Governance in Brief
July 25, 2019 | Editor: Martin Wennerström
US tech giants under growing scrutiny
On July 23, 2019, the US Department of Justice announced that its antitrust division had opened an investigation into whether leading online platforms “are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.” The development occurs one week after executives from Apple, Facebook, Alphabet and Amazon testified before the House Judiciary Antitrust Subcommittee on Capitol Hill in a series of hearings focusing, inter alia, on their market power and effect of competition.
On the other side of the Atlantic, the European Commission also announced on July 17 that it had opened an antitrust investigation into Amazon over its use of “sensitive data from independent retailers.” Speculations that the big technology companies’ far reaching influence could be addressed by changing their business rather than through legislation have been fueled by Senator Elizabeth Warren’s March 2019 proposal to break up tech giants. Opponents of the proposal cite Microsoft’s decades-long saga with US regulators, which saw the software giant narrowly escape from being split into two companies to alleviate antitrust concerns. It remains to be seen whether the ongoing debate will translate into structural changes to how large tech companies operate.
Row over Sandvik spinoff
The board of Swedish engineering group Sandvik is divided on whether to proceed with the planned spin-off of its Sandvik Materials Technology (“SMT”) division. The specialty steel division is currently being internally separated from the rest of the group, in anticipation of an IPO. However, Swedish industrial mogul Fredrik Lundberg, who chairs Sandvik’s largest owner Industrivärden, now reportedly opposes the deal.
Lundberg’s position appears to be rooted in concerns over a possible global recession, combined with the fact that Industrivärden already has a pure-play steel investment in the form of SSAB. While Industrivärden only has one formal representative on Sandvik’s board, other nominally independent directors are said to support Lundberg. They are reportedly opposed by Chairman Johan Molin, CEO Björn Rosengren, and SMT CEO Göran Björkman.
India pushes for privatization
The Indian Government is reportedly planning to raise up to USD 47.4 billion over the five years by reducing its stake in several state-controlled firms, known as Public Sector Undertakings (PSUs), down to 40%. PSUs have long been under scrutiny for shortcomings in their corporate governance, with the “Kotak Committee,” a panel formed in June 2017 with the purpose of improving India’s governance standards, having issued recommendations in 2018 aimed at enhancing their governance. Notably, a report showed that 22 of 48 PSUs analyzed failed to meet the requisite level of board independence as of 2018. Against this backdrop, concerns have been voiced over the prospect that the state could maintain de facto control over these companies while retaining a stake below 51%.
Vale faces mounting legal troubles
Brazilian mining company Vale announced on July 16, 2019 that it had agreed to pay BRL 400 million (USD 106 million) to compensate the families of the deceased and survivors of the January 25 tailings dam collapse in Brumadinho. The latter has triggered a large-scale criminal investigation, with a Brazilian Senate committee having produced a report in July 2019 recommending that 15 individuals, including former Vale CEO Fábio Schvartsman and Vale CFO Luciano Siani, be indicted for manslaughter. Vale’s escalating legal troubles have caused investors to bail out, with leading German asset manager Union Investment and Norwegian pension fund KLP having announced in May 2019 that the Brazilian miner had been excluded from their investment portfolios.