Skip to main content
Jun 22, 2017

The week in GRC: FTSE Russell said to consider curbs on unequal voting rights, and regulators support Volcker rule rethink

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

– Some cyber-attacks on hospitals involving ransomware don’t appear on the US Department of Health and Human Services’ (HHS) public list of data breaches, according to The Wall Street Journal. HHS rules say hospitals need only report attacks that result in the exposure of private medical or financial information, such as malware that steals data. When ransomware’s data encryption meets that threshold is a gray area.

Proponents for more mandatory reporting say this regulatory gap limits the healthcare system’s ability to fight cyber-criminals. They argue that hospitals left in the dark about attacks hitting their rivals are less likely to be ready to defend themselves. Opponents say HHS reporting comes with a harsh spotlight, potential penalties and liability risks. Spokespeople for HHS didn’t respond to a request to clarify the agency’s position on the issue.


Bloomberg reported that hedge fund manager John Paulson joined the board of Valeant Pharmaceuticals International. Paulson’s firm became Valeant’s biggest shareholder this year. ‘With his significant business and financial expertise, John will be a strong addition to the board,’ Valeant CEO Joseph Papa said. ‘His experience will be especially valuable as we continue to execute our transformational strategy to turn around Valeant.’


Reuters said investors are hoping the Federal Reserve will allow large US banks to put an estimated $150 billion in idle capital into stock buybacks, dividends and investments in the coming weeks after conducting the latest round of stress tests. President Donald Trump has not yet made any appointments to the Fed, but Republicans have turned up pressure on the central bank to cut red tape and ease regulations.

Analysts said they do not expect the Fed to announce any explicit changes to the stress test, but they do expect higher payouts. According to their estimates, the Fed could allow banks to distribute nearly as much capital to shareholders over the next year as they generate in profits, a benchmark not hit since before the financial crisis.


– According to the WSJ, two trends are converging as younger investors come of age: socially responsible investing (SRI) and robo-advisory services. Over the past year, a small but growing number of firms have introduced automated investment services that include SRI. Driving the interest is a desire on the part of individuals to spend and invest in ways that are consistent with their values, and SRI-based investments can outperform over the long run. Since 1990, the MSCI KLD 400 Social Index has returned an average of 8.4 percent a year, compared with 7.6 percent for the S&P 500 index.

‘There is a fair amount of evidence from investor surveys that millennials and women are especially interested in sustainable and impact investing,’ said Jon Hale, director of sustainability investing research at Morningstar. Given that millennials are also the target market for many robo-advisory services, ‘it seems like a natural combination.’


– The US Supreme Court dealt a blow to consumer plaintiffs by limiting where lawsuits against companies with business in multiple states can be heard, the WSJ reported. Its ruling stated that California courts could hear only claims by Californians against Bristol-Myers Squibb. An attorney for the plaintiffs declined to comment. ‘We are hopeful this decision will provide litigants more certainty regarding where lawsuits can be heard,’ Bristol said in a statement. ‘At its core, this decision was about basic principles of federalism and fairness in our legal system.’

The court’s ruling may give a boost to companies by limiting the opportunities for judicial forum shopping. But consumer groups have warned that cutting back too sharply on plaintiffs’ ability to sue could give big companies more ways to avoid responsibility for harm they cause.


Bloomberg reported that proponents of UK corporate governance reform are worried plans floated by Prime Minister Theresa May won’t make it into her government’s legislative program to be announced this week. Expectations that a bill will implement reforms are receding after this month’s election results mean Brexit talks are taking priority for the government. Corporate governance legislation is now ‘in the balance,’ said Stefan Stern, director of the High Pay Centre.

‘I’d be quite surprised if there was a bill referred to in the Queen’s Speech, given the complexity of Brexit,’ said Philippa Foster Back, director of the Institute of Business Ethics. ‘But I hope the momentum is strong enough for business itself to address the issues of concern.’


– The WSJ reported that the UK’s Serious Fraud Office (SFO) filed criminal charges against Barclays and four former senior executives linked to their handling of Middle Eastern investments that rescued the bank during the financial crisis. The case is the first time time top executives at a UK bank have faced criminal charges for their actions during the crisis. The SFO charged the individuals and the bank with conspiracy to commit fraud.

Barclays said in a statement that it is ‘considering its position in relation to these developments.’ Former CEO John Varley and Roger Jenkins, a former top investment bank executive, were charged with conspiracy to commit fraud and unlawful financial assistance. Thomas Kalaris, who used to run the bank’s wealth division, and Richard Boath, who headed the bank’s European financial institutions group, were charged with conspiracy to commit fraud.

A law firm representing Varley said it couldn’t immediately comment. Jenkins intends to vigorously defend himself against the charges, his lawyer said, adding that Jenkins had received internal and external legal advice on all the matters covered in the SFO case. A spokesperson for Boath didn’t immediately have comment. Kalaris hung up the phone when asked for comment.


– Trump nominated James Clinger, former chief counsel of the House Financial Services Committee, to replace Martin Gruenberg as chair of the Federal Deposit Insurance Corporation, according to Bloomberg. Clinger would fill a vacant seat at the agency until Gruenberg’s term ends in November. The selection means Trump’s team of officials responsible for easing bank rules is taking shape. They will probably focus on rolling back regulations, instead of pursuing policies – such as breaking up big lenders – which Trump promised on the campaign trail.


– The Financial Times said some of the largest US financial services firms are looking at whether to move transactions totaling hundreds of billions of dollars out of London to rival centers because of Brexit. Although bank bosses have made many statements about moving thousands of jobs out of the UK because of its withdrawal from the EU, the possibility that they will drain some of their big pools of money out of London has drawn less attention.

But reducing the funds they hold in the UK could have consequences for almost every aspect of their presence in the country, including staffing. ‘From a supervisory perspective what matters is aligning the risk taking, the management and the money (both in the form of capital and revenues),’ said Stephen Adams, senior director at consultancy Global Counsel.


– According to the WSJ, FTSE Russell is proposing possible restrictions on the inclusion of companies with unequal voting rights in its indexes, although the firm will consider input from clients and investors before working out specifics. The proposal could force companies to choose between keeping their places in broad stock benchmarks or changing their share class structures.

The plan calls for setting a minimum threshold for the percentage of voting control attached to company shares in an index. For example, a company whose Class A shares in an index control 40 percent of the total votes might be excluded from FTSE Russell’s main indexes if the threshold were higher than that.


The Guardian reported that ExxonMobil, Shell, BP and Total are among a group of large corporations supporting a plan to tax carbon dioxide emissions in an effort to tackle climate change. The companies have revealed their support for the Climate Leadership Council, a group of senior Republican figures that in February proposed a $40 fee on each ton of carbon dioxide emitted as part of a ‘free market, limited government’ response to climate change.

As further tradeoff for the new tax, the plan would dismantle all major climate regulations, including the Environmental Protection Agency’s authority over carbon dioxide emissions and an ‘outright repeal’ of the Obama administration’s Clean Power Plan. Exxon, BP and Shell have acknowledged that climate change is real and poses an economic and societal threat.


The New York Times said Travis Kalanick stepped down as CEO of Uber amid a shareholder revolt that made it untenable for him to stay on at the company. His exit came under pressure after hours of drama involving Uber’s investors, according to two people familiar with the matter. Kalanick consulted with at least one Uber board member and, after long discussions with some of the investors, he agreed to step down. He will remain on Uber’s board of directors.

‘I love Uber more than anything in the world and at this difficult moment in my personal life I have accepted the investors’ request to step aside so that Uber can go back to building rather than be distracted by another fight,’ Kalanick said. The board said in a statement that Kalanick had ‘always put Uber first’ and that his stepping down as CEO would give the company ‘room to fully embrace this new chapter in Uber’s history.’ An Uber spokesperson declined to comment further.


– State Street has urged the SEC to prevent companies from adopting voting structures used by Facebook, Alphabet and Snap over concerns that they concentrate power in the hands of founders and weaken shareholder rights, according to the FT. The firm attended an investor advisory committee meeting at the SEC in March, where it called on the agency to stop companies limiting the voting rights of shareholders. Rakhi Kumar, head of corporate governance at State Street Global Advisors, who attended the meeting, said the regulator needed to intervene as investor efforts to persuade companies to stop using inequitable voting structures have not been effective.

‘We have engaged on this for years,’ she said. ‘Our ability to have an impact is limited. We think it has to come from the regulator to stop the dual share-class issue. When we don’t have the mechanism to elect or vote for directors, we don’t have a voice or the ability to influence.’


– Trump has picked Marvin Kaplan, counsel at the independent Occupational Safety and Health Review Commission, to fill a vacant seat on the National Labor Relations Board – a first step toward securing Republican control of the agency that referees disputes between unions and business for the first time in nearly a decade, the WSJ noted. If he wins Senate confirmation, Kaplan would be the second Republican on the panel. A fifth position remains vacant, but it is expected the White House will name another Republican for that spot.


– The FT looked at six areas – defined by RSG Consulting – in which in-house attorneys can play a role in transforming operations, relationships and roles. These include taking on a lobbying role to influence legislation and regulation and promoting ethical and social responsibility in the business, broader industry and legal sector. Another example is the general counsel who pre-empts problems and protects the business from legal, regulatory or reputational threats through processes, tools or collaborations with other areas of the business.


– The WSJ reported that PwC is adding independent directors to its governing board, a first for the private partnership. The firm has named two new members to its board of partners and principals from outside the firm: Carol Pottenger, a retired US Navy vice admiral who was one of the first women selected for sea duty, and Carlos Gutierrez, a former Kellogg CEO who served as commerce secretary under former US president George W Bush.

PwC and other big accounting firms are partnerships that generally have governing boards made up of their own personnel, unlike public companies that trade on major exchanges, which are required to have a majority of directors who have no connection to the company.


– The SEC announced a number of new appointments:

  • Robert Evans has been named deputy director in the agency’s division of corporation finance. He will join deputy director Shelley Parratt as a senior adviser to the division’s director, William Hinman. Evans most recently worked at Shearman & Sterling as a partner in the firm’s capital markets practice
  • Kelly Gibson has been named as associate regional director for enforcement in the agency’s Philadelphia office. She joined the SEC as a staff attorney in the enforcement division in 2008. When the division was reorganized in 2010, she joined the market abuse unit
  • Kathryn Pyszka has been named an associate regional director for enforcement in the SEC’s Chicago office. She succeeds Timothy Warren, who retired from the agency in January. In her new role, Pyszka co-leads the Chicago office’s enforcement program with Robert Burson. She joined the SEC as a staff attorney in the enforcement division in 1997, was promoted to branch chief in 1998 and became senior trial counsel in 2000.



– The WSJ said growing concerns about threats are prompting the aviation industry to devise an unlikely new safeguard: real-time warnings to pilots about potential hacking attempts. Work to develop such systems is part of separate efforts by Thales, Raytheon and other companies to expand cyber-protections for aircraft. Airbus and Boeing support the pilot-alerting goal, reflecting a desire to try new things as global threats intensify and evolve.


Calstrs said its director of corporate governance Anne Sheehan was elected chair of the SEC’s investor advisory committee. ‘The [committee’s] impact on the regulatory regime at the SEC over the past five years has been positive and constructive. As one of the original members since 2012, I’ve been part of the committee’s work to help focus and shape the priorities of the commission to enhance investor protection,’ Sheehan said.


– The largest US banks survived a hypothetical stress test and could continue lending even during a deep recession, the Federal Reserve said in a report that could bolster the industry’s case for cutting back regulation, according to the WSJ. In the first part of its annual tests, the Fed said 34 of the largest US banks have significantly improved their defenses since the financial crisis. The results signal that many banks could win the Fed’s approval to increase dividend payouts to investors, in the second round of the tests.


– The FT reported that Peter Hambro, co-founder of Petropavlovsk, was voted off the Russia-focused gold mining company’s board following a battle with its largest shareholders over corporate governance. Attendees at the company’s annual general meeting in London voted to remove Hambro and appoint four new directors. ‘I will not hide my disappointment with the outcome of today’s vote,’ Hambro said.


– According to Reuters, financial regulators and lawmakers who appeared at a congressional hearing generally agreed that the Volcker Rule needs to be reconsidered. The rule should focus only on banks that do a lot of trading, said Federal Reserve governor Jerome Powell, who leads banking regulation for the central bank. ‘We believe we have the authority to draw a line between those with the big trading books (and other banks),’ he told the Senate Banking Committee. ‘We could have that group regulated one way and have everyone else regulated less, a lot less.’

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...