Friday, 29 January 2010

UK: corporate governance at building societies

The Building Societies Association has published the fourth edition of Conversations with Members - Member Engagement at Building Societies: see here (pdf). This report provide a very useful overview of building society governance and in the section titled "Members' Direction and Control" there is information on governance matters across the sector including attendance at AGMs, board composition and directors' remuneration.

Thursday, 28 January 2010

Germany: Infineon chairman-designate offers to serve for one year if elected

More on the dispute concerning the chairmanship of Infineon. The Financial Times newspaper reports: "Infineon offered a partial climbdown to hostile investors on Wednesday when the German chipmaker’s chairman-designate said he would only serve one year of his five-year term if elected".

Kazakhstan: Council of Issuers code on corporate governance

The codes directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the code on corporate governance published by the Council of Issuers of Kazakhstan: see here (pdf).

Moldova: the Stock Exchange code of corporate governance

The codes directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the code on corporate governance published by the Moldova Stock Exchange and the National Securities Commission: see here (pdf).

Wednesday, 27 January 2010

India: ACGA issues white paper on corporate governance

The Asian Corporate Governance Association has published a white paper making recommendations for the improvement of corporate governance in India: see here (pdf). The recommendations fall within five headings: shareholder meetings and voting, related party transactions, preferential warrants, disclosure and the auditing profession.

UK: Controlled Foreign Companies taxation regime proposals published

Yesterday HM Treasury published a discussion paper setting out its proposed framework for the Controlled Foreign Companies taxation regime: see here (pdf).

New Zealand: final report published by Capital Market Development Taskforce

Last month the Capital Market Development Taskforce published its final report in which it made wide-ranging recommendations for the better functioning of New Zealand's financial system: see here (pdf). An executive summary is available here (pdf). Amongst the research papers prepared for the Taskforce was one on the structure and ownership of New Zealand companies - available here - which reports (to quote directly from its conclusion):

Relative to many other countries, even after adjusting for the relative size of our economy, New Zealand has few very large firms, and a considerable share of our largest firms are either government or co-operative owned, or controlled by offshore owners. In each of these cases, there is relatively limited participation in local capital markets".

Serbia: the Belgrade Stock Exchange corporate governance code

The codes directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the Belgrade Stock Exchange corporate governance code: see here (pdf).

Tuesday, 26 January 2010

UK: the Takeover Code - revised edition

A revised edition of the Takeover Code came into force yesterday, reflecting the amendments contained in instrument 2009/5. Further information is available here (pdf).

Portugal: new corporate governance recommendations + other developments

The Portuguese Securities Commission (Comissão do Mercado de Valores Mobiliários) has announced that its Executive Board has approved new recommendations on corporate governance with regard to the criteria for determining directors' remuneration, the control of internal risk and the independence of external auditors: see here for further information.

The Commission has also announced - see here - its approval of a Regulation which will require listed companies to publish details of the remuneration policy for directors and supervisory board members.

Finally, the Commission has formed a panel to assess the quality of corporate governance in Portugal: see here for further information.

Georgia: corporate governance code for commercial banks

The codes directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the corporate governance code for commercial banks published by the Association of Banks of Georgia: see here (pdf).

Monday, 25 January 2010

Australia: Treasury consultations - shareholder claims against insolvent companies + insolvent trading

In Sons of Gwalia Ltd v Margaretic [2007] HCA 1 the Australian High Court held that a shareholder's claim in respect of a loss caused by a company's misrepresentation or defective market disclosure which induced the purchase of shares ranked alongside the claims of unsecured creditors. This proved controversial because it was widely believed that such a claim would rank below the unsecured creditors because it was a claim by the shareholder as a member of the company (in accordance with Section 563A of the Corporations Act 2001).

In December 2008 the Corporations and Markets Advisory Committee (CAMAC) published a report - available here (pdf) - in which it considered the implications of the Australian High Court decision and recommended that it should not be reversed. The Government has, however, taken a different view: in a consultation paper published last week - available here (pdf) - the Treasury announced that it would "amend the law so that it substantially corresponds to how it was generally perceived to be prior to the High Court's decision".

The Treasury has also published a consultation paper setting out a proposal to reform the law on insolvent trading: see here (pdf).

Croatia: the Zagreb Stock Exchange corporate governance code

The codes directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the Zagreb Stock Exchange corporate governance code: see here (pdf) or here (html).

Friday, 22 January 2010

USA: major reform on Wall Street - President Obama's proposals to limit the size and scope of banks

President Obama yesterday announced major reforms designed to limit the size and scope of the activities performed by financial institutions and banks. The proposals will prevent banks (and financial institutions containing a bank) from investing in or sponsoring a hedge fund, private equity fund or certain proprietary trading operations on their own account. Additionally, it is proposed to set limits on the market share of liabilities of the largest financial firms. 

President Obama's speech can be viewed in the video embedded below (a transcript is available here). Further information is available in the accompanying White House press statement

In the UK, Lord Myners, the Financial Services Secretary, provided an initial response to President Obama's announcement. He stated that because the UK Government had taken other measures it would be unlikely to follow the USA's example. Lord Myners' response, in an interview on yesterday evening's Channel 4 news, can be seen in the video embedded below:

For further comment see: here (Financial Times), here (The Times), here (Wall Street Journal) and here (New York Times).

France: 40% (minimum) of board directors to be women - Bill before Parliament

The Times newspaper reports that the French Parliament has begun to consider a Bill that will require at least 40% of the directorships at France's largest companies to be held by women. This follows the example set by Norway and, more recently, Spain (about which see here (pdf)).

Thursday, 21 January 2010

UK: PwC's executive compensation review 2009

PwC has published Executive Compensation: Review of the Year 2009: see here (pdf). The review provides an overview of trends in remuneration, based on data from company year ends falling between July 2008 and June 2009 (and prospective data where available), and reports, for example, that: 
  • Around 1 in 6 FTSE100 executive directors did not receieve a bonus.
  • 20% of FTSE100 companies saw more than 1 in 5 of their shareholders withhold support for their remuneration report.
  • Median increases in the base salary for FTSE 100 and FTSE 250 executives fell to 1% and 0%, respectively. 

Wednesday, 20 January 2010

UK: Scotland: shareholder indemnification and leave to bring derivative proceedings

In Wishart v Castlecroft Securities Ltd. [2009] CSIH 65 the court granted leave for a shareholder to bring derivative proceedings under Part 11, Chapter 2, of the Companies Act (2006) and subsequently held that the company should indemnify the petitioning shareholder in respect of the costs reasonably incurred in seeking such leave. In Wishart v Castlecroft Securities Ltd. [2010] CSIH 2, published earlier this week but dated 25 November 2009, Lord Reed: [1] explained the juridical basis on which the Scottish courts are able to make such an order regarding indemnification and [2] stressed the desirability of Scottish shareholders being placed in the same position as their counterparts in England and Wales (at paras. [4] and [5]):

The logic of derivative proceedings, as explained in the earlier opinion of the court, is that the proceedings are brought by the member on behalf of the Company. In those circumstances, the member falls within the scope of the principle that "representative persons are entitled to the costs necessarily incurred in the interests of their constituents" (Gibson v Caddall's Trustees (1895) 22R 889 at page 893 per Lord McLaren). Where leave to bring derivative proceedings is granted, that principle applies to the application for leave as well as to the derivative proceedings themselves. It follows that the member ought ordinarily to be indemnified by the company in respect of the expense incurred in relation to the application for leave.

We also note that, as explained in the earlier opinion, one of the objectives of the legislation introducing the requirement that leave be obtained was to achieve consistency in company law throughout the United Kingdom. In England and Wales, provision is made by the Civil Procedure Rules for the court to order the company for whose benefit a derivative claim is brought to indemnify the claimant against liability for costs incurred in the permission application as well as in the derivative action (Rule 19.9E). It is undesirable, against that background, that the legislation should be applied in Scotland in a manner which makes it more difficult in practice for a shareholder to bring derivative proceedings".

Sweden: the revised corporate governance code

A copy, in English, of the revised Swedish Corporate Governance Code has been published by the Swedish Corporate Governance Board: see here. The Code comes into force on 1 February 2010. 

Tuesday, 19 January 2010

UK: FRC begins Stewardship Code consultation

The Financial Reporting Council has today published a consultation paper concerning the content, operation and oversight of the proposed Stewardship Code for institutional investors: see here (pdf). More specifically, the FRC is seeking views on the following questions:
  • Whether the code published by the Institutional Shareholders’ Committee in November 2009 provides a suitable basis for the Stewardship Code, in either its existing or an amended form.
  • What the responsibilities for engagement of institutional shareholders and their agents are to the beneficial owners whose money they manage.
  • How adoption of the standards in the code by UK and foreign investors can be encouraged.
  • What information investors should disclose on their engagement policy and practice.
  • What arrangements should be put in place to monitor how the code is applied.

Germany: battle over supervisory board chair at Infineon

The Financial Times newspaper reports that Germany "is braced for its first proxy fight at blue-chip company". The company is Infineon and one of it shareholders - UK based Hermes - has submitted a proposal that would, if supported at the company's forthcoming annual general meeting, see Hermes' preferred candidate elected to the chairmanship of Infineon's supervisory board.

Germany: 'say on pay' at Siemens and ThyssenKrupp

Reuters reports that Siemens and ThyssenKrupp will be providing shareholders with an advisory 'say on pay' vote on remuneration at their forthcoming annual general meetings. Both companies' supervisory boards are chaired by Gerhard Cromme, the former chairman of the German Corporate Governance Code Commission. The companies' AGM notices - available here (pdf) and here (pdf) - contain further information.

It appears that Siemens and ThyssenKrupp have not waited for shareholders to exercise their right to request such a vote, which was introduced last year by the Gesetz zur Angemessenheit der Vorstandsvergütung (VorstAG, Act on the Appropriateness of Management Board Remuneration, about which see here). 

Monday, 18 January 2010

UK: Audit Firm Governance Code published

The ICAEW's Audit Firm Governance Working Group has today published a governance code for firms auditing public interest entities: see here. The following firms, which between them audit approximately 95% of companies listed on the main market of the London Stock Exchange, will be subject to the code: Baker Tilly, BDO, Deloitte, Ernst & Young, Grant Thornton, KPMG, PKF and PricewaterhouseCoopers.

The code was prepared at the request of the Financial Reporting Council, as part of its audit choice project, and will operate on the 'comply or explain' basis. The code's purpose, to quote from its introduction, is to:

... provide a formal benchmark of good governance practice against which firms which audit listed companies can report for the benefit of shareholders in such companies".

The Code has six sections (leadership, values, independent non-executives, operations, reporting and dialogue) and, like the UK's Combined Code on Corporate Governance, contains principles and provisions. For example, principle C.1. provides:

A firm should appoint independent non-executives who through their involvement collectively enhance shareholder confidence in the public interest aspects of the firm’s decision making, stakeholder dialogue and management of reputational risks including those in the firm’s businesses that are not otherwise effectively addressed by regulation".

For further information see: ICAEW Working Group press release (pdf) and background information | FRC audit choice project |

Friday, 15 January 2010

Switzerland: 'say on pay' vote adopted by Zurich Financial Services and Swiss Re

Ethos has reported that two companies - Zurich Financial Services and Swiss Re - have agreed to provide shareholders with an advisory vote in respect of the remuneration report at their annual general meetings this year. Ethos notes that eight of the twenty companies in the Swiss Market Index (SMI) now provide such a vote.

Thursday, 14 January 2010

Europe: Michel Barnier's hearing before MEPs

The internal market commissioner designate, Michel Barnier, yesterday appeared before MEPs from the economic affairs and internal market committees. A summary of Mr Barnier's hearing - and his answers to questions - is available here. In response to doubts about his impartiality, Mr Barnier responded: "I will take no orders from Paris, London or anywhere else".

UK: Lord Mandelson on institutional shareholders and the long-term

Lord Mandelson, the Secretary of State for the Department of Business, Innovation and Skills, has contributed a short comment article to the website titled "Britain needs investors for the long-term". In his article, Lord Mandelson states:

[Today] I am holding a roundtable discussion with senior investors, fund managers, company chairmen and chief executives to ask if London can set a new standard for high-quality, long term engagement between investors and company directors.

... In recent years the UK government has carried out a number of significant reforms to the corporate governance regime to encourage the right kind of long-termism among company directors. We need an equivalent focus on the long term among company owners, especially those represented by institutional shareholders, who should naturally take a long-term view.

... Reviews of corporate governance by Sir Christopher Hogg and Sir David Walker have started to pose the right questions about getting the right balance between the short and long term. The UK’s new Stewardship Code, on which the Financial Reporting Council is about to consult, must address them". 

ICGN Global Corporate Governance Principles (2009) - full version available

The International Corporate Governance Network has published on its website a full version of its Global Corporate Governance Principles, which were revised last year: see here (pdf). 

Europe: update on company and financial services law reform

The Joint Brussels Office of the Law Societies of England and Wales, Scotland and Northern Ireland has published the January 2010 edition of its very useful EU financial services and company law reform update. Previous updates are available here.

Wednesday, 13 January 2010

USA: FDIC proposes to include employee compensation structure risk in its deposit insurance assessment

The Federal Deposit Insurance Corporation is proposing to include an assessment of the potential risks posed by employee compensation structures in its deposit insurance assessment system: see its advanced notice of proposed rulemaking (ANPR) document, available here (pdf). The premiums paid to the FDIC by financial institutions will, therefore, reflect an assessment of the risks posed by compensation structures within contributing institutions. In its ANPR document the FDIC states that it:

... does not seek to limit the amount which employees are compensated, but rather is concerned with adjusting risk-based deposit insurance assessment rates (risk-based assessment rates) to adequately compensate the Deposit Insurance Fund for the risks inherent in the design of certain compensation programs. By doing this, the FDIC seeks to provide incentives for institutions to adopt compensation programs that align employees’ interests with the long-term interests of the firm and its stakeholders, including the FDIC. Such incentives would also seek to promote the use of compensation programs that reward employees for internalizing the firm’s focus on risk management. This initiative is intended to be a complementary effort to the supervisory standards being developed both domestically and internationally to address the risks posed by poorly designed compensation programs".

In the ANPR document the FDIC identifies some possible features of compensation programmes which will be consistent with its goals (see p. 8). One such feature is administration by a board committee consisting of independent directors with input from independent compensation professionals.

UK: ABI remuneration guidelines - letter to remuneration committees

The Association of British Insurers has written to remuneration committee chairmen highlighting aspects of its remuneration guidelines which are of particular relevance in the current economic climate: see here (Word). The ABI states, for example, that:

Remuneration structures that seek to increase tax efficiency should not result in additional costs to the company or an increase in its own tax bill. Remuneration Committees should be aware of the potential damage to the company’s and shareholders’ reputation from implementing such schemes".

UK: Mandelson to meet with institutional investors

Against the background of Kraft's hostile bid for Cadbury, the Financial Times and Times newspapers report (see here and here) that Lord Mandelson, the Secretary of State for the Department of Business, Innovation and Skills, will be meeting with institutional shareholders tomorrow to discuss their role in takeovers. According to the Times report:

A top-level delegation from the Department for Business, Innovation & Skills (BIS) ... will ask Britain’s biggest institutional investors to show “stewardship” by taking a firmer line against opportunistic takeover bidders attempting to pick up listed companies on the cheap".

Takovers were also the subject of a public hearing yesterday organised by the Business, Innovation and Skills Parlimentary Committee. The meeting can be viewed here.

Tuesday, 12 January 2010

Ireland: United Drug plc provides 'say on pay' vote

The Manifest blog reports that United Drug plc will be providing shareholders with an advisory vote in respect of the company's remuneration report at its annual general meeting next month. This is noteworthy because listed companies in Ireland are not required by companies legislation or stock exchange listing rules to provide such a voting opportunity. 

Monday, 11 January 2010

Europe: the governance priorities of the Internal Market Commissioner designate

Ahead of his hearing with MEPs on Wednesday, internal market commissioner designate Michel Barnier has provided - in his response to written questions (available here - pdf) - an indication of his legislative and policy priorities concerning corporate governance, company law and financial reporting:

.... I will present a report on governance in financial establishments which will contain proposals for remedying the weaknesses revealed by the crisis. I also intend to present a report on the implementation of the Recommendation on remuneration policies in the financial services sector as soon as possible, as well as other initiatives intended to eradicate abusive remuneration practices. I will adopt the same approach in relation to the implementation of the Recommendation on the remuneration of directors, followed, if necessary, by appropriate proposals. With reference to listed companies, a report on the application of the Transparency Directive will be published very shortly, possibly followed by amendment proposals.

In the area of financial information, one of my priorities will be the adoption by all of our partners, including the United States, of high-quality global accounting standards, in line with the recommendations of the G20. I would also like to improve the governance of the IASB significantly. As regards SMEs, I would like to put forward an ambitious proposal for the modernisation of accounting regulations. Lastly, with regard to the statutory audit of accounts, my priorities will be to enhance international cooperation in order to enable mutual recognition of supervisory systems in respect of directors, and potential adoption of the international accounting standards (ISA). With regard to company law, and in response to the requests of the European Parliament, I will propose that the Commission conduct a more in-depth analysis of the cross-border transfer of registered offices. I will also present a report on the modus operandi of the Statute for a European company".

Friday, 8 January 2010

UK: APB guidance on the audit of public sector organisations' financial statements

The Auditing Practices Board has published for comment draft guidance on the application of auditing standards to the audit of UK public sector organisations: see here (pdf). The deadline for comment is 9 April 2010. 

Europe: financial integration report published by Commission

The European Commission yesterday published its annual financial integration report: see here (pdf). The report provides an overview concerning integration, efficiency, competition, stability and competitiveness in the financial sector as well as highlighting legislative and other policy developments in 2009.

Thursday, 7 January 2010

UK: the Association of Financial Mutuals

A new organisation - the Association of Financial Mutuals - was formed through the merger of the Association of Mutual Insurers and the Association of Friendly Societies on January 1. In a report appearing in the Financial Times, the AFM's chief executive, Martin Shaw, is quoted:

The mutual sector has proved its strength through the recent financial crisis, continuing to innovate and provide value to its customers and we need to keep on doing this ... It will also be of paramount importance to protect what mutuals stand for and ensure the government supports and recognises some of our initiatives, such as the corporate governance code [here: pdf] we have developed"

UK: Lord Mandelson's speech to the Work Foundation

In a speech delivered yesterday at the Work Foundation,  Lord Mandelson, the Secretary of State for the Department of Business, Innovation and Skills, stated that his Department was reviewing whether changes introduced by the Companies Act (2006) - including the introduction of Section 172, which sets out the duty of directors to promote the success of the company - had changed boardroom behaviour. Lord Mandelson had much more to say, including: 

... we need to start a debate about how we build a stronger culture of long term commitment to sustainable company growth in this country, based on a strong compact between institutional shareholders and the corporate sector. On one hand we need a system that enables shareholders to discipline poor management. But we also need to give management some scope to plan and build without the excessive demands for quick returns that characterise too much modern public company ownership.

I don’t have any easy answers. Our reforms of company law made clear the importance of directors taking a long term view. At the same time we have empowered shareholders. We are now evaluating whether this has changed behaviour in the board room – and among investors.

Chris Hogg has played a key role in this debate with his review of corporate governance, and it is time for Britain to take a long hard look at the questions he and others have raised. I attach the highest importance to the new Investor Code and will be meeting investors and companies next week in the run up to the further consultation by the Financial Reporting Council.

Takeovers provide a very clear test here - for all involved. Companies making acquisitions should set out transparently and publicly their long term plans for the assets they propose to acquire, including company headquarters, R&D sites and main plants. Although these remain commercial decisions, firms or investors should expect to brave the court of public opinion if they are motivated only by short term profit.

Surely investment managers should be judged on their long term growth and profitability, not their short term performance – and the same goes for CEOs. How many strategic and effective managers are being hobbled with the quarterly race to please the beauty contest of the markets?

Wednesday, 6 January 2010

UK: distributions under the Companies Act (2006) - determining realised profits and losses: ICAEW/ICAS guidance

The ICAEW and ICAS have published additional guidance - in the form of an exposure draft - on the determination of realised profits and losses in the context of distributions under the Companies Act (2006): see here (pdf). The guidance supplements an earlier technical release, number 01/09, available here (pdf). 

Tuesday, 5 January 2010

UK: IFRS8 and segment reporting by companies - FRRP expresses concern

The Financial Reporting Review Panel, part of the Financial Reporting Council, yesterday expressed concerns with the way in which some companies are reporting the performance of key parts of their business in accordance with IFRS 8 - Operating Segments: see here for further information.

Monday, 4 January 2010

Australia: Productivity Commission report on executive remuneration released

The Productivity Commission report on executive remuneration was released today: see here (pdf - 2.6MB). The report rejects the introduction of a cap on executive pay and a binding shareholder vote on remuneration. Instead it contains 17 recommendations designed to strengthen the corporate governance framework, including: 
  • All ASX300 companies should have a remuneration committee, comprising solely of non-executive directors (the majority of whom should be independent).
  • The remuneration report should contain a summary statement, in plain English, of the company's remuneration policies.
  • Proxy holders should be required, except in exceptional circumstances, to cast all of their directed proxies on remuneration reports and any resolutions related to those reports.
  • Institutional investors, particularly superannuation funds, should disclose, at least on an annual basis, how they have voted on remuneration reports and other remuneration-related issues.
  • Where a company’s remuneration report receives a ‘no’ vote of 25 per cent or more of eligible votes cast at an AGM, the board should be required to explain in its subsequent report how shareholder concerns were addressed and, if they have not been, the reasons why; where the subsequent remuneration report receives a 'no' vote of 25 per cent or more of eligible votes cast at the next AGM, a resolution should be put that the elected directors who signed the directors’ report for that meeting stand for re-election at an extraordinary general meeting.

Friday, 1 January 2010

Europe: ECJ considers the market abuse directive

The opinion of the European Court of Justice in Spector Photo Group NV, Chris Van Raemdonck v Commissie voor het Bank, Financie- en Assurantiewezen (CBFA) (Case C-45/08) was given last week. The case, referred from the hof van beroep te Brussel (Court of Appeal of Brussels), required the ECJ to interpret, for the first time, the Market Abuse Directive (2003/6/EC). Article 2 provides:

1. Member States shall prohibit any person referred to in the second subparagraph who possesses inside information from using that information by acquiring or disposing of, or by trying to acquire or dispose of, for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates.

The first subparagraph shall apply to any person who possesses that information: [a] by virtue of his membership of the administrative, management or supervisory bodies of the issuer; or [b] by virtue of his holding in the capital of the issuer; or [c] by virtue of his having access to the information through the exercise of his employment, profession or duties; or [d] by virtue of his criminal activities".

The ECJ was required to consider, inter alia, whether making use of information for the purposes of Article 2 would be satisfied by the mere fact that a person in possession of inside information, acquires or disposes of, or tries to acquire or dispose of, for his own account or for the account of a third party, financial instruments to which that inside information relates. The ECJ held that this would amount to the use of inside information but recognised the right to rebut the presumption. In reaching this position, the ECJ made clear that the questions before it:

... must be determined in the light of the purpose of [the] directive, which is to protect the integrity of the financial markets and to enhance investor confidence. That confidence is based, in particular, on the assurance that they will be placed on an equal footing and protected from the misuse of inside information. Only usage which goes against that purpose constitutes prohibited insider dealing".

Further information is available in the ECJ's press release, available here (pdf).