In Brief: CLO Edition
2018 Mar 20
Today's Top Story
U.K. Law Firms Resist Pressure on Gender Pay Gap Reporting
U.K. law firms are refusing to follow the example of the "big four" consultancies and include their highest paid staff in new gender pay gap figures that must be published by 4 April. Inga Beale, chief executive of insurance market Lloyd's of London, and Rupert Soames, chief executive of outsourcing company Serco, are among those who have criticized the exclusion of equity partner earnings from figures that all U.K. organizations with more than 250 employees must now report once a year. Under the reporting rules, partners can be excluded because they are considered business owners rather than employees, reports the Financial Times (19 March, Thompson). However, last week, consultancies KPMG and PwC followed EY and Deloitte in saying they would revise their gender pay gap figures to include partners. So far, few law firms have published their gender pay data, but those that have done so have generally excluded partners.
Disputes With Temporary Workers Add to GM Korea's Challenges
On 13 February, General Motors (GM) Korea was ordered to recognize temporary workers as full-time employees. However, that same day, Detroit-based GM suddenly announced it was shutting one of its South Korean plants with the loss of 2,000 jobs and was reviewing the future of its remaining three factories. GM Korea has appealed the 13 February ruling that it should recognize temporary workers as full-time employees, and those employees have not been reinstated, court documents show. The legal battle adds to challenges for the automaker as it works through difficult restructuring negotiations with the government, shareholders, and unions, and as some 1,600 jittery temporary workers still on GM Korea's payroll worry they will be hardest hit. The use of temporary workers by automakers around the world is commonplace, but in South Korea, where laying off full-time and unionized workers is particularly difficult, GM Korea and local peers such as Hyundai Motor Co have turned to temporary workers to a greater extent, reports Reuters (18 March, Jin, Park).
Hyundai, Kia Under U.S. Probe for Cars That Led to Four Deaths
Safety regulators in the United States are investigating air bags in certain Hyundai and Kia automobiles that failed to deploy in frontal collisions linked to four deaths and a half-dozen injuries. According to an investigation report posted on the U.S. National Highway Traffic Safety Administration's (NHTSA) website, as many as 425,000 vehicles made by the South Korean manufacturers may be affected. The crashes involve Hyundai Sonatas and Sonata hybrids made in 2011, and Kia Forte and Kia Forte Koups made in 2012 and 2013, reports Bloomberg (18 March, Ksaske, Malik). Hyundai is looking into the product supplier, ZF-TRW, for a possible cause for the electrical problem. Meanwhile, NHTSA officials are working to determine whether any other automaker uses air-bag control units that are the same or similar to those supplied by ZF-TRW and whether those units behave the same way in similar crashes.
BlackRock Offers More Details in Its Corporate Governance Efforts
Two months after BlackRock Chairman and CEO Laurence Fink sent letters to CEOs telling them they need to contribute to society in order to survive, the world's biggest money manager followed up with some of the topics the firm is covering in engagement sessions with companies. These topics focus on board and management's efforts regarding human capital management, which BlackRock had previously identified as one of its priorities for this year. Some of the issues that BlackRock is likely to discuss with the corporate boards include board and workforce diversity; board oversight of corporate culture; tying human capital management performance to executive pay; and oversight of policies designed to safeguard employees, such as those related to whistleblowing. Issues the firm is likely to discuss with management teams include compensation gaps across employee demographics and oversight of supply chain matters, reports Pensions & Investments (16 March, Kilroy).
Kobe Steel to Push Governance Reform Under New Chief
Kobe Steel, reeling from a damaging data-doctoring scandal, will take steps to prevent a recurrence and strengthen corporate governance under its new president. Mitsugu Yamaguchi, currently an executive vice president, has agreed to lead the steelmaker after Chairman and President Hiroya Kawasaki exits on 1 April. Yamaguchi, the company's first president to hail from its machinery business, a noncore segment, will be tasked with overhauling Kobe Steel's corporate culture. On the governance side, the company is doing away with the position of chairman, instead selecting one of its outside directors to lead board meetings in the hope of encouraging an unbiased perspective, reports Nikkei Asian Review (17 March, Inoue, Onishi).
Despite Woes, Wells Fargo Gives CEO a US$4.6 Million Raise
Well Fargo's board of directors gave CEO Tim Sloan a US$4.6 million raise in 2017, despite the bank continuing to face the fallout of its sales-practices scandal and other issues. In its annual proxy to shareholders, Wells Fargo confirmed that Sloan made US$17.6 million last year—an increase from US$13 million in 2016. While Sloan did not receive a cash bonus, the amount of the Wells Fargo stock awarded to him in 2017 increased from US$10.5 million to US$15 million. Sloan's overall pay increase was nearly 35 percent, or roughly equal to the pay hike Bank of America CEO Brian Moynihan received for 2017, reports the Associated Press (15 March).
Labor and Employment
Deadline is Today in McDonald's Labor Case That Could Affect Millions
Peter B. Robb, Trump appointee and general counsel of the National Labor Relations Board, is scrambling to head off a court ruling in a case against McDonald's that could redefine the accountability of companies for the labor practices of their franchisees. Robb has been exploring settlement terms with workers at the center of the board's complaint against McDonald's, according to lawyers involved in the case. A judge had halted the trial until 19 March to give the agency a chance to do so. If no settlement is reached and the judge were to rule against the company, the decision could have enormous implications for the franchise business model, affecting millions of workers in the fast-food industry and beyond. Corporations could be required to bargain with unionized workers at disparate franchise locations, reports the New York Times (19 March, Scheiberm). The case was brought during the Obama administration, when the board was under Democratic control. Since President Trump's election, Republican members have regained a majority, steering the board away from a pro-labor orientation. A central question in the trial is whether McDonald's is a so-called joint employer of workers directly employed by its franchisees. A parent company is considered a joint employer if it controls their working conditions, although the legal criteria for determining control in this context has shifted in recent years.
U.S. and British Lawmakers Demand Answers From Facebook Chief Executive Mark Zuckerberg
Lawmakers in both the United States and Britain are calling on Facebook CEO Mark Zuckerberg to explain how the names, preferences, and other information from tens of millions of users ended up in the hands of a data analysis firm connected with President Trump's 2016 campaign. These demands are in response to recent media reports that Cambridge Analytica used a feature once available to Facebook app developers to collect information on approximately 270,000 people and, in the process, gain access to data on tens of millions of their Facebook "friends." Though both companies have been embroiled in investigations in Washington and London for months, the recent demands have taken on a more personal tone, focusing explicitly on Zuckerberg who has not testified publicly on these matters in either nation, reports the Chicago Tribune (18 March, Timberg).
Companies Seeking Reprieve From Steel Tariffs Get Ground Rules
The Trump administration has outlined rules for how automakers, pipeline operators, and other companies can seek exemptions from new aluminum and steel tariffs that could be worth billions of dollars. The U.S. Commerce Department "opened the door" for those requests 16 March with an interim final rule that invites applications from individuals or companies supplying steel to American entities that use the metal in construction or other domestic business activities. Under the new rule, a company can petition the Commerce Department for an exemption from the tariffs if the product "is not produced in the United States in a sufficient and reasonably available amount" or is not of "satisfactory quality." In addition, they can make an argument on national security grounds, reports Bloomberg (17 March, Dlouhy).
MPs Warn of Brexit Damage to U.K. Aerospace
On 19 March, the U.K. Civil Aviation Authority will publish its finding on the impact of Brexit on the aerospace sector. The Members of Parliament (MPs) have concluded that the U.K.'s buoyant aerospace sector would be irreparably damaged if it did not remain deeply integrated in Europe's regulatory and manufacturing hubs after Britain leaves the EU. MPs welcomed the prime minister's recent statement that the U.K. hoped to remain in the EU's watchdog EASA, even as a non-voting member, but they stressed that the government should push for as much influence as possible. That call was backed up by Rolls-Royce, the world's second largest aero-engine maker, reports the Financial Times (18 March, Hollinger). A non-voting "associate membership" would be "better than nothing," a spokesman said. MPs also sounded alarm bells over the lack of clarity on transition arrangements, noting that several companies were preparing to take "costly and disruptive" contingency measures, such as stockpiling inventory, which could affect the sector's competitiveness.
No Profit? No Problem! Loss-Making Companies Flood the IPO Market
Dropbox Inc. and Spotify Technology SA are poised to join a growing list of newly public companies that are not making money, signaling an increasing tolerance for loss-makers when investors believe there is potential. Over 75 percent of the 108 companies that completed initial public offerings (IPO) last year posted per-share losses in the 12 months leading up to their debuts, reports University of Florida Professor Jay Ritter. In 2017, the share of loss-makers in the IPO market reached the highest percentage since the peak of the dot-com boom in 2000. By contrast, data spanning nearly four decades shows 38 percent of companies are typically unprofitable when they go public, reports the Wall Street Journal (16 March, Eisen). The shift suggests investors are comfortable giving companies more space to grow their businesses, often by sacrificing immediate profitability for higher spending on marketing or research and development.
Weir Reignites Pay Debate With Move to Ditch Controversial Schemes
U.K. based engineering company Weir will this week revive the push to reform executive pay in Britain with a plan to ditch a controversial kind of reward scheme linked to excessive boardroom remuneration. The FTSE 250 group's proposal to axe "long-term incentive plans" and slash share awards in half comes two years after it became just the second ever U.K. company to lose a binding vote on pay policy. At the center of criticisms are long-term incentive plans (LTIPs), which hand top executives shares if they meet certain performance criteria, typically paying out after three to five years. These have driven pay inflation over the past decade and account for the largest chunk of remuneration at Britain's biggest companies, reports the Financial Times (19 March, Pooler, Jenkins). In its annual report published on 19 March, Weir will reveal plans to implement an annual system of restricted shares instead, with payouts delayed up to seven years. Awards will be 125 percent of base salary for the chief executive, and 100 percent for the chief financial officer—half the current size under LTIPs—in addition to a redesigned annual bonus.