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NEWS “Green shoots” wake corporate predators Corporate directors would do well to prepare for a rise in unsolicited takeover offers. NEW YORK: There may be signs of so-called “green shoots” in the economy, but one of them does not necessarily bode well for all boards of directors. Indeed, a sharp rise in unsolicited takeover offers in the US means many may now have to confront the very real disruption and distraction that results from a predatory threat to ownership. Hostile offers accounted for 47 per cent of the M&A transactions that took place in the United States during the first few months of 2009, compared with 24 per cent in all of 2008 and just 7 per cent in 2004, according to a report from the Conference Board Governance Center (CBCC). “Today’s market conditions permit some companies to be ‘put in play’ more easily than before,” said the author of the report, Frederick Alexander. The concern particularly applies to companies with undervalued stock prices, surplus assets or constrained performance – often resulting from short-term liquidity issues – that invite bargain-hunting by acquirers capable of obtaining financing or using their equity currency to pursue growth opportunities. “Over the past few years, in response to pressures from proxy advisory groups and activist shareholders, some of those companies have reduced their structural takeover protections by repealing poison pills and declassifying boards, and may now be particularly vulnerable,” Alexander said. The report, titled The role of the Board in Turbulent Times: Responding to Unsolicited takeover Offers, encourages directors to become familiar with the corporation’s governance profile and the tactics that can be used to protect shareholders’ interests from opportunistic behaviours in the marketplace. “The tactics discussed in the report are not about thwarting unsolicited offers,” Alexander emphasised. “They are about ensuring that directors are given enough time to fulfil their fiduciary obligations and obtain the information necessary to make a rational business decision with respect to the offer, as well as to explore all alternatives.” Recommendations in the report include: reviewing existing organisational (charter and bylaws) provisions; monitoring shareholder base and intentions; maintaining proactive external relations; and understanding how investors and gatekeepers (proxy advisors and governance rating agencies, in particular) could perceive and react to possible amendments to the company’s governance profile. IT risk solution for pandemic The alarming spread of so-called Swine Flu has prompted one software developer to adapt an existing governance, risk and compliance solution to help organsiations better maintain business continuity in face of the pandemic. NEW YORK: US-based Modulo, a provider of IT governance, risk and compliance solutions, has adapted its software product, Modulo Risk Manager, to help private and public institutions deal with the current Swine Flu pandemic. Modulo Risk Manager was first applied in a pandemic-like scenario when it was implemented by one of Brazil’s biggest banks, Banco Real (part of Santander Group), during the Avian Flu outbreak in 2006. The software was adopted as a tool for internal risk management and a solution was developed to support the necessary decisions in the event of wholesale contamination. Essentially, it automates the process required for minimising the risks of contamination through providing checklists, graphs, and maps in order to prevent and protect a business and its customers from potential damages and resulting losses, thereby helping protect organisations from the impact of possible epidemic scenarios and providing business continuity solutions. “In the case of the contamination threat of influenza A, organisations which adopt a preventative strategy together with good business practices, can return to their core activities much more quickly after a crisis situation,” said Modulo cofounder Alvaro Lima. “Unfortunately, many organisations cannot return quickly and effectively to their activities after such a global crisis.” “In the case of the contamination threat of influenza A, organisations which adopt a preventative strategy together with good business practices, can return to their core activities much more quickly after a crisis situation” 8 RISK August 2009
Barclays Bank in AML/CTF breach AUSTRAC has accepted enforceable undertakings from Barclays Bank. SYDNEY: Australia’s anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit, the Australian Transaction Reports and Analysis Centre (AUSTRAC), has accepted an enforceable undertaking from Barclays Bank PLC. The undertaking was accepted as a legally enforceable commitment by Barclays following an on-site assessment in April 2009 of Barclays’ compliance with local anti-money laundering and counter-terrorism financing (AML/CTF) laws. It was the second of two enforceable undertakings accepted by outgoing AUSTRAC CEO Neil Jensen within a week. Under Australian law, banks are required to submit a range of transaction and suspicious reports to AUSTRAC. They must also have in place an AML/CTF program to prevent their services being used to facilitate laundering of the proceeds of crime or the financing of terrorism. “AUSTRAC has a suite of enforcement powers available under the AML/CTF Act and will use these powers in a measured and appropriate manner to secure compliance with the Act” AUSTRAC’s on-site assessment of Barclays disclosed a number of deficiencies and breaches, including reporting breaches, of AML/CTF laws. Within the terms of the enforceable undertaking, it has agreed to: • Review transactions for a period of seven years and provide AUSTRAC any outstanding reports required by law; • Develop and implement proper systems and controls to ensure that Barclays complies in the future with its reporting and AML/CTF obligations; and • Submit to AUSTRAC an independent expert report detailing Barclays’ compliance with the AML/CTF laws. It will also be required to submit similar reports in 2010 and 2011. Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), the AUSTRAC CEO is empowered to accept enforceable undertakings as a means to ensure compliance with the AML/CTF Act, including as an alternative to taking criminal or civil enforcement action. “AUSTRAC has a suite of enforcement powers available under the AML/CTF Act and will use these powers in a measured and appropriate manner to secure compliance with the Act,” Jensen said. “Compliance with the AML/CTF Act plays a key role in protecting the integrity of the Australian financial system.” RISK August 2009 9
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