In Brief: CLO Edition
2018 Oct 18
Today's Top Story
Corporate Australia Faces Growing Revolt Over CEO Pay
One of the largest shareholder rebukes over executive pay occurred at Telstra's annual meeting in Sydney on 16 October, leading many others to declare that chief executives are overpaid. John Mullen, Telstra's chairman, defended Telstra CEO Andy Penn's AU$4.5 million pay package, but also stated that he thinks executive salaries are too high. He argued that "changing this takes time and needs to be embraced by all of corporate Australia not just one company or one industry, as the marketplace for talent is international and is industry agnostic." Graham Kraehe, who is chairman of Bluescope Steel, Brambles and a former member of the Reserve Bank board, said he also believes CEOs are paid too much. "Corporate Australia has lost some trust and I think corporate Australia needs to show some leadership in saying this is an issue," he said. During his speech at Telstra's annual meeting, Mullen stressed that "the multiple difference in the U.S. is 300 times between the CEO and the average employee, U.K. is 180 odd and here we're 50-something. So, we're certainly way down the pecking order in terms of that but still 50 times is a lot." However, the Communications, Electrical and Plumbing Union of Australia (CEPU), which represents Telstra workers, seized on Mullen's comments, reports the Sydney Morning Herald (16 October, Kruger, Duke). "The top six executives are collectively paid 200 times more than the average Telstra worker," said Shane Murphy who heads the communications branch of the union. "The inequity is ridiculous."
Audi Fined for Diesel Emission Cheating
Volkswagen has been fined an additional €800 million over its diesel emissions scandal, this time due to failings at its Audi subsidiary, reports CNN (16 October, Kottasova). Volkswagen has waived its right to appeal and accepted the fine imposed by German prosecutors. The penalty, which will hit company earnings this year, is just the latest consequence of the scandal that surfaced three years ago and initially wiped billions off the company's value. The fine concludes the prosecutors' investigation into the company, although probes into executives, including Audi's ex-CEO Rupert Stadler, are ongoing.
Record Fine for Chinese Company Over Illegal Human Rabies Vaccine Production
The Changchun Changsheng Life Sciences Limited illegally produced a human rabies vaccine, causing Chinese authorities to dole out 9.1 billion yuan (US$1.32 billion) in penalties. According to administrative penalty decision made by drug authorities, violations included blending different batches of vaccine fluid, falsifying dates of production, and using expired fluid to produce some of the vaccine batches, reports Xinhuanet (16 October). Besides the penalty, individuals directly responsible for the violations in the case will be banned from carrying out drug manufacturing and those suspected of committing crimes will face criminal charges.
U.S. to Reduce Use of Government-Imposed Monitors in Corporate Settlements
The U.S. Department of Justice (DOJ) has issued new guidance warning that government-imposed monitors, used to check that companies' efforts to enhance their compliance are in line with corporate criminal settlements, may become less commonplace. The Wall Street Journal (15 October, Rubenfeld) reports that the guidance aims to clarify, refine, and codify factors that go into deciding whether a monitor is needed and the process in picking one. Over the last five years, nearly 33 percent of corporate criminal settlements coming through the DOJ's Fraud Section involved imposing a monitor. The new guidance suggests the government will take a closer look at whether a monitor is needed by considering such factors as the projected costs to the business.
SEC Says Public Companies Must Update Controls Against Cyberfraud
The U.S. Securities and Exchange Commission (SEC) announced that public companies that are not doing enough to prevent cyber-related fraud activity are also at risk of being investigated. "While the cyber-related threats posed to issuers' assets are relatively new, the expectation that issuers will have sufficient internal accounting controls and that those controls will be reviewed and updated as circumstances warrant is not," the agency said in an investigative report released Tuesday. The report is based on the SEC enforcement division's investigations of nine public companies that lost nearly US$100 million to cyberfraud practices, reports Pensions & Investments (16 October, Bradford).
APRA Says Bosses Personally Accountable for Bank Behavior
An inquiry in Australia has unveiled a culture of greed and misconduct in the banking industry. Australia's financial regulator recently said top banking executives will now be held personally responsible under new rules, reports Reuters (17 October, Wesbrook). Tougher regulations which began in July present "an opportunity for a major strengthening of accountability," said the Australian Prudential Regulation Authority.
FCA Gives More British Firms Access to Financial Arbitration Services Against Banks
The U.K. Financial Conduct Authority (FCA) announced new plans to make an additional 210,000 small companies in Britain entitled to existing free arbitration services in any dispute with banks. The FCA said beginning next April, firms with less than 50 employees and annual turnover under 6.5 million pounds, or an annual balance sheet below 5 million pounds, will be able to use the Financial Ombudsman Service (FOS). Currently, only individuals and very small firms with fewer than 10 staff and a balance sheet of up to 2 million pounds can use the FOS. Still, lawmakers argued that a completely new body would be better for dealing with small company complaints, reports Reuters (16 October, Jones).
Drugmaker Uses Patents to Keep Cheaper Humira Copies Out of U.S.
Inexpensive versions of Humira will be available across Europe beginning this week, but U.S. patients and insurers will have to wait. In the U.S., Humira-maker AbbVie Inc. has more than 100 patents, some of which extend into the 2020s and 2030s, which prevent the developers of "biosimilar" versions from launching their products. Humira is used to treat diseases ranging from rheumatoid arthritis to gut disorders and is the world's biggest-selling drug with more than US$18 billion in global sales, reports the Wall Street Journal (16 October, Loftus, Roland). The medicine costs between US$10,000 to US$20,000 annually in Europe's biggest drug markets. Companies have not revealed pricing for the Humira biosimilars, but they are expected to sell at a 10 percent to 25 percent discount to Humira, according to Alexandra Annis, an analyst at healthcare market intelligence firm GlobalData.
Drug Companies Sued Over Insulin Price Hikes
Minnesota Attorney General Lori Swanson has filed a lawsuit against Sanofi-Aventis, Novo Nordisk, and Eli Lilly and Co. for "deceptive and misleading" price increases for insulin to treat diabetes. "Many people can't afford the price hikes but can't afford to stop taking the medication either," she said. An Eli Lilly spokesman and Sanofi spokesman said they believe the claims are without merit, while Novo Nordsick said it is looking into them. Swanson stated that one insulin product, Lantus, made by Sanofi, rose from a price of US$99.35 in 2010 to US$269.54 in 2018. The lawsuit alleges that there is a deceptive difference between the sticker price of these insulins and the actual price that insurers pay after negotiators known as pharmacy benefit managers get discounts, reports The Hill (16 October, Sullivant).
Manufacturers Worldwide Face Stricter IoT Rules on Devices
The U.K. and EU are beginning to publish codes of practice and certification regimes for internet-connected devices. Although these rules are currently voluntary, they could be made mandatory if manufacturers are slow to act, officials warned. This month, the British government released a security code of practice, which has 13 principles, including the need for Internet of Things (IoT) device passwords to be unique. The U.K. approach is similar to the approach taken by the U.S. Department of Homeland Security (DHS). The agency issued strategic principles for securing the IoT in 2016, reports the Financial Times (17 October, Imeson). Now, it is working to strengthen the security of federal networks, as well as coordinating action with other countries. In Europe, the EU Agency for Network and Information Security is developing an EU-wide certification regime for digital products, which is expected to be used to certify products as "cyber secure."
Walmart's Acquisition of Flipkart Hits Profits
Walmart has lowered its profit targets and said it would open just 10 new U.S. stores next fiscal year, reports the Wall Street Journal (16 October, Nassauer, Tweh), as the retailer focuses its efforts on e-commerce. The lowered profit goal reflects the acquisition of Flipkart, the Indian e-commerce giant that Walmart paid US$16 billion for earlier in the year. At the time, Walmart said the deal was a long-term wager on a rapidly growing market that would depress earnings.