In examining our own problems in New Zealand with failed finance companies, we have certainly seen that a lack of good corporate governance has been a contributor. We have not been alone in this. Considering international developments we see a common thread - a failure of good corporate governance. Good corporate governance remains a key underpinning of successful capital markets globally. Whether corporate governance systems have been rules-based or principles-based has not been material, we have seen failures in New Zealand and globally, across the board.
There has been the failure of boards of directors and management to transparently disclose the true nature of their products and the risks associated with them. We have also seen flagrant breaches of accounting standards. IOSCO's task force on the sub-prime crisis looked closely at the implications of institutions, investment banks and regulators relying on mark to model or as some have described it mark to myth, rather than to the market, especially at times of illiquidity in markets for those securities. There have been signs of poor governance in respect to matters of capitalisation and liquidity management.
In 2005 and 2006 the Commission reviewed corporate governance disclosures of issuers in their annual reports. Reviews revealed that while corporate governance disclosures by issuers were improving there was nevertheless significant scope for improvement. In particular, disclosures on how entities manage their shareholder and stakeholder relationships were very limited.
Therefore as part of its financial reporting surveillance programme, the Commission is about to undertake a fresh review of corporate governance disclosures and will report on this in due course.
Wednesday, 31 December 2008
Tuesday, 30 December 2008
Monday, 29 December 2008
Wednesday, 24 December 2008
The primary purpose is to report on our oversight of audit regulation carried out by the professional accountancy bodies that we recognise for this purpose. We focused in 2007/08 on key areas of risk at each body and on those regulatory systems where there had been significant recent change. Overall we conclude that the recognised bodies take their responsibilities extremely seriously and that much regulatory practice is of a high standard. However, the detailed comments in the report highlight those aspects of regulatory activity that are less strong or where there is room for improvement".
Click here for further information about the role of the POB.
Tuesday, 23 December 2008
- Proposed National Policy 58-201 Corporate Governance Principles (intended to be more principles-based and broader in scope; it contains nine core corporate governance principles applying to all issuers).
- Proposed National Instrument 58-101 Disclosure of Corporate Governance Practices (introducing more general disclosure requirements).
- Proposed National Instrument 52-110 Audit Committees and its related companion policy 52-110 (introducing a principles based approach to determining director and audit committee member independence).
Monday, 22 December 2008
Friday, 19 December 2008
Although their role is different to that of an executive director we expect them to ask challenging questions in order to understand (and if necessary, positively influence) the business model and inherent risks within the regulated firm. In order to do this effectively firms must have high quality non-executive directors committed to ensuring that their firms are run effectively. In this consultation we are proposing some changes to the APER Code of Practice to better reflect the duties of non-executive directors. We also want to make it clear that in the future we will be more likely to hold non-executive directors accountable, as well as the firm and its executives, if there is evidence to suggest that they have failed to fulfil their duties with competence and/or integrity".
The FSA proposes the insertion of the following new principle within the Code of Practice for Approved Persons:
(1) An approved person performing the role of a non-executive director should seek to establish and continually maintain his confidence in the:
(a) conduct of the firm;
(b) performance of senior management;
(c) development of the firm’s business strategy;
(d) adequacy of financial controls;
(e) risk management;
(f) appropriateness of remuneration;
(g) appointment and replacement of key personnel; and
(h) plans for management development and succession.
(2) An approved person performing the role of a non-executive director should provide an independent perspective, and should constructively challenge and help develop proposals on strategy.
(3) An approved person performing the role of a non-executive director should scrutinise the performance and approach of senior managers in meeting agreed goals, objectives, and standards of conduct".
... has the power to define both the connecting factor required of a company if it is to be regarded as incorporated under the law of that Member State and, as such, capable of enjoying the right of establishment, and that required if the company is to be able subsequently to maintain that status. That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation"
Thursday, 18 December 2008
The UK proves problematic for this thesis because share ownership became dispersed in the absence of strong legal protection. Indeed, La Porta et. al. have recognised the difficulties posed by the UK example in an article published earlier this year in the Journal of Economic Literature (and available here on ssrn).
Wednesday, 17 December 2008
430A Annual accounts and report: public quoted companies(1) Every public quoted company, as defined in sections 4(2), 385(1) and (2), shall publish on the first page of the chairman’s statement, chief executive’s statement, or directors’ report, whichever comes first in the annual accounts and report, the ratio between the total annual remuneration of the highest paid director or executive and the total annual average remuneration of the lowest paid ten per cent of the workforce".
Tuesday, 16 December 2008
...current economic conditions challenge all involved with annual reports and accounts ... One consequence is expected to be an increase in the disclosures in annual reports and accounts about going concern and liquidity risk. Auditors will need to ensure that they fully consider going concern assessments and only refer to going concern in their auditor’s reports when appropriate. To assist auditors to respond to this challenge the APB has today published Bulletin 2008/10 ..."
UK: FRC publishes 2009/10 draft plan and identifies risks to confidence in corporate reporting and governance
 Current economic conditions increase the risk of error or omission in preparing financial statements, which may make it more challenging for directors to prepare financial statements which comply fully with the requirements of accounting standards and show a true and fair view.
 In the current environment, the challenges for directors to disclose adequate information regarding companies’ business models and business risks may increase.
 The goal of a single set of global accounting standards may be undermined by challenges to the ability of the IASB and other standard setters to exercise independent judgement, based on their skills and experience, and by the actions of jurisdictions to carve‐out or adapt IFRS, so reducing the quality of their accounting standards.
Auditing and related services:
 The high level of concentration in the audit market may result in significant uncertainty and cost in the event of one or more of the major audit firms leaving the market.
 The complexity and volume of risks arising from the tougher economic conditions may be challenging for auditors to adequately address.
 Providing information which adequately reflects the uncertainties arising from tougher economic conditions may be challenging for actuaries.
Monday, 15 December 2008
- The coverage and adoption of codes (McCreevy noted the limited adoption of the Walker Guidelines)
- The monitoring and mechanisms for promoting compliance with the relevant codes
- Consistency across Member States
The Commission should undertake an examination of all existing Community legislation relevant to financial markets in order to identify any lacunae as regards the regulation of hedge funds and private equity and, based on the results of such examination, to submit to the European Parliament a legislative proposal or proposals amending the existing directives where necessary, in order better to regulate hedge funds, private equity and other relevant actors. Such proposed regulation should be purposive"
(1) A person ( “the applicant”) may object to a company's registered name on the ground-(a) that it is the same as a name associated with the applicant in which he has had goodwill, or(b) that it is sufficiently similar to such a name that its use in the United Kingdom would be likely to mislead by suggesting a connection between the company and the applicant.
Friday, 12 December 2008
...the Code should encourage proper conduct on the part of management and supervisory board members and shareholders. This is why more emphasis is to be placed on how they perform their duties in practice rather than on how they account for their actions in retrospect. The Committee considers that too much energy has been spent in complying with detailed reporting rules, while the really important issues have received insufficient attention. The decisive factor in the operation of the Code is not strict compliance with the letter of the code (box ticking) but the extent to which all concerned act in practice in accordance with the spirit of the Code.The main adjustments are in the areas of risk management, executive pay, shareholder responsibility, diversity in the composition of the supervisory board and corporate social responsibility.
Thursday, 11 December 2008
Not long after its defeat in Test Claimants In the FII Group Litigation v HM Revenue & Customs  EWHC 2893 (Ch), in which the aspects of the UK corporate tax regime concerning dividends were found to breach Community law, HMRC has published draft clauses which will make significant changes to the taxation of companies' foreign profits. In the accompanying consultation paper, HMRC explains (paras. 5 to 7):
Currently the UK taxes overseas dividends received by UK companies and provides credit for overseas tax paid, whilst addressing double taxation domestically by exempting UK dividends. Many businesses view the tax with credit rules as administratively burdensome and disproportionate in comparison to the relatively low amount of tax they generate. It is further argued that the rules consequently hinder the UK’s competitive position.With this in mind, the central measure within the foreign profits reform package is an exemption from tax for dividends received by large and medium groups regardless of the source. The policy objective is to enhance the competitiveness of the UK by providing the widest possible exemption. Compared with other developed countries, this dividend exemption is one of the most generous as it is available regardless of the level of shareholding.
There is a fiscal risk associated with the introduction of such a wide-ranging exemption. In particular, it is likely that some groups will change their behaviour in order to take advantage of dividend exemption. For example, under dividend exemption multinational firms have more incentive to divert UK profit overseas. Therefore, in order to help manage the fiscal risk, the Government intends that dividend exemption will not be available where it is used for tax avoidance
Wednesday, 10 December 2008
NZX believes that the issue of stock as a means of remuneration should be promoted. This would assist Listed Issuers to align management and shareholder interests more closely, and give firms that are potentially cash constrained more flexibility in the way they remunerate Directors. Any such arrangement would need to be approved by shareholders. The current rule relating to Director remuneration (Rule 3.5.1/ NZAX Rule 3.4.1) only contemplates Directors’ remuneration being paid by way of a monetary sum and makes no provision for the issuing of shares. For firms that may be cash constrained, flexibility on the type of remuneration paid is important. This Rule should be changed to allow firms to pay Directors, who so elect, in stock if approved by shareholders".
Tuesday, 9 December 2008
The principles of the Code should be a guideline for companies without being too restrictive. They should ensure a balance between control and entrepreneurial freedom, and also foster communication and transparency in the company’s corporate governance. The principles and recommendations are very flexible in their nature, which allows for their implementation in every company regardless of size, orientation or corporate culture. The ‘comply or explain’ basis allows companies a certain degree of deviation from the principles, provided that it is justifiable by specific conditions and an appropriate explanation is given"
The AIU considers the quality of auditing in the UK to be fundamentally sound. The AIU public reports indicate that the senior management of the seven major firms are committed to audit quality and have quality control procedures in place which are appropriate to their size and the nature of their client base. The reports confirm that in each case the AIU has recommended to the relevant Audit Registration Committee that the firm’s registration to conduct audit work be continued. The AIU believes that its inspection process is both rigorous and challenging for firms and that the progress achieved by the firms in addressing the findings from its inspections in previous years has contributed significantly to an improvement in the overall quality of audit work in the UK.
In relation to its reviews of individual audits undertaken by the seven major firms, the AIU considered the audit work generally to have been performed to a good or acceptable standard. However, the AIU’s review of individual audits at each firm identified certain areas in relation to which further improvements need to be made by the firms.
A small proportion of the audits reviewed at the seven major firms were considered by the AIU to require significant improvement in certain areas. Only three of these audits related to entities which were listed on a regulated market1 and none related to FTSE100 entities. The proportion of audits requiring significant improvement was, however, higher at the “smaller firms”.
Monday, 8 December 2008
NB: Chapter 11 of the Listing Rules contains provisions concerning related party transactions and Setion 177 of the Companies Act 2006 imposes on directors a duty of disclosure with regard to certain interests they may have in proposed transactions or arrangements with the company.
The Federal Council firmly believes that, were Switzerland to abandon its liberal company laws in favour of restrictive, heavy-handed regulation, it would lose its advantage over other countries as a business location. This would result in more firms being established outside Switzerland, companies moving their registered offices abroad, and fewer relocating to Switzerland. Jobs and tax revenues would then also be lost. In addition, were the popular initiative to pass into law, there would have be another major overhaul of company law, which would itself mean delays and legal uncertainty".
... touch every aspect of the credit rating process – from conflicts of interest, to publication of ratings methodologies, to disclosure of ratings track records ... The SEC’s examinations of credit rating agencies uncovered serious deficiencies that these rules will address, so that investors and markets will have better information to guide investment decisions.”
Sunday, 7 December 2008
"take all possible measures to bring about as soon as possible the adoption of the thoroughly prepared European Private Company (EPC) statute with a view to facilitating the everyday management of small businesses, conferring a European label on them, cutting the cost of setting up subsidiaries and reducing the need for them to deal with national legislations when seeking to establish themselves in more than one Member State".
Friday, 5 December 2008
The proposed Canada Not-for-Profit Corporations Act will enable organizations to incorporate faster. In addition, it would improve their financial accountability, clarify the roles and responsibilities of directors and officers, and enhance the protection of members' rights.
The proposed Canada Not-for-Profit Corporations Act will allow for the repeal of the outdated Canada Corporations Act. It will also provide a modern, efficient corporate governance regime for some 10 share capital corporations created by Special Acts of Parliament by moving them into the Canada Business Corporations Act.
Corporations currently incorporated under the Canada Corporations Act will have three years to apply for corporate status under the proposed Canada Not-for-Profit Corporations Act. There will be no fees for this process".
Thursday, 4 December 2008
 Although a company’s constitution has effect as a contract between the company and its officers and members, and between the members (Corporations Act, s 140), it is self-evidently a document having features which distinguish it from a commercial agreement between identified parties. Nevertheless, the approach to construing the clauses of a constitution is closely analogous to that adopted in relation to commercial contracts: see Austin RP and Ramsay IM, Ford’s Principles of Corporations Law (13th ed 2007) at [6.080]. Accordingly, it is appropriate to approach the task so as to give the document a “businesslike interpretation”, paying “attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure”: see McCann v Switzerland Insurance Australia Ltd  HCA 65; 203 CLR 579 at  (Gleeson CJ), language adopted in Wilkie v Gordian Runoff Ltd  HCA 17; 221 CLR 522 at  (Gleeson CJ, McHugh, Gummow and Kirby JJ, Callinan J agreeing at ). Even where a company’s constitution adopts the language of the Corporations Law (or now the Corporations Act) the importance of construing the language in its new contractual context requires a broader set of considerations to be addressed, not excluding, but not limited to, the statutory context: see Bluebottle UK Ltd v Deputy Commissioner of Taxation  HCA 54; 232 CLR 598 at ; and see Deputy Commissioner of Taxation v Bluebottle UK Ltd  NSWCA 360; 68 NSWLR 558 at -.
 Applied in the present context, and subject to constraints imposed by the statutory regime, those principles require that a provision conferring power on the directors should be given as broad an operation as is reasonably available on the language and without imposing procedural constraints on the board, absent some contextual indication or purpose requiring the language to be so construed"
Wednesday, 3 December 2008
Scotland shares with the other parts of the United Kingdom a law of unincorporated associations which rests upon common law and has been little developed by statute. Its most striking feature is the absence of legal personality accorded to associations and clubs which do not choose to establish themselves as companies or as some other form of incorporated body. Put shortly, the current law does not recognise the existence of such organisations as separate legal entities. In the case of associations of sufficient size to wish to enter into contracts, own property, engage employees and so forth, this absence of legal personality has given rise to a variety of problems, highlighted in a substantial body of case law over many years, only some of which have been pragmatically resolved.
The principal purpose of this Discussion Paper is to seek comment on the desirability of legislative reform which would accord separate legal personality to unincorporated associations which do not wish to incorporate as companies or as some other form of incorporated body but which meet specified minimum criteria".
The discussion paper is available here. A press release is available here; a letter to consultees is available here and a response form is available here.
(a) any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which persons acting in concert with him are interested) carry 30% or more of the voting rights of a company; or(b) any person, together with persons acting in concert with him, is interested in shares which in the aggregate carry not less than 30% of the voting rights of a company but does not hold shares carrying more than 50% of such voting rights and such person, or any person acting in concert with him, acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested
(1) For the purposes of Rule 9 of the Takeover Code the following persons are not to be regarded as acting in concert with each other or the Treasury or the Secretary of State or UKFI by virtue of the Treasury holding (through a nominee or otherwise) shares in each of those persons—
(a) a person some or all of the shares in which are held by a nominee of the Treasury or a company wholly owned by the Treasury as a result of the exercise of powers under the Banking (Special Provisions) Act 2008(4);
(b) a person participating in the recapitalisation scheme.
(2) For the purposes of Rule 9 of the Takeover Code, the Treasury, the Secretary of State and UKFI are not to be regarded as acting in concert with each other by virtue of the Treasury’s relationship with, and the Secretary of State’s and UKFI’s functions in relation to, a person listed in paragraph (1)(a) or (b)".
Tuesday, 2 December 2008
An overseas company with a premium listing must disclose in its annual report and accounts:(1) the corporate governance regime to which it is subject;(2) whether or not it complies with that regime;(3) an explanation of the main ways in which its corporate governance regime differs from the Combined Code;(4) the extent to which it complies with those provisions of the corporate governance regime to which it is subject that correspond with the Combined Code, and if it does not comply with any such provisions, an explanation of why it does not comply; and(5) the unexpired term of the service contract of any director proposed for election or re election at the forthcoming annual general meeting and, if any director for election or re-election does not have a service contract, a statement to that effect.
Monday, 1 December 2008
UK: The Registrar of Companies and Applications for Striking Off Regulations 2008 - published in draft
The obvious solution, and the neatest, would be to the amend Standing Orders to allow the Secretary of State [Lord Mandelson] to answer questions at the Despatch Box [in the House of Commons]. But this may encourage governments to appoint more members of the House of Lords as heads of department, and that would be an unwelcome and significant constitutional change. Detailed discussion about a mechanism for parliamentary questions to the Secretary of State for Business, Enterprise and Regulatory Reform is best taken forward by the Procedure Committee. However, we are convinced such a mechanism is needed, particularly at a time of such economic turmoil. We call upon our colleagues to look at this matter urgently, and upon the Government to co-operate fully in such an inquiry, particularly given the concerns expressed by the Secretary of State himself".
- The Companies Act 2006 (Annual Return and Service Addresses) Regulations 2008 - see here (PDF) and here (HTML) - an explanatory memorandum is available here.
- The Companies (Company Records) Regulations 2008 – see here (PDF) and here (HTML) - an explanatory memorandum is available here.
- The Companies (Fees for Inspection of Company Records) Regulations 2008 – see here (PDF) and here (HTML) - an explanatory memorandum is available here.
- The Companies (Registration) Regulations 2008 – see here (PDF) and here (HTML).
- The Companies (Particulars of Company Charges) Regulations 2008 – see here (PDF) and here (HTML).
- The Draft Companies (Disclosure of Addresses) Regulations - see here (PDF) and here (HTML) - an explanatory memorandum is available here.