The week in GRC: Judge blocks FTC non-compete rule and Democrats to continue push for AI legislation

– CNBC reported that activist investor Carl Icahn and his company agreed to pay $2 mn to settle SEC allegations that he failed to disclose billions of dollars’ worth of personal margin loans pledged against the value of his Icahn Enterprises stock. Icahn and the publicly traded company that bears his name settled without admitting or denying wrongdoing, agreeing to pay $500,000 and $1.5 mn, respectively, in fines.

The SEC said Icahn pledged between 51 percent and 82 percent of Icahn Enterprises’ shares outstanding to secure billions of dollars in margin loans without disclosing that fact to shareholders or federal regulators. As the effective controlling shareholder of the company, Icahn would have been expected to make Schedule 13D filings, which typically detail what controlling shareholders expect to do with their influence over a company. They would also have to include information about any encumbrances, like margin loans, on a stake.

‘We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders,’ Icahn said in a statement.

– According to The Wall Street Journal (paywall), companies are talking less about sustainability in earnings calls and marketing materials but mentioning it nearly as frequently as ever in their financial reports and other disclosures. Business leaders have faced political and legal pressure to avoid overstating green claims or appearing to prioritize sustainability initiatives over profit, and last year a WSJ analysis found a steep decline in mentions of ESG, diversity, equity & inclusion (DE&I) and other related terms in corporate earnings calls.

But a new analysis finds that companies’ financial disclosures are mentioning sustainability almost as much as ever, with the trend line showing a steep climb between 2019 and 2021 before flattening out. The apparent disconnect suggests companies haven’t fully dropped their sustainability-related goals but are talking about them less.

‘We haven’t seen any real diminution in the quality of reporting on sustainability,’ said Julie Gorte, senior vice president for sustainable investing at Impax Asset Management. ‘What you don’t see is the companies coming out and having a big marketing splash about it.’

– Reuters (paywall) reported that activist investor Ancora Holdings is urging Forward Air to launch a strategic review and consider a sale and warned that a board challenge might follow if investors’ calls for action are ignored. Ancora said in a letter to the board, seen by Reuters, that improving operations, fixing the balance sheet and serving customers would be better achieved as a private company. ‘We believe the board must evaluate any and all alternatives that exist today,’ Ancora wrote. Its letter echoed other large shareholders’ calls for change.

The company did not respond to a Reuters request for comment.

– According to CNN, Harley-Davidson said it’s ending diversity and other progressive initiatives at the company, the latest major US company to backtrack from DE&I policies it had supported in recent years. Harley-Davidson had faced pressure online from Robby Starbuck, a conservative activist who has successfully taken on DE&I policies at several US firms.

‘We are saddened by the negativity on social media over the last few weeks, designed to divide the Harley-Davidson community,’ the company wrote in a statement posted on X, adding that it has not ‘operated a [DE&I] function since April 2024, and we do not have a [DE&I] function today. We do not have hiring quotas and we no longer have supplier diversity spend goals.’

But the company said it would review all sponsorships and outside organizations it is affiliated with and will establish a central clearinghouse for approvals of those relationships. It also suggested it would drop some sponsorships, including LGBTQ+ Pride festivals, saying from here on the brand would focus exclusively on growing the sport of motorcycling.

‘We remain committed to listening to all members of our community,’ the company said in its statement.

– Kroger sued the US Federal Trade Commission (FTC), seeking to block the agency from reviewing the grocery chain’s proposed $25 bn merger with Albertsons, Reuters reported. Kroger called the tribunal unconstitutional, saying the matter should be resolved in a federal court. The lawsuit comes a week before the company is scheduled to face a trial in which the FTC has asked a federal judge in Portland, Oregon, to temporarily block the merger while its in-house judges review the deal. The FTC said in a lawsuit filed in February that the deal would raise prices and squeeze the labor market for unionized grocery store workers.

A spokesperson for the FTC declined to comment.

– CNN reported that a federal judge in Texas barred a US FTC rule from taking effect that would ban employers from requiring their workers to sign non-compete agreements. The ban, which had been due to go into effect nationwide on September 4, is now essentially blocked. US District Judge Ada Brown said the FTC does not have the authority to ban practices it believes to be unfair methods of competition by adopting broad rules.

Brown had temporarily blocked the rule in July for a small number of employers while she considered a bid by the US Chamber of Commerce and tax service firm Ryan to strike it down entirely. In her ruling, she said that even if the FTC had the power to adopt the rule, the agency had not justified banning virtually all non-compete agreements.

An FTC spokesperson said the agency was disappointed with the ruling and is ‘seriously considering a potential appeal’. The spokesperson added: ‘Today’s decision does not prevent the FTC from addressing non-competes through case-by-base enforcement actions.’

– Lawmakers at the Democratic National Convention say they continue to push for an election-year breakthrough in passing legislation to address the risks of AI, according to the WSJ. ‘We’re going to get a great AI package that keeps innovation as our North Star hopefully through Congress by the end of the year. We have great prospects,’ said Senator Chuck Schumer, D-New York.

The Senate Committee on Commerce, Science and Transportation last month advanced a group of AI bills, including a bipartisan Future of Artificial Intelligence Innovation Act, designed to maintain US global leadership in AI and other emerging technologies. But some remain skeptical. US regulation in the area has been slow moving and could be even more so, with both parties focused on the presidential election.

– According to the BBC, Chinese fast-fashion company Shein said it found two cases of child labor in its supply chain last year as it tightens scrutiny of the firms that make the clothes it sells. Shein says it suspended orders from the suppliers involved and did not restart doing business with them until they had stepped up efforts to tackle the issue.

‘Both cases were resolved swiftly, with remediation steps including terminating contracts with underage employees, ensuring the payment of any outstanding wages, arranging medical checkups and facilitating repatriation to parents/legal guardians as needed,’ Shein said. ‘Following appropriate remediation, the contract manufacturers were permitted to resume business.’

Shein said it has now tightened its supplier policies. Under the new rules, any child labor or forced labor violations have become grounds for immediate termination of contracts.