Friday, 31 October 2008
Thursday, 30 October 2008
...an independent director should be empowered to request the calling of board meetings or the inclusion of new business on the agenda; to coordinate and give voice to the concerns of external directors; and to lead the board's evaluation of the Chairman".
Wednesday, 29 October 2008
(1) The Secretary of State must, not later than 6th April 2012— (a) make regulations under section 416(4) of the Companies Act 2006 (c. 46) requiring the directors’ report of a company to contain such information as may be specified in the regulations about emissions of greenhouse gases from activities for which the company is responsible, or (b) lay before Parliament a report explaining why no such regulations have been made.(2) Subsection (1)(a) is complied with if regulations are made containing provision in relation to companies, and emissions, of a description specified in the regulations.
(1) Any company that is required to produce a business review under section 417 of the Companies Act 2006 (c.46) must have regard to any guidance issued under section 80 of this Act when reporting on greenhouse gas emissions.
(2) The Secretary of State may by order provide that any company that is required to produce a business review that includes information on environment matters (including the impact of the company’s business on the environment) under section 417(5) of the Companies Act (c.46) must include information on greenhouse gas emissions, and in doing so have regard to any guidance issued under section 80 of this Act.
(3) The Secretary of State may by order provide that compliance with guidance issued under Section 80 of this Act will be presumed to constitute compliance with section 417 of the Companies Act 2006 (c.46).
(4) The Secretary of State must make provision under either subsection (2) or subsection (3) before 1st April 2010.
(5) The expiry of the period mentioned in subsection (4) does not affect the power of the Secretary of State to make further provision by order under subsections (2) and (3).
(6) The Secretary of State shall, when setting carbon budget pursuant to section 4 of this Act, lay before Parliament a report on any changes to any guidance issued hereunder which the Secretary of State believes are necessary to promote the achievement of any carbon targets.
(7) Any order under this section is subject to affirmative resolution procedure.
According to Government minister Joan Ruddock MP (Hansard: 28/10/08, col 814), these new provisions:
are designed to reinforce our [the Government's] commitment to the importance of corporate transparency and to taking forward the process as quickly as possible. We will consult publicly next year on the detail of how companies’ carbon emissions should be defined and measured. The outcome of that consultation, which will include close work with individual stakeholder groups, will be reflected in the guidance on measurement of emissions that the Government are required to publish by 1 October 2009".
Tuesday, 28 October 2008
the events of the past year or so clearly highlight the need for a fundamental overhaul of the regulatory safeguards used to mitigate systemic risk within the financial system".
Monday, 27 October 2008
We also believe that other experienced accounting standard setters, such as the ASB, can contribute to developing high quality solutions. We will continue to work with the IASB to help them draw on the extensive experience of the UK financial reporting community".
Sunday, 26 October 2008
Saturday, 25 October 2008
Friday, 24 October 2008
Thursday, 23 October 2008
With respect to the FRC’s responsibilities for Corporate Governance, it is the case that the current market difficulties have raised questions about corporate governance in the UK’s banks and, perhaps, these questions will extend to other financial institutions. Our preliminary conclusion is that the primary questions should not be about the standards of corporate governance in these institutions but rather the practice of it. Our view is that the standards set out in the FRC’s Combined Code remain comprehensive and appropriately principles-based standards.
We expect that directors of banks and other financial institutions are already reviewing their governance and risk management practices. We, therefore, currently believe that the recent difficulties in the financial sector do not require a generalised tightening of governance standards across the UK corporate sector. The focus should be on whether the existing standards have been observed in practice".
Publication of the Santiago Principles - generally accepted principles and practices for sovereign wealth funds
- have in place a transparent and sound governance structure that provides for adequate operational controls, risk management and accountability
- ensure compliance with applicable regulatory and disclosure requirements in the countries in which SWFs invest
- ensure SWFs invest on the basis of economic and financial risk and return-related considerations
- help maintain a stable global financial system and free flow of capital and investment
Wednesday, 22 October 2008
- Board responsibility for governance: Governance structures and practices should be designed by the board to position the board to fulfill its duties effectively and efficiently.
- Corporate governance transparency: Governance structures and practices should be transparent— and transparency is more important than strictly following any particular set of best practice recommendations.
- Director competency and commitment: Governance structures and practices should be designed to ensure the competency and commitment of directors.
- Board accountability and objectivity: Governance structures and practices should be designed to ensure the accountability of the board to shareholders and the objectivity of board decisions.
- Independent board leadership: Governance structures and practices should be designed to provide some form of leadership for the board distinct from management.
- Integrity, ethics and responsibility: Governance structures and practices should be designed to promote an appropriate corporate culture of integrity, ethics, and corporate social responsibility.
- Attention to information, agenda and strategy: Governance structures and practices should be designed to support the board in determining its own priorities, resultant agenda, and information needs and to assist the board in focusing on strategy (and associated risks).
- Protection against board entrenchment: Governance structures and practices should encourage the board to refresh itself.
- Shareholder input in director selection: Governance structures and practices should be designed to encourage meaningful shareholder involvement in the selection of directors.
- Shareholder communications: Governance structures and practices should be designed to encourage communication with shareholders.
Tuesday, 21 October 2008
The authors surveyed 130 companies and examined reports published in the period between 1 August 2007 and 31 July 2008. With regard to corporate governance, it is reported that 30% of companies complied fully with the Combined Code on Corporate Governance. At 7% of companies the same person occupied the position of chairman and chief executive.
Monday, 20 October 2008
In the past 10 years or so, corporate governance codes have either been adopted or modernised in many European countries. These codes have, in general, served EU companies well. They are important instruments in the area of corporate governance. However, that does not mean that codes are always the right solution. In certain circumstances, binding rules may be necessary. The current financial crisis has pushed systems of corporate and internal governance across the global financial system to the limit. As we know, these systems have unfortunately been found wanting.
Credit rating agencies played a major role in the market turmoil by greatly underestimating the credit risk of structured credit products. We can no longer leave it to the rating agencies themselves to deal with this. This business is much too important for the stability of the financial markets for us to sit by and watch from the sidelines. And that is why, I intend to propose in the next few weeks, a legally binding registration and external oversight regime whereby European regulators will supervise the policies and procedures followed by the CRAs. Reforms to the corporate and internal governance of rating agencies will also be included.
It seems that clearer guidance may be needed from policy makers [with regard to remuneration]. Only about a third of Member States followed the Commission's 2004 recommendation that shareholders should be able to vote on the remuneration criteria applying to board members. Shareholders must have a say on this - and they must be more engaged. However, I note that the issue of remuneration for executives now figures in some of the emergency measures that certain of our Member States have taken in response to the financial crisis. That must mean that the message is hitting home.
Availability of independent board members alone is not a guarantee for a well functioning board. Indeed, the current turmoil has led many to question the usefulness of simply requiring independent board members. The whole of the board and the individual board members must not only be competent in relation to their tasks; they must also excercise a collective responsibility and due diligence with respect to the company. And I include non executive directors in this. That does not mean that companies should look for board members only within the traditional circles or the so called "old boys" network. Why not cast the net wider.
I am convinced that active shareholders are a pillar of good corporate governance and have a role in the supervision of the company. But what if they become too active? And are they destructive if they only take a short term view? Here my answer is dialogue. Let shareholders explain their vision and their interests and share the philosophy of the management with them. In this respect, it should be noted that hedge funds, as a type of 'activist' shareholders generally improve the performance of investee companies. This perception is widely held. But shareholders must not take on the role of management. Strong management with well organised, diligent boards, conscious of the long term health of the company is crucial".
Sunday, 19 October 2008
Friday, 17 October 2008
The French Presidency hope that broad political agreement can be reached on the Proposal by the end of 2008. This is a very demanding timetable and therefore this consultation will only last five weeks, closing on 21st November".
- Ownership and control of a company are not of themselves sufficient to justify piercing the veil (para. ).
- The veil cannot be pierced merely because it is thought to be necessary in the interests of justice (para. ).
- The veil can be pierced only if there is some impropriety but this alone is not sufficient: the impropriety must be linked to the use of the corporate structure to avoid or conceal liability (paras.  - ).
- There must be control by the wrongdoer(s) and impropriety, i.e., (mis)use of the company by them as a device or façade to conceal their wrongdoing (para ).
- A company can be a façade even though it was not originally incorporated with deceptive intent (para. ).
Thursday, 16 October 2008
The directors argued that the findings of fact and other opinions in the FSA report were inadmissible and in doing so relied on the strict rule of evidence in Hollington v Hewthorn  1 KB 587. The Court of Appeal (Buxton, Keene and Thomas LJJ) unanimously rejected this argument and provided a strong endorsement of the implied exception to the rule in Hollington in directors’ disqualification proceedings brought under Section 7 and 8 of the CDDA. Thomas LJ (delivering the only reasoned opinion) observed:
…there is good reason to reaffirm not only the principle of the implied exception as extending to whatever is contained in the reports and other materials obtained under the statutory scheme but also its eminent good sense in relation to disqualification proceedings such as this … it cannot sensibly be argued that the admission of such evidence causes any disadvantage to the defendant directors” (para. ).
It may be that in a diverse regulatory system within the UK and in a globalised financial and banking services industry, it is necessary to rely on investigative reports carried out by other regulators or under statutory authority in other states and that by analogy, such material can be relied on in disqualification proceedings … I accept that an argument can be made along those lines and the merits of the argument can be decided when it arises, unless Parliament takes the preferable course of amending the CDDA” (para. ).
Note: click here for a copy of the FSA's final notice, which provides further information on those matters investigated by the FSA.
Update (17 October 2008): the case has been reported here by the ICLR (this report will disappear if, as is likely, the case is reported by the ICLR in one of its series of law reports).
Wednesday, 15 October 2008
As the figures in the present application indicate, a calculation of the average cost per creditor is at best an informed guess. Yet, based on that informed guess, will be, if I make the qualified disapplication order, the point where the threshold for payment lies and whether therefore a creditor will receive anything. If the average cost per creditor should turn out to be less, the threshold for payment will be correspondingly lower and more creditors could expect to qualify for payment. Then there is the consideration that a creditor with an undisputed claim for £27,999 which it has cost the joint liquidators little or nothing to process might justifiably feel aggrieved if he gets nothing when a creditor with a claim of £28,001 which has involved the joint liquidators in much time and expense in processing, gets something. That does not strike me as at all fair. Indeed, it strikes me as altogether arbitrary".
Tuesday, 14 October 2008
A review of the conduct of the previous Board in respect of funding and liquidity has been undertaken with the assistance of external advisors, Freshfields and KPMG Forensic. The Board has concluded that there are insufficient grounds to proceed with any legal action for negligence against the former Directors, and has no intention of bringing any such action. The Board has also completed a similar review in respect of the Company’s auditors and has determined that no action is warranted".
Monday, 13 October 2008
...we must now reform the International financial system around agreed principles of transparency, integrity, responsibility, good housekeeping and co-operation across borders.
First transparency. We must now insist on openness and disclosure, with an immediate adoption of the internationally agreed accounting standards - and the standards being brought forward for the valuation of assets. And transparency must extend also to markets including the trillion dollar credit insurance markets which now play such a central role in shifting risk around the system.
Second integrity. We must tackle once and for all the conflicts of interest which have distorted behaviour and undermined trust; and now lie at the heart of public concern. This includes a system of remuneration founded on long term success not short term irresponsibility. We must ensure that those who run our financial institutions have the right incentives.
Third responsibility. We must ensure that all board members have the competence and expertise to manage the risks and so effectively supervise their institutions and do not walk away from their obligations.
Fourth sound banking practice. We must have regulation and supervision that looks at both solvency and liquidity and ensures adequate protection throughout the economic cycle to prevent speculative bubbles when markets are rising and to cushion the impact of shocks when they are falling.
Fifth, we must have a new bretton woods - building a new international financial architecture for the years ahead. Sometimes it takes a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed. We must create a new international financial architecture for the global age".
- Measurement of performance for the calculation of bonuses
- Composition of the remuneration
- Performance adjusted deferred compensation
Sunday, 12 October 2008
The Financial Services Authority is producing a code on remuneration. The FSA has quite correctly concluded that the incentive effects of remuneration arrangements appear to have induced reckless behaviour, and so the FSA view is that if it is not happy with the way incentive effects work it will require a higher capital requirement for the institution, which you could see as requiring more insurance. If you are at the riskier end of banking you will need stronger capital ratios than if at the less risky end of banking.”
I think regulation is one aspect of enhancing confidence in financial institutions. Others include self-healing through improved governance, more effective boards, more considered analysis of incentive plans and the behaviours they will produce, and stronger capital. There isn’t a single silver bullet here, regulation in itself without support of those other features will lead to a potential frustration of innovation and probably higher cost of funding.”
Saturday, 11 October 2008
Friday, 10 October 2008
I am not surprised to see that Member States are a little frightened by the SPE. It may well create competition to national company forms. But is that really a problem? It is simple; it is easy to set up; it is attractive to business ... Critics of the proposal say that we have left too much freedom to business; that this freedom will lead to mistakes, or worse still, abuse. I believe that not enough has been done to encourage entrepreneurs".
Thursday, 9 October 2008
- What can be done to address the lack of alignment between the interests of some investors and some companies?
- What regulations or frameworks are needed to underpin stewardship – protecting the long-term health of a company and supporting global growth?
- Can regulators and the law continue to treat all shareholders in the same way?
- Why should a CEO extend the same time and co-operation to a short-term investor seeking to profit by movements in the company’s share price as to a long-term intrinsic investor?
- What does stock-lending do for the concept of stewardship?
- Why do pension funds allow stock-lending across the board when it can harm their longer term approach in particular situations?
- Doesn’t the practice of borrowing shares to vote negate the stewardship role?
- Why don’t pension funds do more to influence the activities of the hedge funds and private equity vehicles through which they invest, especially where the actions of those funds can compromise their longer term interests?
- Government ownership has been extended to a number of strategic financial institutions recently. Is it necessary to review the case for state ownership of strategically important industries – energy, defence, food - or could foreign ownership help to guarantee economic interdependence and its wider benefits?
- Shouldn’t responsible investment criteria apply to debt holders as well as equity?
Wednesday, 8 October 2008
"This is not a case where the board has bona fide decided not to declare dividends in the best interests of the Company. It is a case where the board has consistently failed to consider whether or not to declare dividends, and that must be a breach of duty".
Tuesday, 7 October 2008
Monday, 6 October 2008
The roles of the chairman and chief executive are ultimately ones of accountability - to shareholders, to customers, to staff and, whether they like it or not, to government, the taxpayer and society at large. But our increasingly well-defined principles of corporate governance have not prevented this crisis. We therefore need to open our thinking to alternative models and, in particular, to the role and effectiveness of independent non-executive directors. If directors ignored bad habits, if they accepted complacency after a prolonged bull market then they should be held accountable. If they have overseen failure, and allowed greed to flourish then they are accountable for this, too. Naivety has also played its part, with well-meaning people succumbing to the seductions of advanced risk management techniques at the expense of common sense. And perhaps we accountants haven't said no enough, either"
Saturday, 4 October 2008
The primary focus of Easterbrook’s talk was the application of Judge Ralph Winter’s hypothesis regarding broad state regulation of corporations, particularly of corporate governance. Winter had argued that increased discretion in the hands of corporate managers would, in the end, enable them to design the governance measures that investors want the most. Easterbrook pointed out that economic event studies in the last 20 years or so had confirmed this: securities prices would rise and fall depending on different structures of governance, and investors could indeed move to those forms which they found most attractive.
The national government, however, has been “hampering the market of corporate control” in recent years. Easterbrook singled out the Sarbanes-Oxley Act passed in the wake of the Enron and WorldCom scandals as the major culprit, although he also targeted the recently imposed limits on short sales and changes to the tax code. Sarbanes-Oxley, Easterbrook argued, mandated corporate governance structures that often set up an “adversarial mode of corporate governance” that made little sense for the companies forced to adopt them and were, ironically, not at all what investors wanted.
Worse, Easterbrook argued, the “national government could win a race to the bottom in a way that the states cannot,” since in “moving toward a national system of corporate governance,” corporations could not simply change to another jurisdiction’s corporate law if dissatisfied with federal requirements. Easterbrook argued that in theory there are four basic models of corporate governance, and that any one could be appropriate for a corporation at a given time. “A reduction in [this] opportunity set,” the judge concluded forcefully, “makes everyone worse off, all the time—and that’s what the Sarbannes-Oxley Act has done.” As further evidence, he noted that event studies indicated that the Act actually depressed stock prices, and that Enron was, in fact, a model corporation under the governance terms of the Act.
Easterbrook had some suggestions on what might happen as a result of the “Race to the Bottom.” He noted that many firms are “opting out” of the system by becoming private and thereby removing themselves from regulation. He also argued that the international market could supply a response to Sarbanes-Oxley, the ultimate result of which may be the flow of capital to other countries with more desirable governance regulations.
Friday, 3 October 2008
Thursday, 2 October 2008
[b] The duty of directors to declare interests in proposed transactions or arrangements (Section 177) and the duty to declare interests in existing transactions or arrangements (Sections 182-187).
- Selection of accounting policies.
- Disclosure of management judgments and estimation uncertainties.
- Sufficiency of descriptions of revenue recognition policies.
- Principal risk and uncertainty disclosure in the business review.
... the current standard of corporate reporting in the UK is good. The areas of reporting that prompted most questions were those dealing with more complex accounting issues or where the exercise of judgement by management is most critical. The Panel did not identify any systemic issues requiring immediate remedial action.
The Panel published two press notices in the year in respect of companies that had failed to comply with the requirements of the Act. These companies restated comparative amounts in their next set of annual and half-yearly financial statements ... 88 companies undertook to make future changes to their reporting. Several of these were asked to refer to the Panel’s intervention when explaining the changes in their accounts".