The week in GRC: DoJ launches whistleblower pilot program and shareholders sue CrowdStrike after outage

– Reuters (paywall) reported that President Joe Biden proposed sweeping changes to the US Supreme Court, including term limits and a binding code of conduct, but a divided Congress means the proposals have little chance of becoming law.

Biden called on Congress to pass binding, enforceable rules that require the justices to disclose gifts, refrain from public political activity and recuse themselves from cases in which they or their spouses have financial or other conflicts of interest. He also urged the adoption of an 18-year term limit for the justices, who currently serve life tenures.

– According to Bloomberg (paywall), Australia’s plans to introduce tough rules on climate disclosures are raising compliance concerns. More than 6,000 companies including listed and unlisted firms, financial institutions and asset owners will eventually fall under the rules being rolled out from January. The rules aim to move Australia from a laggard on climate policies to among the first jurisdictions globally to implement reporting in line with new ISSB guidelines.

But concerns about complying with the regulations have ‘paralyzed some Australian organizations,’ said Kate Hart, Asia-Pacific co-lead for sustainability at consultancy Kearney. ‘There is definitely some hesitance in the business sector regarding how they make sure these requirements aren’t burdensome and are actually seen as enablers for reporting and progress.’

Authorities estimate the average cost of compliance to be A$1 mn ($655,000) but some large organizations calculate the total is likely to be above A$3 mn, said Jillian Button, head of climate change at law firm Allens. Companies are also having to conduct gap analysis against the draft standard and establish working groups across finance, legal, risk and sustainability teams ‘to prepare for compliance,’ she added.

– According to the BBC, Air New Zealand has dropped a 2030 goal for cutting carbon emissions, blaming difficulties securing more efficient planes and sustainable jet fuel. It is the first major airline to back away from such a climate target. Air New Zealand said it is developing a new short-term target and it remains committed to an industry-wide goal of achieving net-zero emissions by 2050.

‘In recent months, and more so in the last few weeks, it has also become apparent that potential delays to our fleet-renewal plan pose an additional risk to the target’s achievability,’ said Air New Zealand CEO Greg Foran in a statement. In 2022, the company adopted a target to cut its emissions by almost 29 percent by 2030. It was much more ambitious than the 5 percent reduction goal over the same period set by the global aviation industry.

– CNN reported that the US Consumer Product Safety Commission (CPSC) said it voted unanimously to hold Amazon responsible for faulty or unsafe products sold by third parties on its website and app. The CPSC, which is tasked with ordering companies to recall dangerous products sold in the US, said it found more than 400,000 defective products sold on Amazon’s platform that the online retailer now must recall or face legal consequences.

The regulator said an administrative law judge sided with the agency, ruling that Amazon acted as a distributor for third-party goods, and that the company’s notifications to customers that products they purchased had a ‘potential’ safety issue were insufficient to protect consumers.

In a statement, Amazon said it was disappointed by the decision and plans to appeal: ‘In the event of a product recall in our store, we remove impacted products promptly after receiving actionable information from recalling agencies, and we continue to seek ways to innovate on behalf of our customers. Our recall alerts service also ensures our customers are notified of important product safety information fast, and the recalls process is effective and efficient.’

The CPSC said Amazon must now submit a proposed plan to notify consumers about the faulty products and remove them from online shelves.

– Meta agreed to pay a record $1.4 bn to settle a lawsuit by the state of Texas over the Facebook owner’s unauthorized use of users’ biometric data, CNBC reported. The suit, filed by Texas Attorney General Ken Paxton, accused Meta of capturing and using the biometric data of millions of Texas residents – which was contained in uploaded photos and videos on Facebook – without legally required permissions. The attorney general’s office said Facebook stored billions of biometric identifiers without customers’ consent after introducing a new feature in 2011 called ‘Tag suggestions’.

‘Unbeknownst to most Texans, for more than a decade Meta ran facial recognition software on virtually every face contained in the photographs uploaded to Facebook, capturing records of the facial geometry of the people depicted,’ Paxton’s office said. Meta in late 2021 said it was shutting down its Face Recognition system on Facebook, citing ‘growing concerns about the use of this technology as a whole’.

A spokesperson for Meta told CNBC: ‘We are pleased to resolve this matter and look forward to exploring future opportunities to deepen our business investments in Texas, including potentially developing data centers.’

– According to Reuters, the Federal Deposit Insurance Corporation (FDIC) voted to advance a proposal under which the agency would exert more influence over whether asset managers or other firms building large stakes in banks should receive stricter regulation and oversight. Agency officials also indicated they may launch a review of existing ‘passivity agreements’ with large asset managers, with a focus on enhancing FDIC oversight of their commitments to not play an active role in bank management.

Under the law, third parties that obtain a greater than 10 percent stake in a bank can be considered a controlling interest in the bank and subjected to stricter regulation and oversight. But firms can avoid those restrictions under passivity agreements in which investors commit to regulators not to exert influence on the bank.

– CNN reported that Boeing named Robert Ortberg, former CEO of supplier Rockwell Collins, as its new CEO, effective August 8. He will replace Dave Calhoun, who is retiring. Ortberg started work in the aviation industry in 1983 as an engineer at Texas Instruments and then joined Rockwell Collins in 1987 as a program manager. He became CEO of Rockwell Collins in 2013 and retired from the company in 2021.

‘[Robert] is an experienced leader who is deeply respected in the aerospace industry, with a well-earned reputation for building strong teams and running complex engineering and manufacturing companies,’ said Boeing chair Steven Mollenkopf in a statement. ‘We look forward to working with him as he leads Boeing through this consequential period in its long history.’

– According to CNBC, Johnson Controls CEO George Oliver will retire from his post after what the company called ‘constructive dialogue’ with activist investor Elliott Management. ‘I believe that now is the right time to begin the process of identifying the next leader of the new Johnson Controls,’ Oliver said in a release. He will remain CEO until a successor is found and will continue as chair after stepping down from the CEO role. The company also announced, with Elliott’s blessing, that it would appoint former Xylem CEO Patrick Decker to its board, effective immediately.

‘We appreciate the productive discussions we’ve had with George and his team,’ said Elliott partner Marc Steinberg in a release. ‘As one of Johnson Controls’ largest investors, we believe the leadership and board actions announced today, along with the recent portfolio changes, position the company to realize the benefits of its transformation.’

– The Wall Street Journal (paywall) reported that the US Department of Justice (DoJ) has joined other federal agencies that offer potential rewards to whistleblowers. Under a three-year pilot program, people who turn over original information or analysis relating to a financial crime, bribery or healthcare fraud could be eligible for an award of up to 30 percent of any assets forfeited by a company as a result of that information.

DoJ officials said they sought to design a program that fills gaps between pre-existing award programs. Programs at the SEC, Internal Revenue Service and other agencies such as the Commodity Futures Trading Commission are limited in scope and don’t address the ‘full range of corporate and financial misconduct that the Justice Department prosecutes,’ said Deputy Attorney General Lisa Monaco. ‘With this program, we’re doubling down on a proven strategy to ferret out criminal activity that might otherwise go unreported.’

Under the program, a whistleblower is eligible for an award from the DoJ only if the person isn’t already eligible for an award from another agency. In addition, tipsters can’t be meaningfully involved in the misconduct at issue or have obtained the information through their work as a compliance officer or internal auditor.

– CNBC reported that according to people familiar with the matter, days before reports emerged that Elliott Management had built a stake in Starbucks, the activist investor proposed a settlement that would involve board expansion and governance changes but would allow CEO Laxman Narasimhan to stay in his job. Elliott submitted its offer to Starbucks weeks ago but the company’s board, chaired by Mellody Hobson, hasn’t responded, the people said.

A Starbucks spokesperson declined to comment on whether Starbucks’ former CEO Howard Schultz, who has a close relationship with Hobson and other Starbucks directors, had attended board meetings where Elliott’s settlement offer was discussed. Schultz’s representatives didn’t return CNBC requests for comment.

It is unclear what specific governance improvements Elliott is seeking. A spokesperson for Elliott declined to comment.

– CrowdStrike is being sued by its shareholders after a faulty software update by the cyber-security company crashed more than 8 mn computers and caused worldwide chaos, the BBC reported. The lawsuit accuses the firm of making ‘false and misleading’ statements about its software testing. It also says the company’s share price dropped 32 percent in the 12 days after the incident, causing a loss in market value of $25 bn.

CrowdStrike denies the allegations and says it will defend itself against the proposed class action lawsuit.

– CNBC reported that 23andMe CEO and co-founder Anne Wojcicki has submitted a proposal to take the genetic testing company private. Wojcicki said she was prepared to acquire all of 23andMe’s outstanding shares of common stock in cash for 40 cents per share, according to an SEC filing. ‘Our experience with the short-term focus of the public markets has led me to believe that the company will be best equipped to execute against this mission as a private entity, allowing us to remove certain public company costs and distractions,’ Wojcicki wrote in the proposal.

The company’s board formed a special committee in late March to help explore options that could raise the stock price. The special committee will need to approve or reject Wojcicki’s proposal to take the company private, according to the filing.

A request for comment from 23andMe was declined.