The week in investor relations: Kraft Heinz charged by the SEC, small-cap ESG focus and London Metal Exchange ring reopens
– Cooley PubCo reported the SEC’s announcement of settled charges against Kraft Heinz, its chief operating officer and chief procurement officer for ‘engaging in a long-running expense-management scheme that resulted in the restatement of several years of financial reporting.’ According to the SEC’s order and complaint, Kraft Heinz employed a number of expense-management strategies that ‘misrepresented the true nature of transactions’, including recognizing unearned discounts from suppliers, maintaining false and misleading supplier contracts and engaging in other accounting misconduct, all of which resulted in accounting errors and misstatements. The misconduct, the SEC contended, was designed to allow the company to report sham cost savings consistent with the operational efficiencies it had touted would result from the 2015 merger of Kraft and Heinz, as well as to inflate Ebitda and to achieve certain performance targets.
– Professional investors in the UK expect to see small and micro-caps more focused on ESG issues, reported Proactive Investors. Most institutions believe the interest in ESG will rise over the next year, according to a study compiled by MBH Corporation. The investment holding group surveyed UK-based professional investors who specialize in small and micro-cap investments and manage a total of £83.2 bn ($115.4 bn) in assets. The website reported that nearly half of these investors expect a ‘dramatic increase’ in ESG focus from smaller firms over the next five years. There will also be enhanced reporting and transparency from companies on their sustainability policies and strategies, with 92 percent of respondents expecting the level to increase.
– ‘Open outcry trading returned to the City on Monday,’ reported the Evening Standard, as brokers resumed ‘bellowing and bartering’ to set benchmark prices at the 144-year-old London Metal Exchange’s (LME) historic ring. The return was seen as symbolic of life returning to London’s financial district, but significant changes introduced during the 19th century trading floor’s 18-month pandemic closure will remain in place, said the paper. As part of a compromise deal to balance the ring’s traditional role with modernization of other exchanges, the LME announced in June that traders will now only be responsible for setting ‘official’ prices of metals like aluminum and copper at around lunchtime. Closing prices will stay electronic, which is expected to lead to a sharp reduction in the volume of trading that takes place on the floor. Mining.com reported that trading volume dropped 85 percent from pre-pandemic levels on traders’ first day back, ‘reinforcing concerns that it may not stay open for long.’
– Boeing’s board of directors must face a lawsuit from shareholders over two fatal crashes involving its 737 Max plane, a US judge ruled. The BBC reported that Morgan Zurn described the first crash as a ‘red flag’ about a key safety system on the aircraft ‘that the board should have heeded but instead ignored’. She said the real victims were the dead and their families but investors had also lost billions of dollars. Boeing said it would ‘consider next steps’. In her ruling the Delaware judge said: ‘While it may seem callous in the face of [the families’] losses, corporate law recognizes another set of victims: Boeing as an enterprise, and its stockholders. Stockholders have come to this court claiming Boeing’s directors and officers failed them in overseeing mission-critical airplane safety to protect enterprise and stockholder value.’
– The SEC warned that it will sue Coinbase if it launches a new digital asset lending product, and also issued subpoenas to the cryptocurrency trading platform to provide it with more information, reported the Financial Times (paywall). Paul Grewal, Coinbase’s chief legal officer, said in a blog post that the company, which in April became the first major US cryptocurrency exchange to list publicly, had received a Wells notice from the regulator saying it would pursue legal action if Coinbase introduced a yield product called Lend. A Wells notice means the SEC intends to pursue an enforcement action and gives the recipient a chance to respond. The FT explained that Lend is designed to allow users to earn interest on certain digital assets on the platform. Grewal said the SEC had told Coinbase earlier this year that it considered the Lend product a security ‘but wouldn’t say why or how [it had] reached that conclusion’.
– The Wall Street Journal (paywall) spoke with Andreas Barckow, the new head of the International Accounting Standards Board, about setting his priorities for the rule-maker, including potentially changing requirements around intangible assets and weighing in on sustainability disclosure. The organization sets international financial reporting standards that apply in more than 140 jurisdictions around the world, though not in the US.
– The WSJ reported that a new generation of companies are planning to go public this fall with the message that it isn’t just about the money, it’s also about the mission. In regulatory filings, companies are referring to themselves as ‘mission-driven’, counting the environment among stakeholders, highlighting their commitments to charity and touting their sustainable methods. It is partly a shift in corporate – and employee – values, and partly virtue-signaling. ‘Thirty years ago, the goal of a company was to serve shareholders. That’s evolved,’ said John Chirico, co-head of North American banking, capital markets and advisory at Citigroup. ‘Everyone is trying to be mission-driven these days. Some companies are founded on that mission. Others have come around to it, and others are not as authentic.’
– The FT reported that Cathie Wood, chief executive of Ark Invest and ‘one of the world’s most closely watched investors’, said her fund had significantly reduced its exposure to China, leaving only a portfolio of companies that were identifiably ‘currying favor’ with Beijing. Ark’s sharp strategy shift, Wood told an audience of institutional fund managers at a Mizuho Securities investor conference, was because the environment in China was ‘quite different’ from the one many global asset managers had poured funds into late last year. BlackRock this week said it had attracted $1 bn to its debut mutual fund in China, for which it gained approval this year. Financier George Soros criticized the move in the WSJ, calling it a ‘tragic mistake’.
– Reuters reported that Box said it won a proxy contest against Starboard Value after the cloud services provider’s shareholders backed all three board directors the hedge fund firm was challenging. Shareholders re-elected Aaron Levie, Box’s co-founder and CEO, as well as directors Peter Leav and Dana Evan to the company’s 10-member board. The vote was a blow to Starboard, which criticized Box again this year after having settled with the company last year. Prior to this, Starboard had not lost a proxy vote in nearly a decade.
Box promised after the vote to ‘remain focused on continuing to transform [the company].’ Starboard said in a letter to shareholders that the results were skewed ‘by the voting rights tied to preferred equity financing and the use of stockholder capital to aggressively repurchase shares ahead of the record date from stockholders likely to support change.’ The vote tally remains preliminary but, according to two people familiar with the matter, Starboard received less than 15 percent of the outstanding shares, excluding its own.
– Barclays has been growing headcount in equities sales and trading by 10 percent over the course of 2021 to support a planned expansion in these activities, according to International Financing Review. The ‘hiring spree’ is spread across a range of roles and regions, according to Paul Leech, co-head of equities at the bank, and comes at a time when Barclays is looking to increase its presence in a number of areas, including European flow trading and corporate equity derivatives. The site quoted him as saying: ‘We’re investing in people, we’re investing in technology and we’re investing financial resources. It’s a material increase in headcount aimed at continuing momentum and building on our revenue growth in equities.’