution.’

The CFPB dismissed the Treasury report, saying it rehashes old industry arguments. ‘Our rigorous analysis of the costs and benefits of the rule found that mandatory arbitration clauses allow companies to avoid accountability for breaking the law and cost consumers billions of dollars by blocking group lawsuits,’ a CFPB spokesperson said.

--BlackRock has criticized market index providers for ostracizing companies that deny equal voting rights to shareholders, saying that doing so could limit the opportunities of investors in index funds, according to Reuters. FTSE Russell and S&P Dow Jones Indices said in July they would exclude companies with such structures from certain stock indexes. They declined to comment on BlackRock’s views.

BlackRock has said it supports all shareholders getting an equal vote. But in a report published on the firm’s website it said it is up to regulators to set corporate governance policies, not index providers. BlackRock said that, without regulatory changes, corporations should seek shareholders’ approval of capital structures that deprive some of voting rights, and that they should let shareholders exercise equal voting rights on specific topics, such as executive pay, that pose a conflict of interest.

-- Bloomberg reported on research that found most companies still are not discussing sexual harassment at the board level because directors don’t consider it a problem at their firm - and that many women directors are wary of bringing it up.

Even after high-profile cases, 77 percent of directors said harassment hadn’t yet been a topic of boardroom discussion, according to an August survey of 600 directors at public and private companies by TheBoardlist and Qualtrics. Women, who made up a majority of the respondents, said they were wary of bringing it up because male counterparts sent signals that it’s not a priority, according to the survey.

--According to Reuters, Asset Value Investors (AVI), a London-based investor in Japan’s Tokyo Broadcasting System Holdings (TBS), said it was pressing the company’s board to sell stakes in other companies and pass the returns to shareholders. The activist campaign is the latest attempt by a western investor to overhaul corporate governance in a Japanese company, a mission shared by the government of Shinzo Abe.

AVI said that if the company fails to act, it was prepared to put a formal resolution to a vote at the next annual shareholders’ meeting. An emailed request to TBS for comment, outside Japanese business hours, was not returned immediately.

--The WSJ reported that Carlyle Group is elevating two executives to top leadership roles, as co-founders David Rubenstein and William Conway step back from day-to-day operations at the private equity firm. Kewsong Lee and Glenn Youngkin will become co-CEOs and join Carlyle’s board, the firm said. Lee will focus on Carlyle’s corporate private equity, global credit and capital markets businesses, in addition to corporate strategy. Youngkin will oversee the firm’s real estate, energy and infrastructure businesses. The changes will take place in January.

Rubenstein and Conway, currently co-CEOs, will become co-executive chairs. Daniel D’Aniello, Carlyle’s current chair and another co-founder of the firm, will assume the role of chair emeritus and continue to serve on the board.

--The US Senate narrowly killed a rule that would have banned financial services firms from using ‘forced arbitration’ clauses, Reuters noted. Republican Vice President Mike Pence cast the tie-breaking vote as the chamber’s president, approving the most significant roll-back of Obama-era financial policy since President Donald Trump took office.

The House of Representatives had already passed the resolution repealing the Consumer Financial Protection Bureau (CFPB) rule released in July. The resolution also bars regulators from instituting a similar ban in the future. CFPB director Richard Cordray said, ‘Wall Street won and ordinary people lost.’ He added, ‘This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company.’

--The SEC said it would grant Wall Street a 30-month grace period to allow firms to comply with the EU’s Mifid II trading rules without overhauling their operations, Reuters reported. Under Mifid II, brokers will have to charge separately for research, instead of bundling the fees together with other services, such as trading. The aim is to eliminate conflicts of interest by giving investors greater transparency over how much they pay for discrete services.

Many global US brokers servicing European clients will need to comply with the EU rules, but are technically barred from doing so due to US federal securities law. On Thursday, the SEC issued three no-action letters that will allow US market participants to comply with the rules in a way that is consistent with US law.

--According to the WSJ, experts say managing a generation of young people inclined to share personal information on social media requires employers to adjust the way they approach compensation. ‘Pay and promotions are not secretive topics anymore,’ says Mary Ann Sardone, who leads the workforce rewards practice at benefits consultant Mercer. ‘Companies are spending more time ensuring their pay decisions are fair, and highlighting career paths under the assumption that the information is going to be widely shared.’

--Standard Chartered CEO Bill Winters said he’s talking to regulators in Saudi Arabia to understand the requirements to get a license to open branches in the kingdom, which could add another emerging market to the more than 70 countries where the UK bank does business, according to Bloomberg.

‘The ground rules for what is required for the banking license’ are ‘evolving, as are so many other things in Saudi right now,’ Winters said. ‘We continue to have conversations with the regulator to understand what the requirements are, and how we can best meet them, and can support the kingdom towards its 2030 vision.’

--The WSJ reported that the Federal Communications Commission (FCC) is planning to make sweeping changes to media-ownership rules next month, eliminating or scaling back longstanding limits on local ownership of TV stations and newspapers.

The plan by FCC chair Ajit Pai would eliminate or reduce several regulatory barriers that limit ownership of multiple media outlets in the same market. Station owners have complained that federal rules - originally enacted in part to ensure a diversity of views - have hindered their efforts to grow and compete at a time when online competitors have made major inroads.