The week in investor relations: SEC cyber-rule could increase risks, CEO-to-worker pay gap rises and the Musk-Twitter saga continues
– A new rule requiring US asset managers to disclose more information about cyber-attacks could in fact be a boon for hackers, critics warned. WatersTechnology said the proposed rule, requiring investment firms to report any ‘significant cyber-security incidents’ to the SEC within 48 hours and ‘promptly’ inform clients of any breaches, could expose compromised firms to further attacks when they are most vulnerable, according to cyber-security experts.
– CNBC reported that the CEO-to-worker pay gap is widening again, as executives who took pandemic pay cuts more than recovered lost earnings in the last year. CEOs made 254 times more than the average worker in 2021, up 7 percent from the previous year, according to the Equilar 100, which offers an early look at CEO compensation at the largest companies by revenue that filed 2021 proxy statements by March 31.
In 2021, median CEO compensation reached $20 mn, a 31 percent increase from the previous year due to big jumps in stock awards and cash bonuses based on market performance and company productivity. CEO pay consists of wages plus bonuses, long-term incentives and stock options, which comprise around 85 percent of CEO compensation, according to Lawrence Mishel of the Economic Policy Institute.
Median worker compensation at Equilar 100 companies rose from $68,935 in 2020 to $71,869 in 2021, a roughly 4 percent increase. Equilar says this increase is due in part to companies that offered bonuses and other cash payouts in the recovering pandemic economy that saw increased consumer demand and a tightened supply of employers.
– CNBC reported that Elon Musk said Twitter’s board of directors won’t be compensated for serving if he acquires the company. ‘Board salary will be $0 if my bid succeeds, so that’s around $3 mn a year saved right there,’ Musk said in a tweet. It’s not clear who would be appointed to serve on the board of a Musk-owned Twitter. After building up more than 9 percent in stock, Musk offered to buy Twitter in a deal valued at roughly $43 bn. In response, Twitter adopted a limited duration shareholder rights plan, often referred to as a poison pill, in an effort to fend off a potential hostile takeover.
The Guardian also reported details of Musk’s funding plan: according to a filing on Thursday, he has secured $46.5 bn in financing to fund a possible hostile bid for Twitter and is putting up $21 bn of his own money as part of the package. On top of that equity, Musk is raising a further $12.5 bn for the offer via a margin loan secured against his shares in Tesla. Morgan Stanley is leading a group of financial institutions providing $13 bn in debt financing.
– The Financial Times (paywall) said Goldman Sachs reported Wall Street rival Morgan Stanley to Hong Kong’s financial regulator over a series of block trades, citing ‘people familiar with the matter’. Goldman reportedly alerted the territory’s Securities and Futures Commission three years ago as part of an ‘informal’ discussion about price drops in the stocks of a small number of Hong Kong-listed companies that occurred shortly before Morgan Stanley brought blocks of shares to market, one of the people said. ‘It’s noteworthy to file a complaint on a competitor,’ the person said.
– European regulators warned of emerging risks across markets, according to The Trade, with the latest assessment report finding that Russia’s invasion of Ukraine has amplified existing risks and increased vulnerabilities across the financial sector. Three supervisory authorities – the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority – issued a joint risk assessment report for 2022 highlighting increased vulnerabilities across the financial sector as well as the rise of environmental and cyber-risks.
– The Financial Conduct Authority (FCA) said women should make up at least 40 percent of boards at UK listed companies and one director should be a person of color, Reuters (paywall) reported. At least one senior position such as company chair, CEO or CFO should be held by a woman, the FCA added. The regulator said companies will have to make annual statements showing how they are complying with the new rules or explain any divergences.
‘As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress,’ said Sarah Pritchard, the FCA’s executive director of markets. In February the government-backed FTSE Women Leaders Review said female representation on the boards of the UK’s largest 100 companies stood at 39.1 percent.
– In related news, pay for FTSE 100 chief executives bounced back to pre-pandemic levels after increasing by a third in 2021, as some sectors experienced a post-Covid boom and companies measured performance against conservative targets, reported the FT. An analysis by PwC of the first 50 FTSE 100 companies to publish their 2021 remuneration reports – based on financial years ending on or after September 2021 – found that median total remuneration for chief executives increased by 34 percent from 2020, to £4.1 mn ($5.3 mn). Growth was predominantly driven by a big increase in annual bonuses. This marked a return to the levels last seen before Covid-19, said the paper.
– The Wall Street Journal (paywall) reported that a group of New York city and state pension funds that collectively own more than $5 bn of Amazon.com stock are urging fellow shareholders to vote against re-election of two board members for what the institutions say are failures to adequately protect worker safety. New York City’s pension fund has paired up with New York state’s pension fund and the office of the Illinois state treasurer to vote against the re-election of Daniel Huttenlocher and Judith McGrath. The two directors sit on a committee on Amazon’s board that oversees leadership development.
New York City Comptroller Brad Lander said Amazon’s directors have repeatedly declined requests to meet and discuss the company’s treatment of its workers, which the group says ‘violates state and federal law and also conflicts with Amazon’s own human rights policy.’ When asked for comment, an Amazon spokesperson provided the company’s safety report. ‘In 2021, we invested $300 mn in safety improvements such as capital improvements, new safety technology, vehicle safety controls and engineering ergonomic solutions,’ the report states.
CNN also reported the news that Amazon will conduct a racial equity audit, following shareholder pressure.
– In other activism news, Carl Icahn urged major index-fund managers focused on ESG investing to support his proxy fight at McDonald’s Corp for better treatment of pregnant pigs, the WSJ reported. The activist investor has nominated two directors to the fast-food company’s board as part of his campaign. McDonald’s shareholders will decide whether to support Icahn’s nominees or the company’s slate at its AGM, set for May 26. Icahn said some ESG-focused investors have subjectively selected which principles they care about and put too little emphasis on animal welfare.
In a letter to McDonald’s shareholders, Icahn criticized McDonald’s for spending $16 mn to defend itself against his proxy contest rather than putting the money toward sparing pigs from small crates.
McDonald’s didn’t immediately respond to a request for comment.
– ‘Seven years after its IPO collapsed, Deezer is in talks to go public again,’ declared Music Business Worldwide (MBW) – this time, via a special purpose acquisition company (Spac). The merger with I2PO, a Paris-listed blank-check company backed by billionaire Francois Pinault, values the Spotify rival at €1.05 bn ($1.1 bn), added the FT. It reported that the Spac deal has raised €135 mn in the form of Pipe financing and a non-redemption agreement – in which investors agree to not withdraw their funds from the deal – from Deezer’s existing investors including Universal Music Group, Warner Music and Orange.