Governance in Brief
August 8, 2019 | Editor: Martin Wennerström
Sports Direct grapples with fallout from USD 756 million tax bill
Grant Thornton has announced its intention to quit as auditor of British retailer Sports Direct International (“Sports Direct”) following the revelation that Belgian authorities are demanding USD 756 million in unpaid taxes from the group controlled by founder Mike Ashley. The development occurs after Sports Direct postponed the release of its annual results multiple times until their publication on July 26, 2019, when it abruptly announced the resignation of its CFO. The latter’s departure marked the retailer’s third loss of a senior executive in a month, after both its head of retail and company secretary stepped down in the first week of July 2019. Since 2016, the UK accounting watchdog has been investigating Grant Thornton’s audit of Sports Direct over payments made by the latter to a firm run by Mike Ashley’s brother. The recent events are expected to cause shareholder revolt at Sports Direct’s September 2019 AGM, while also dealing yet another blow to Grant Thornton – under fire over the Patisserie Valerie collapse. Notably, the British accounting watchdog reported in July 2019 that it had placed Grant Thornton “under increased scrutiny due to sustained poor results.”
Carlyle announces overhaul
Private equity firm Carlyle Group has announced that it will convert from a publicly-traded partnership to a corporation and abolish its dual-class share structure, effective January 1, 2020. The corporate structure change and the adoption of the one share one vote principle are aimed at increasing the Washington-based fund’s exposure on the stock market by making its stock eligible for inclusion in benchmark stock indices which exclude master limited partnerships (MLPs) and dual-class share structures. Following the conversion, the firm will however continue being controlled by insiders. The influence of Carlyle’s founders will be consolidated by means of certain agreements granting the right to nominate directors to the board, thus calling into question whether the firm’s overhaul will be underpinned by a meaningful shift in its corporate governance.
US to release Fannie Mae and Freddie Mac overhaul plan
President Donald Trump’s administration is pushing for mortgage giants Fannie Mae and Freddie Mac to be removed from the Housing Finance Agency’s conservatorship, with the report on their planned wind-down expected to be published by September 2019. Releasing the pair from government control is seen as a step in reforming the US housing finance market and increasing financial and economic stability in the country. Notably, Fannie and Freddie guarantee a majority of all US mortgages and have received approximately USD 191.5 billion in aid to date since their 2008 bailout. Nevertheless, Federal Housing Finance Agency director Mark Calabria pointed out that their potential IPO would require that their corporate governance be improved, citing “supervisory deficiencies”.
China raises scrutiny of banks as risk concerns mount
China’s banking and insurance watchdog has published guidelines requiring commercial banks to improve disclosure on their shareholders, noting that “in recent years, some banks have seen chaotic issues on ownership due to weak corporate governance.” Fears of a potential crisis in the country have been sparked by Beijing’s May 2019 takeover of Baoshang Bank due to “severe credit risk”, as well as by the July 2019 announcement that three state-owned institutions would acquire a stake of at least 17% in embattled lender Bank of Jinzhou. With numerous small Chinese banks having significant interbank borrowings, speculations have emerged that the country’s banking sector might be facing systemic risk.