The week in investor relations: Paying hackers, shareholder resolutions and loans on stock for Alibaba founders
– A majority (62 percent) of US-based CFOs responding to a recent CNBC survey said Colonial Pipeline had ‘no choice but to pay the ransom’ to ransomware hackers. Many board-level conversations are taking place and presumably include discussion of the ransom decision. In the survey, 85 percent of US-based CFOs said their board has had a formal discussion about recent cyber-security incidents and the aftermath of the events. ‘It’s a business for the hackers and a business decision on whether to pay for the victims,’ said Jim Lewis, senior vice president and director of the strategic technologies program at the Center for Strategic and International Studies. ‘I’ve been in board meetings before where CEOs were literally in tears, crying because a 100-year-old family business is completely shut down,’ said David Kennedy, a former National Security Agency hacker turned founder and CEO of security firm TrustedSec.
– Shareholders have approved a record number of resolutions in 2021 on issues related to climate and social topics such as diversity, according to CNN. ‘This is a startling proxy season,’ said Heidi Welsh, executive director of the Sustainable Investments Institute. ‘I think it’s really going to change the way companies look at concerns on environmental and social issues raised by their investors.’ A review of top US companies from the Sustainable Investments Institute and As You Sow identified 34 majority votes this year for proposals regarding ESG issues. That’s well above last year’s record of 21, and the number could keep growing.
– The Financial Times (paywall) reported that Jack Ma and Joe Tsai – the Chinese billionaire founders of Alibaba – have pledged chunks of their combined $35 bn stake in the e-commerce group in exchange for significant loans from investment banks, citing company documents. The share pledges, made to banks including UBS, Credit Suisse, Goldman Sachs and others, were undertaken by offshore companies controlling more than half of the two billionaires’ stakes in Alibaba, which totaled 5.8 percent as of December. Share pledging, whereby banks accept stock as collateral for loans while the borrower retains ownership of the shares, is risky and most US companies limit its use by executives, noted the paper. Any forced selling of pledged stock can exacerbate the fall of a company’s share price. This can be precipitated by margin calls, when borrowers must pay back loans from brokers or forfeit stock.
– Robinhood revealed ‘breakneck growth and legal pitfalls’ in its IPO filing this week, reported Reuters. The company is aiming for an IPO valuation of more than $40 bn, according to the news agency, with its IPO filing detailing for the first time how the trading mania that caused controversy for the app as it swept amateur investors fueled a four-fold jump in Robinhood’s revenue over January to March, and also how its quick expansion came at a cost. It reported a net loss of $1.4 bn for the period after borrowing $3.5 bn via convertible bonds to backstop the wave of trading orders amid the rally in a few stocks, which had been shorted by hedge funds and championed by individual investors in online chatrooms including Reddit’s WallStreetBets.
– Marco Gobbetti quit as CEO of Burberry after nearly five years in the role, according to The Guardian. The UK fashion brand said Gobbetti – who was charged with turning around the business when he took the reins in 2017 – was leaving to take a job in Italy that would allow him to be closer to his family. The Italian luxury goods group Salvatore Ferragamo announced it had appointed Gobbetti as its new CEO. Burberry chair Gerry Murphy, who credited Gobbetti with leading the transformation of the brand and business, said: ‘The board and I are naturally disappointed by Marco’s decision but we understand and fully respect his desire to return to Italy after nearly 20 years abroad. With the execution of our strategy on track and our outlook unchanged, we are determined to build on Burberry’s strong foundations to accelerate growth and deliver further value for our shareholders.’
– In other fashion news, French prosecutors opened an investigation into four fashion retailers suspected of concealing ‘crimes against humanity’ in China’s Xinjiang region, a judicial source told Reuters. The procedure is linked to accusations against China over its treatment of minority Muslim Uyghurs in the region, including the use of forced labor. China denies all accusations of abuse in the region. The source told Reuters the companies subject to the investigation are Uniqlo France, a unit of Japan’s Fast Retailing, Zara owner Inditex, France’s SMCP and Skechers, confirming a report by French media website Mediapart.
– The Wall Street Journal (paywall) reported that Microsoft said hackers installed malicious information-stealing software on one of its systems and used information gathered there to attack its customers. The hackers compromised a computer used by a Microsoft customer support employee that could have provided access to different types of information, including ‘metadata’ of accounts and billing contact information for the organization, a company spokesperson said. Microsoft is aware of three customers affected by the recent activity, the company said. ‘The actor used this information in some cases to launch highly targeted attacks as part of a broader campaign,’ the company said. ‘We responded quickly, removed the access and secured the device.’
– CNN reported that the Bank Policy Institute (BPI), the trade group behind JPMorgan Chase, Wells Fargo, Bank of America and dozens of other big banks, is outlining 30 best practices lenders can take to ease inequality in black communities. The institute’s report is the first time the industry has spelled out concrete ways to tackle these deep-seated challenges. The recommendations include publishing diversity and inclusion data, hiring more diverse wealth management personnel and exploring a ‘massive’ industry-wide philanthropic investment in a particular sector or fund. Fabrice Emmanuel Coles, BPI’s vice president of government affairs, said some banks have already been conducting these best practices but others have not. He acknowledged it will take time and considerable effort to chip away at racial inequality.
– The SEC appointed Gurbir Grewal as director of the division of enforcement, effective July 26. Grewal is at present attorney general for the State of New Jersey, a role he has held since January 2018. ‘I’m honored and delighted to welcome Attorney General Grewal to the SEC,’ said Gary Gensler, chair of the financial regulator. ‘He has had a distinguished career as New Jersey’s chief law enforcement officer and as a prosecutor at both the local and federal levels. He has the ideal combination of experience, values and leadership ability to helm the enforcement division at this critical time.’ Before becoming attorney general, Grewal served as Bergen County prosecutor, the chief law enforcement office of New Jersey’s most populous county.