The week in GRC: Trump eyes fiduciary rule and Snap’s vote-less shares plan angers investors

– The Wall Street Journal reported that in the wake of Wells Fargo’s regulatory settlement over sales practices, the bank’s shareholders were proposing resolutions for this spring’s annual meeting to demand more information about risk management, directors’ suitability for the board and employees’ bonus payments. The bank is responding by having directors and executives meet with shareholders. But it has also submitted what is for it a record number of requests to the SEC to keep shareholder proposals off its proxy statement.

A Wells Fargo spokesperson said the bank regularly engages with its investors to ‘understand and discuss points of view on governance and related matters.’ He added that ‘like many other companies’, Wells Fargo routinely files no-action letters, which vary each year based on the proposals it receives.


– Businesses and trade organizations responded – some with outrage, some with caution – to President Donald Trump’s order restricting entry to the US by citizens of seven predominantly Muslim nations and all refugees, the New York Times reported.

For example, transportation network company Lyft promised to donate $1 million over the next four years to the American Civil Liberties Union ‘to defend our Constitution’, while Airbnb founder Brian Chesky wrote on Twitter that his company would provide ‘free housing to refugees and anyone not allowed in the US.’ Jeff Immelt, CEO of General Electric, told his staff in an internal blog post that ‘I share your concern’, adding: ‘There would be no GE without people of all religions, nationalities, gender, sexual orientation and race.’


– The Financial Times reported that BlackRock, Vanguard and State Street have expanded their corporate governance teams significantly in response to growing pressure from policymakers and clients to demonstrate they are policing the companies they invest in.

The moves will help address fears that investors are not doing enough to monitor controversial issues around executive pay and board diversity at the companies they invest in. BlackRock now has the largest corporate governance team of any global asset manager, after hiring 11 analysts for its stewardship division over the past three years, bringing total headcount to 31.


– The SEC said Marc Wyatt, director of the office of compliance inspections and examinations (OCIE), would leave the agency in February to return to the private sector. Wyatt joined the SEC in December 2012 as a senior specialized examiner and co-founded the private fund unit within OCIE. He was named deputy director in October 2014 and served as acting director in April 2015 before being named director in November 2015.

Wyatt worked on a number of initiatives, including a reallocation of resources within the exam program that, along with hiring, resulted in increasing the size of the investment adviser and investment company exam team by more than 20 percent compared with the previous year in response to rapid industry growth. When he leaves the SEC, Pete Driscoll, OCIE’s chief risk and strategy officer, will become acting director.


– Trump set a challenging goal for government agencies bound by complex procedures, ordering his department heads to remove two regulations for each new one they issue, according to Bloomberg. But fulfilling the promise, which he made shortly after his election, may prove more difficult than signing an order.

‘It’s going to be hard to implement, just because changing rules involves going through detailed administrative processes and soliciting public comment,’ said Darrell West, director of governance studies at the Brookings Institution. ‘So it’s not a situation where an agency head can come in and kill a regulation overnight.’ Eliminating a regulation is itself a regulatory process.


– Bloomberg reported that Denmark’s government wants the EU to roll back some financial regulations, arguing that the existing framework hits big and small banks indiscriminately. The business minister, Brian Mikkelsen, has ordered a probe into how other EU countries implement rules to see whether there’s any leeway to take a more relaxed approach within the existing framework. He also wants a broader discussion ‘at the European level’ to explore whether any existing rules can be reversed, he said.


– Just months after completing the widely applauded breakup of aluminum company Alcoa, Klaus Kleinfeld is facing calls for his ouster, according to the WSJ. Several of the largest shareholders of Arconic, the aerospace and automotive parts maker Kleinfeld now leads after its November split from Alcoa, are pressing the company to find a new CEO, according to people familiar with the matter. They are unhappy with Arconic’s performance and blame Kleinfeld, who served as Alcoa’s CEO for eight years before taking the helm at Arconic, the people said.

In a statement, Arconic said Kleinfeld ‘substantially transformed’ Alcoa during his tenure and more than doubled margins in the Arconic business. ‘His strategy to separate Alcoa has been highly successful, and has already unlocked significant value for all shareholders,’ said Arconic, which on Monday night added that Kleinfeld had the board’s unanimous support.


– The WSJ said several of the world’s largest money managers would push for a ban on dual-class shares, as part of a range of corporate governance practices they agreed to endorse. The campaign will turn up the heat on many US companies at a time of increased shareholder activism. Participants include BlackRock, Vanguard Group and State Street Global Advisors as well as big public pension schemes in California, Florida and Washington state.

The group took a strong stance against dual-class shares, which generally grant super-voting power to certain shareholders. Investors have long complained that dual-class voting limits the ability of most shareholders to enact change. ‘Companies should adopt a one-share, one-vote standard’, while those with dual-class structures should create mechanisms that end or phase them out, the coalition said.


– Deutsche Bank agreed to pay $630 million in fines to US and UK regulators for allegedly failing to prevent around $10 billion in suspicious trades being laundered out of Russia, Reuters reported. Regulators said the scheme involved so-called mirror trades between the bank’s Moscow, London and New York offices between 2011 and 2015, in which the firm bought Russian stocks in rubles on behalf of clients and sold the identical quantity of the same stocks at the same price through its London branch shortly afterwards.

‘The offsetting trades here lacked economic purpose and could have been used to facilitate money laundering or enable other illicit conduct,’ said the New York State Department of Financial Services, which fined Deutsche Bank $425 million. The UK’s Financial Conduct Authority separately fined Deutsche Bank for allegedly failing to maintain adequate anti-money laundering controls between 2012 and 2015, allowing customers to transfer billions from Russia to offshore bank accounts ‘in a manner that is highly suggestive of financial crime.’

Deutsche Bank said the Russia-related settlement amounts were ‘materially reflected’ in existing litigation reserves, adding that it was still co-operating with other regulators and authorities that had their own investigations. The bank disclosed last September that it had taken disciplinary measures against certain employees as part of an investigation of the trades and would continue to do so.


– US Supreme Court nominee judge Neil Gorsuch is known for questioning how far courts should go in deferring to federal agencies on interpreting the law, a view that could be important for US companies, according to Reuters. In a recent case, Gorsuch took a dim view of a widely cited 1984 high court ruling that directed judges nationwide to defer to agencies’ interpretation of laws that may be ambiguous – known as ‘Chevron deference’. Last August, Gorsuch called the doctrine the ‘elephant in the room’ that concentrates federal power ‘in a way that seems more than a little difficult to square with the Constitution.’


– Acting SEC chair Michael Piwowar on Tuesday took the first step toward scaling back the Conflict Minerals Rule, which requires companies to trace whether their products contain minerals from a war-torn part of Africa, Reuters said. Piwowar announced he has directed agency officials to reconsider how companies should comply with the rule and whether ‘additional relief’ from its requirements is necessary.


– The FT reported that Siemens has nominated Jim Hagemann Snabe to be the next chair of its supervisory board. Snabe, who has been on Siemens’ supervisory board since October 2013, would replace present chair Gerhard Cromme a year from now when his term expires. Shareholders will vote on the nomination next January. To avoid conflicts of interest, Siemens said Snabe would reduce the number of his supervisory board positions this year.


– Stung by cyber-attacks, financial institutions are cracking down on security practices at thousands of vendors, from those that store financial data to food services companies that post weekly lunch menus on a bank’s internal website, according to the WSJ. This tougher review of business relationships is leading to heightened tension between banks, which are trying to ensure the safety of their operations, and their outside contractors, which are facing demands for information before they even win a potential client’s business.


– Reuters reported that John Holland, a former senior vice president of Tenet Healthcare, was indicted on charges that he participated in a scheme to pay bribes for patient referrals, enabling the US hospital chain to fraudulently bill state Medicaid programs for $400 million. The charges came after Tenet and two of its Atlanta-area units reached a settlement with the US Department of Justice and agreed to pay more than $513 million to resolve criminal charges and civil claims in a related settlement.

Holland pleaded not guilty during a court hearing in Miami. His lawyer said he believed ‘the company’s resolution should have ended the matter’, adding that ‘Mr Holland is not guilty and we now look forward to presenting this case to a jury.’


– Two major US rules aimed at curbing corruption and pollution in the energy sector may be wiped from the books after the Republican-led House of Representatives on Wednesday voted to repeal them, Reuters reported. Under the virtually untested Congressional Review Act, the Republican-led Congress can vote to permanently undo recently introduced regulations. Agencies cannot revisit overturned regulations, and timing in the law means any regulation enacted in the Obama administration’s final months is eligible for axing.

At issue are the SEC’s ‘extraction rule’ – which was approved this summer to require companies such as ExxonMobil and Chevron to publicly state the taxes and other fees they pay to governments – and the stream buffer rule, intended to lessen the amount of waste from mountain-top removal coal mining deposited in local waterways.


– The WSJ reported that, according to a report released on Wednesday, more consumers became victims of identity fraud last year than at any point in more than a decade, despite new security protections implemented by the credit card industry. Around 15.4 million US consumers were victims of identity fraud in 2016, resulting in $16 billion in total losses, according to the report by Javelin Strategy & Research and LifeLock. The number of victims rose 18 percent from 2015 and was the highest since Javelin started tracking the phenomenon in 2003.


‒ The FT reported on Friday that Trump was due to sign executive orders preparing the way to fulfil a campaign pledge to dismantle parts of Dodd-Frank. He was also expected to cheer financial professionals who offer retirement advice by directing officials to consider scrapping the US Department of Labor’s fiduciary duty rule. But the president’s ability to pull apart the reforms on his own is limited: only Congress can make big revisions to the act it passed in 2010, although Trump can use the orders to signal his priorities and instruct regulators enforcing the law.


‒ The FT reported that investors have reacted with fury to Snap’s decision to deny them a say in the running of the company when it floats on the stock market. Several of the largest US pension funds sent a public letter of objection to the company, while one investment industry leader predicted Snap’s initial public offering could ‘open the floodgates’ to similar governance arrangements at companies around the world.

Snap says the IPO is the first to offer shares with no voting power. The two founders, CEO Evan Spiegel and chief technology officer Bobby Murphy, will control the company post-IPO and continue to do so even if they step down. The prospectus says a founder’s voting power will be diluted only if he or she cuts his/her stake substantially or ‘nine months after his/her death.’

‘Telling us to wait for nature to take its course is a banana republic-style approach,’ says Anne Simpson, head of corporate governance at Calpers. Snap declined to comment.


‒ A brewing dispute between financial technology (fintech) start-ups and banks over one small section of Dodd-Frank shows how rancorous, and complex, the process of dismantling the reforms could prove, according to the WSJ. Although there is no indication that the administration is focused on Section 1033 of the law, some are gearing up to fight to protect it.

The section says banks must ‘make available to a consumer, upon request… information relating to any transaction, series of transactions or to the account’ and ‘in an electronic form that can be used by computer applications.’ Fintech start-ups argue this language enshrines their right to pull data from customers’ bank accounts when the customers give them permission. But banks say that while they support customers’ right to share their account data, there should be certain restrictions as well.