The Morning Ledger: Dodd-Frank Rules May Linger, Even if Dismantled

Good morning. President-elect Donald Trump campaigned partly on a vow to dismantle the 2010 Dodd-Frank law, which supercharged bank oversight with myriad regulations. Corporate finance chiefs outside the sector, however, are focusing on the fate of the law’s nonbank provisions, which range from directives on executive pay to rules on hedging disclosure. Implementing some of those Dodd-Frank rules is costly, time-consuming and fails to help investors, say financial executives and experts, Richard Teitelbaum and Kimberly S. Johnson report for CFO Journal in today’s Business & Finance section.

But other rules are seen as quite reasonable by some executives, and may be continued by companies, regardless of the law’s future. One of the more popular rules to take effect is the so-called say-on-pay regulation adopted by the Securities and Exchange Commission in 2011. It requires companies to hold a shareholder vote on executive compensation at least every three years. It likely would be maintained by many businesses. On the other hand, beginning in 2018, a pay-ratio disclosure rule will require a company to compare its chief executive’s pay to the median annual compensation of all its other employees. The utility of the pay-ratio rule, however, is seen as questionable.

CFO JOURNAL TODAY

The Tesla logo is displayed at the company’s booth at the Combined Exhibition of Advanced Technologies (CEATEC) in Chiba, Japan, Oct. 4, 2016.
BLOOMBERG NEWS

Not every motor runs. Tesla Motors Inc. has come under fire from the SEC for using prohibited accounting metrics and sharing that information with investors, according to regulatory correspondence. The SEC said Tesla in its August earnings release used “individually tailored” measurements when the electric-vehicle maker added back certain costs to revenue calculated under generally accepted accounting principles. While the SEC allows the use of some non-GAAP metrics, certain figures that adjust revenue are prohibited. The exchange between the SEC and Tesla includes four letters uploaded by the regulator from mid-September to mid-October, Tatyana Shumsky reports.

A pound of flesh. Novo Nordisk A/S, the Danish insulin producer, has been punished not only by the weakened U.K. pound but also because EU countries use lower, currency-adjusted prices as a base to negotiate drug pricing in their own markets, said the company’s finance chief. The lower value of the pound means that Novo Nordisk earns less from its sales in the U.K. The company also suffers because U.K. prices are being used by other EU countries as a reference point, which results in increasing pricing pressure in their markets, Nina Trentmann reports.

Burning goodwill. Tumbling crude-oil prices burned up a lot of goodwill, Tatyana Shumsky reports for today’s Big Number. U.S.-listed energy companies slashed the value of certain intangible assets by $18.2 billion in 2015, according to a study by the Financial Executives Research Foundation and Duff & Phelps Corp. That was more than three times as much as the $5.8 billion in write-downs recorded in 2014, and the energy sector accounted for 32% of all goodwill impairments among public companies.

THE DAY AHEAD

A driver for Uber arrives at an authorized customer pick up area at Seattle-Tacoma International Airport, March 31, 2016 in Seattle, U.S.
AP

An important day for Uber. Is Uber Technologies Inc. a transport company or a digital service? The European Court of Justice will debate this today, in a case with potentially wide-ranging consequences for the U.S. firm across the continent, Business Insider reports. Uber has faced opposition in several European states and could be forced to obey laws that are meant for regular taxi companies.

So how much do you pay your CEO? The U.K. government will outline a plan later today to make corporates explain high executive-pay packages, the BBC reports. Among the steps under consideration are pay ratios that show the gap in earnings between chief executives and average employees. Shareholders are expected to get additional powers under the proposals outlined in the government’s green paper while workers would be given a role on company boards.

Tiffany reports earnings. Donald Trump is only making things more difficult for Tiffany & Co. The luxury retailer’s flagship Fifth Avenue store is next door to Trump Tower, where the president-elect resides. Protests following the election have made it a nightmare to get anywhere in that part of Manhattan. Though a resulting decline in store traffic could crimp Tiffany’s holiday results, macroeconomic concerns could “trump” the physical disruption. But first up are its results, due Tuesday, for the fiscal third quarter ended in October.

CORPORATE NEWS

Samsung branded flags fly outside the IFA International Consumer Electronics Show in Berlin, Germany, Aug. 31, 2016.
BLOOMBERG NEWS

Let’s make some changes. Samsung Electronics Co. said it would raise dividends and consider restructuring as the world’s largest smartphone maker seeks to appease growing demand for governance reforms. Over the long term, the company said Tuesday it wants to return any cash in excess of 70 trillion Korean won ($59.8 billion) to shareholders. At the end of September, Samsung had slightly more than 70 trillion won in cash on hand after subtracting debt. Samsung’s package of measures comes as it reels from a damaging smartphone recall that has already cost more than $5 billion and has clouded its earnings outlook for the year.

Alexa is the new boss. Amazon.com Inc. wants its warehouse employees to get to work—fast. To prepare for the flood of holiday orders already under way, the retail giant has been using technology ranging from touch screens to robots to shrink the time it takes to train new hires to as little as two days, compared with up to six weeks for a conventional warehouse job. The shorter training period saves Amazon money, and could give the company room to offer higher wages as it seeks to expand its workforce

Money well spent? Theranos Inc. received much of its funding from high-profile private investors who weren’t part of the ecosystem that typically backs startups and could see their stakes wiped out by the blood-testing company’s regulatory and technological troubles, people familiar said. Several large investments from families and individuals helped infuse Theranos with $632 million in its latest funding round, which stretched from 2014 to 2015.

Cognitive investing. Activist investor Elliott Management Corp. called for change at Cognizant Technology Solutions Corp., a $34.6 billion IT-outsourcing firm. Elliott said Monday it held a 4% stake in the company, the fund’s largest-ever initial stock purchase for an activism campaign, according to FactSet. In a 16-page letter, Elliott said Cognizant should boost profitability and return cash to shareholders instead of focusing on revenue growth.

Chicago Stock Exchange names bidders. The Chicago Stock Exchange, seeking to revitalize its business under new foreign owners, disclosed on Monday the investors who are backing its bid to become a bridge between U.S. and Chinese equity markets. The proposed deal to take over a tiny U.S. exchange has drawn outsize interest because nearly 50% of the exchange’s parent would be owned by Chinese investors. According to a filing posted on the exchange’s website, the new owners would include a Chinese company, Chongqing Casin Enterprise Group Co., which would own 20% of the exchange’s parent company.

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