In Brief: CLO Edition
2018 Jan 20
Today's Top Story
Companies With Diverse Executive Teams Posted Bigger Profit Margins, New Study Shows
In one of the largest research endeavors of its kind, McKinsey & Co. examined the financial data of more than 1,000 major companies across 12 countries, as well as the gender and ethnic makeup of their workforces, reports the Wall Street Journal (19 January, Fuhrmans). The analysis builds on the findings of a smaller, but oft-cited 2015 study by the consulting firm. This latest research found that companies with diverse executive teams registered larger profit margins than their competitors with relatively little diversity in their upper echelons. "The link between ethnic diversity and better financial performance appeared even more robust than for gender diversity," according to the researchers. Companies that placed in the top 25 percent in terms of the ethnic mix of their C-suite teams were found to be 33 percent more likely to outperform rivals on profits than those in the bottom 25 percent. Meanwhile, companies with the most females in their executive ranks were 21 percent more likely to achieve above-average profitability compared to competitors with relatively few women in senior management positions.
South Korean Consumer Group Files Complaint Against Apple CEO Over iPhone Slowdown
A South Korean consumer group has filed a criminal complaint against Apple Inc. CEO Tim Cook over slower iPhone devices, after probes in Europe into allegations the firm had deliberately shortened the life of its handsets. The South Korean advocacy group, Citizens United for Consumer Sovereignty, in its complaint submitted on 18 January accused Apple of destruction of property and fraud. The California-based company acknowledged in December that iPhone software can slow down some phones with battery problems and apologized for the issue. However, it said it would never do anything to intentionally shorten the life of any Apple product, reports Reuters (18 January, Park).
Hong Kong to Boost Scrutiny of Company Auditors
Auditors are to come under greater scrutiny in Hong Kong, where the regulator is poised to gain new powers to impose penalties after a series of corporate governance failings. Legislation has been proposed to give the Financial Reporting Council (FRC), Hong Kong's audit watchdog, independence from auditors in order to safeguard investor interests, the government said. The bill would make the FRC an independent body, rather than industry-regulated, that would be responsible for inspecting, investigating, and disciplining auditors of companies listed in Hong Kong, reports the Financial Times (19 January, Dunkley). Global auditors have come under the spotlight recently after becoming embroiled in high-profile corporate scandals.
Mergers and Acquisitions
Qualcomm Gets European Approval for NXP Acquisition
The San Diego Union Tribune (18 January, Freeman) reports that Qualcomm has received approval from European regulators for its proposed US$38 billion acquisition of Dutch automotive chipmaker NXP Semiconductors, a key milestone in pushing the deal forward. The wireless technology giant has also gained approval for the deal in South Korea. The acquisition has now gotten the green light in eight of the nine required regulatory agencies worldwide, with China being the lone remaining holdout. Qualcomm remains optimistic that China will grant clearance.
Wyndham Worldwide Buying La Quinta
Wyndham Worldwide has agreed to acquire La Quinta's hotel franchise and management businesses for US$1.95 billion, U.S. News and World Report (18 January) reports. The investment will push Wyndham further into the upper-midscale segment. Prior to the deal closing, La Quinta Holdings will spin off real estate assets into a publicly traded REIT. The deal also includes a US$240 million reserve for estimated taxes expected for the spinoff. In addition, Wyndham will repay nearly US$750 million in debt held by La Quinta. The sale is on track to close in this year's second quarter.
Labor and Employment
Tech Companies Urge U.S. to Keep Work Permits for H-1B Spouses
Business and tech industry groups representing Amazon, Google, Visa, and other companies are urging the White House not to halt work authorizations for spouses of immigrants who have specialty worker H-1B visas and are seeking permanent residency, reports Bloomberg (18 January, Yang). The request, made in a letter sent late Wednesday, comes as the U.S. Department of Homeland Security is set to issue a proposal to remove the work eligibility of these spouses of H-1B holders. The move would be one of the agency's early steps to regulate high-skilled immigration as Capitol Hill lawmakers debate other immigration matters. Technology companies have depended on H-1B visas to hire foreign talent, especially in the fields of science, technology, and engineering. Critics charge that some companies have abused the program to displace American workers.
Business Owners Help Employees Deal With Emotional Problems
Business owners juggle competing concerns when dealing with employees' mental health issues, and it can be difficult for owners who lack a dedicated human resources staff. Business owners may be worried on a personal level about a troubled staffer's well-being, but they also have a business to run. If employees cannot get their work done properly or on time, revenue can suffer. Owners also must comply with federal, state, and local laws. The Americans with Disabilities Act, for example, applies to companies with 15 or more employees and prohibits discrimination against workers with disabilities including mental illness and requires employers to make reasonable accommodations to help staffers work. Some owners might want an emotionally troubled staffer to seek treatment, but the laws about medical and mental conditions also protect staffers' privacy. Meanwhile, owners must address any impact that staffers' behavioral issues have on co-workers, says Jay Starkman, CEO of Engage PEO, an HR provider based in Florida. Owners should get advice from an HR professional or employment law attorney on how to address a staffer's emotional or mental problems, and to ensure the company is complying with all laws, reports the Associated Press (18 January, Rosenberg).
Boardroom Diversity Rules Could Tip Investor Decisions
New boardroom diversity rules in Europe could potentially have a tangible impact on investors' asset allocation decisions, according to market analysts quoted by the Financial Times (17 January, Allen). Last autumn, the European Securities and Markets Authority announced that around 6,000 large companies will have to publish their policies for achieving diversity on their boards beginning in mid-2018. Luke Templeman, a researcher for Deutsche Bank, compares the change to the 2015 Paris climate agreement, which has fueled an upswing in green and environmentally focused investment. "If the new diversity disclosures act as a catalyst for funds to flow into gender-based funds in the same way that they flowed into sustainability-themed investments after the Paris Accord, then these funds could soon have a serious say, not only in corporate policies but also on share prices and a company's ability to raise capital," said Templeman.
Hackers Target Factory Safety Systems
Hackers who attacked a petrochemical plant in Saudi Arabia last year gained control over a safety shut-off system that is critical in defending against catastrophic events, according to security researchers shedding light on what they describe as a new type of cyberattack. Security firms first disclosed the attack last month, but now the company that makes the emergency shut-off system, Schneider Electric, has analyzed code used in the attack and determined its purpose. The malicious software, dubbed Triton, was able to manipulate Schneider devices' memory and run unauthorized programs on the system by leveraging a previously unknown bug, said Andrew Kling, a director of process automation cybersecurity with Schneider Electric. The Triton code targets safety-instrumented systems, which act as one of the last lines of defense when plant floors face dangerous situations that could lead to explosions or spills, reports the Wall Street Journal (18 January, McMillan).
HSBC Agrees to Forex Settlement
HSBC has agreed to pay a US$101.5 million penalty in a settlement with the U.S. Department of Justice over its attempts to manipulate foreign exchange markets, allowing the bank to avoid pleading guilty to criminal charges. The move, which makes HSBC one of the last big banks to reach a settlement for forex rigging, means it will be subject to a three-year deferred prosecution agreement that holds open threat of criminal charges should it break the rules of the deal in that time, reports the Financial Times (18 January, Arnold). Banks have paid more than US$10 billion of fines to U.S. and U.K. authorities since a scandal erupted several years ago over how they had been attempting to manipulate the US$5 trillion forex markets for their own gain and at their clients' expense.
Google and China's Tencent Find Cooperation Has Benefits
Alphabet Inc.'s Google and Tencent Holdings Ltd. will license each other's technology patents, a deal that could help the former broaden its toehold in the Chinese market and accelerate the global expansion of the latter. The companies said they entered a long-term patent cross-licensing agreement for a broad range of products and technologies, adding they were open to more cooperation in the future. Financial terms were not disclosed, and neither company commented beyond their statements, reports the Wall Street Journal (19 January, Lin, Abkowitz). Lester Ross, an attorney at WilmerHale in Beijing, said that cross-licensing deals can restrain competition, but that they also create market efficiencies — for example, reducing the cost of having to file for patents in multiple countries.
China Preparing to Take Increasing Stakes in Private Companies
After tightening the Communist Party's grip on state-owned enterprises (SOEs), President Xi Jinping's administration is signaling an increasing presence in private companies. Xi has called state enterprises the "backbone" of China's socialist economy, but most of the giants were founded before the boom in technology-driven industries over the past two decades. That has created a large swathe of the economy that is largely private and now, SOEs are on track to take stakes in private companies, reports Bloomberg (17 January). "China wants to maintain state control over every aspect of the national economy, and it needs to keep up with the changes in the economic structure," said Chen Li, a Hong Kong-based equity strategist at Credit Suisse Group AG.
2018 ACC Foundation Cybersecurity Summit