The week in investor relations: Icahn drops animal welfare campaign, pay gaps widen and Texas joins Musk in questioning Twitter bot numbers
– The Wall Street Journal (paywall) reported that Carl Icahn is dropping a proxy fight focused on the treatment of pregnant pigs at Kroger Co after determining he is likely to lose as he did in a similar fight with McDonald’s Corp. ’I congratulate the McDonald’s team on its victory in this proxy engagement and, after much contemplation, given the company’s financial position, I believe the same outcome will result at Kroger,’ he said in a letter to shareholders.
Icahn wrote that these campaigns were different from his typical fights given that the two companies are performing well financially, which makes it less likely the campaigns would gain enough shareholder support. But he said he doesn’t believe their boards are holding management accountable with respect to the treatment of animals or the welfare of their employees. Icahn wrote that he would continue to focus on issues concerning the treatment of animals and that his work has helped raise awareness.
Kroger said the company is focused on creating sustainable value for its associates, customers, communities and shareholders. It said it will continue to speak with shareholders to inform its policies.
– The Guardian reported that, according to a study of 300 top US companies released by the Institute for Policy Studies (IPS), the wage gap between CEOs and workers at some of those companies with the lowest-paid staff grew even wider last year, with CEOs making an average of $10.6 mn while the median worker received $23,968. The study found the average gap between CEO and median worker pay jumped to 670-1, up from 604-1 in 2020. Forty-nine companies had ratios greater than 1,000-1.
At more than a third of the companies surveyed, IPS found median worker pay did not keep pace with inflation. The report comes amid a wave of unionization efforts among low-wage workers and growing scrutiny of the huge share buyback programs many companies have been using to raise their share prices. Share-related remuneration makes up the largest portion of senior executive compensation and, because buybacks generally increase a company’s share price, they also boost executive pay.
– The New York Times’ (paywall) DealBook newsletter reported that Republican Ken Paxton, the Texas attorney general, is investigating whether Twitter has misled users by under-reporting the number of bots on its platform. He announced the investigation on the same day Elon Musk said in a regulatory filing that he had the right to pull out of his $44 bn acquisition of Twitter due to concerns about the same issue. Musk, who moved Tesla’s headquarter to Texas last year, has increasingly been aligning himself with the Republican Party, added the paper.
The NYT described spam accounts as having ‘become a contentious issue’ in Musk’s acquisition of Twitter. Around the same time that shares of Twitter and Tesla plummeted, Musk began publicly questioning Twitter’s disclosures that 5 percent of users are bots, ‘indicating he may be fashioning a way to get out of or renegotiate the Twitter deal’. Now Paxton has similarly questioned that figure, arguing that Twitter might be in violation of Texas’ Deceptive Trade Practices Act.
– The Financial Times (paywall) reported that Franklin Templeton is overhauling four of its oldest equity ETFs, ditching multifactor smart beta strategies and opting for a focus on dividend-paying stocks or, in one case, ‘cheap vanilla equity exposure’. The funds currently track a FTSE index that weights constituents based on four factors: quality, value, momentum and volatility, their prospectuses show. Starting in August, however, the paper said the international and emerging markets ETFs will follow Morningstar benchmarks that tilt toward higher-dividend-paying stocks in their respective geographies.
– Hedge funds are ‘standing back to let Elliott do battle’ with the London Metal Exchange (LME) over ‘its role in the nickel crisis’, when the 145-year old exchange suspended nickel trading and canceled trades on March 8, said Bloomberg (paywall). ‘Paul Singer is famed as a tenacious competitor, even by the dog-eat-dog standards of Wall Street,’ said the news outlet, adding that as Singer’s Elliott Investment Management launched a $456 mn legal claim against the LME, many of his hedge fund rivals find themselves in an unfamiliar position: they’re rooting for him to win.
‘It’s not just the moral outrage,’ noted Bloomberg. If Elliott is successful (only Elliot and Jane Street – which has filed a much smaller claim for $15 mn – met the deadline for judicial review), it may pave the way for others to sue the LME, several hedge fund executives told the outlet.
–The WSJ said pension plans and other institutional investors are supporting an SEC proposal that would require hedge funds and private equity funds to make more disclosures to investors. Retirement funds serving teachers and firefighters, university endowments and insurance funds are urging the SEC to move forward with a proposed rule that would ensure private-fund investors receive annual audits and quarterly statements.
The rule, which has been criticized by private funds and Republicans, would also prohibit fund managers from passing along certain legal costs and limit the funds’ ability to insulate themselves from lawsuits. Critics argue the proposed disclosure requirements are unnecessary because institutional investors are large and sophisticated enough to demand the information they need from private funds.
– The SEC reopened the comment period on proposed rules for listing standards for recovery of erroneously awarded compensation. The commission staff also released a memo containing additional analyses and data that the regulator said may be helpful in evaluating the proposals. The rules were initially proposed in July 2015 to implement Section 954 of the Dodd-Frank Act.
– In yet more SEC-related news, the FT reported that US regulators want to reform the controversial Wall Street trading practice known as ‘payment for order flow’ (PFOF), whereby retail brokers collectively make billions of dollars a year selling their customers’ orders to the country’s biggest trading firms. The paper said the SEC has been looking at the inner workings of share trading in the US after ‘pandemic lockdowns prompted an explosion of activity among private retail investors’, adding that PFOF is ‘deeply embedded in the daily workings of US share trading’.
Describing the practice as ‘controversial’, the FT explained that while brokers argue the system means retail investors get a better overall deal because the brokers can charge lower or zero commission for trading, as they get paid for passing on orders, regulators are concerned this creates a conflict of interest because brokers may be incentivized to sell their customers’ orders to the highest-bidding wholesaler.
– The WSJ reported that Microsoft said it would soon start to disclose salary ranges for all job postings in the US, becoming one of the first major employers to take such a step amid new local requirements for pay transparency. Microsoft said it would publicly disclose salary ranges for internal and external postings across the country starting no later than January 2023.
The company’s home state of Washington adopted a law earlier this year requiring such disclosures on job postings starting next year. A similar law went into effect in Colorado in 2021 and other states have adopted such requirements. New York City adopted a similar measure that is expected to take effect in November.
‘Companies are very concerned about complying with the growing patchwork of state and local statutes,’ said Jen Rubin, an employment attorney with the law firm Mintz. ‘These days, especially in a post-pandemic economy, they may have employees in all 50 states, and it becomes a real challenge administratively to comply with all the laws, so Microsoft is kind of getting ahead of that wave of salary transparency laws.’ Mintz does not represent Microsoft.
– The South China Morning Post reported that Chinese biotechnology companies are facing increasing scrutiny from US authorities ‘amid heightened tensions between the two economic giants’, something an analyst says is hampering their overseas expansion efforts. The risk of their stocks being delisted from the US capital markets is on the rise, as a growing number of Chinese firms find their ADRs under threat from regulators, said Scott Moore, director of China programs and strategic initiatives at the University of Pennsylvania.
There’s ‘a pretty dramatic illustration of the tensions and barriers that have arisen in recent years that, unfortunately, will continue to shape the [biotech] sector in both countries in the future,’ Moore reportedly told the Nomura Investment Forum Asia 2022.