Corporate Law and Governance

UK: the devolution of corporation tax setting powers

2012-02-03T00:01:00.005Z

The Institute for Fiscal Studies published its Green Budget 2012 earlier this week: see here. This includes a chapter on corporate tax setting - see here (pdf) - in which the IFS states that there are compelling reasons to maintain a single rate of corporation tax across the UK, including administrative simplicity and the reduced potential for harmful tax competition. These points are made against the background of debate about whether the the power to set the rate of corporation tax should be devolved in Northern Ireland and Scotland.

UK: Prime Minister rejects call for employee membership on remuneration committees

2012-02-02T13:50:00.001Z

During Prime Minister's Question in Parliament yesterday, the Prime Minister rejected the suggestion that the membership of the remuneration committee should be broadened to include at least one "ordinary employee" arguing that this would would break "an important principle of not having people on a remuneration committee who will have their own pay determined". But when did remuneration committees start determining the pay of individual, "ordinary" employees? Hansard, the record of debate, is available here.

Germany: amendments to Code proposed by Commission

2012-02-02T00:01:00.003Z

The German Corporate Governance Commission has proposed various amendments to its 2010 corporate governance code regarding, for example, supervisory board remuneration and independence. A revised version of the code incorporating (and highlighting) these proposed amendments has been published (in German but not yet in English): see here (pdf). The consultation runs for the next month or so and it is expected that the changes will be confirmed in a revised code published in May.

UK: BIS seeks views on various company law matters

2012-02-02T00:00:00.000Z

As part of a wider review of legislation (known as the "red tape challenge"), the Department for Business, Innovation and Skills has published a consultation paper in which it seeks views on several company law matters including business names, the register of members, filing obligations and the role of penalties and enforcement: see here (pdf). Responses can be made (and read) online: see here.

OECD: The role of institutional investors in promoting good corporate governance

2012-02-01T13:56:00.002Z

The OECD has published a report titled The role of institutional investors in promoting good corporate governance: see here (pdf). This contains much interesting data regarding share ownership in OECD countries and research regarding the existence of codes of best practice and legal rules applicable to institutional investors.

Australia: the definition of derivative

2012-02-01T12:01:00.002Z

In 2010 the Corporations and Markets Advisory Committee (CAMAC) was asked to consider the legal definition of derivative (the terms of reference are available here, pdf). CAMAC's report was released earlier this year: see here (pdf). CAMAC has concluded that the definition of derivative within Section 761D of the Corporations Act (2001) aligns with market and regulatory perceptions of what constitutes a derivative and that no change in the statutory definition is required.

UK: the future of the UK financial reporting - revised proposals from the ASB

2012-01-31T11:00:00.002Z

The Accounting Standards Board, part of the Financial Reporting Council, has published revised proposals for the future of financial reporting in the UK. In brief, the ASB has decided not to go ahead with its proposals for a three tier framework but is instead proposing to replace all current accounting standards with a single Financial Reporting Standard, based on the IFRS for SMEs (although the Financial Reporting Standard for Smaller Entities will be retained). Further information is available here and a key facts document is available here (pdf). The relevant Financial Reporting Exposure Drafts are available here.

UK: financial regulation reform - Financial Services Bill introduced in Parliament

2012-01-30T00:01:00.005Z

The Financial Services Bill was introduced in Parliament last Thursday and received its First Reading. Second Reading, which will provide MPs with their first opportunity to debate the main principles of the Bill, is scheduled for today. The Bill's progress can be followed here. A copy of the Bill as introduced is available here (html) and here (pdf). Explanatory notes are available here (html) and here (pdf).

The Government has also published another White Paper - A new approach to financial regulation: securing stability, protecting consumers, available here (pdf) - which builds on earlier White Papers and sets out its response to some of the recommendations made by the Treasury Select Committee and Pre-Legislative Scrutiny Committee in respect of an earlier draft of the Bill. Revised objectives have, for example, been provided for the Financial Conduct Authority (FCA); an explicit "duty to supervise" will be given to the Prudential Regulation Authority (PRA); and the Chancellor will be given a limited statutory power of direction over the Bank of England where a notification of risk to public funds has been made by the Bank's Governor and there is a serious threat to financial stability.

The White Paper also explains some new policy decisions including, for example, a much greater role for the FCA with regard to consumer credit. The Government also appears to have rejected calls for the creation of a Supervisory Board for the Bank of England, preferring instead the Bank's proposal for an Oversight Committee. Further consultation is promised in respect of the suggestion that the Threshold Conditions for authorisation should be reviewed and also with regard to the manner in which these Conditions are divided between the FCA and PRA. Further consultation is also to take place with regard to the macro-prudential tools available to the Financial Policy Committee (FPC). The Paper also explains that the Government will be consulting later this year in respect of a couple of issues identified by the Financial Services Authority in its report into the failure of Royal Bank of Scotland: should regulatory pre-approval be required for all significant merger and acquisition activity in the banking sector and are changes necessary to the liability regime for senior management and directors?

One of the recommendations made by the Scrutiny Committee was for the publication, alongside the Bill, of relevant secondary legislation including the Order under which the scope of the PRA's prudential supervision role would be defined. This has been done: a draft of the Financial Services and Markets Act 2000 (PRA-Regulated Activities) Order has been published (see here, pdf) along with further draft secondary legislation and draft memoranda of understanding (including a memorandum setting out the framework for coordination of financial crisis management between the Treasury, Bank of England and the PRA: see here.

Update (30 January 2012): Hansard, when recording the Bill's First Reading, also states that Second Reading was scheduled for today. This is a mistake. According to the Parliamentary Calendar, Second Reading has been timetabled for 6 February 2012.

UK: England and Wales: directors' duties - disclosure, creditors and other matters

2012-01-27T08:20:00.001Z

Mr Justice Newey gave judgment earlier this week in GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch). Amongst the matters for consideration was a claim that a sale of stock by directors to another company shortly before they were removed as directors involved a breach of duty. The decision is interesting for several reasons. First, there is discussion of the consequences of insolvency (or near insolvency) on the application of the duty found in Section 172 of the Companies Act (2006). In this regard, the trial judge noted that "Where creditors are relevant, it will ... be a director's duty to have regard to the interests of the creditors as a class. If a director acts to advance the interests of a particular creditor, without believing the action to be in the interests of creditors as a class, it seems to me that he will commit a breach of duty" (para. [168]).

Second, the trial judge considered the consequences of a sale of stock by directors in pursuit of their own self-interest and not the company's where the contracting party had notice of this fact: the contract was void. Third, there is discussion of Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244, in which Arden LJ held that a director could be required to disclose his own misconduct as part of the director's duty to act in what he in good faith considers to be the best interests of his company (the duty now incorporated in Section 172). Noting the controversy surrounding Arden LJ's decision, Mr Justice Newey observed (at paras. [193] and [194]):

Arguably, it breaks new ground in treating a fiduciary duty as prescriptive rather than merely proscriptive. Its result can perhaps now be justified also by reference to section 172 of the Companies Act 2006, which came into force on 1 October 2007. The duty to promote the success of a company which that provision imposes can be said to be expressed in prescriptive terms (a director "must act in the way he considers, in good faith, would be most likely to promote the success of the company …" – emphasis added). Be that as it may, Item Software (UK) Ltd v Fassihi is clearly binding on me. I therefore proceed on the basis that a director's duty of good faith can potentially require him to disclose misconduct. .... a company complaining of a director's failure to disclose a matter must, I think, establish that the fiduciary subjectively concluded that disclosure was in his company's interests or, at least, that the director would have so concluded had he been acting in good faith".

Fourth, Mr Justice Newey considered to whom the director was required to disclose information and stated (at para. [198] and [199]):

... it is perfectly possible to conceive of a director being bound to disclose a matter to someone other than fellow board members. Since the "touchstone" is the duty of a director to act in what he considers in good faith to be in the best interests of the company, the focus must be on what the relevant director in fact believed to be in the company's interests or would have believed to be in the company's interests had he been acting in good faith. If a director subjectively concluded that it was in the company's interests for a matter to be disclosed to a person who was not a member of the board (or if he would have so concluded had he been acting in good faith), it would, it appears, be incumbent on him to ensure that such disclosure was made. On the other hand, a director's duty of good faith is owed to his company, not to shareholders. The question is therefore as to what the director thought (or would have thought) was in the company's interests. That disclosure might have been in a shareholder's interests will not matter as such.

UK: FSA seeks views on premium listing regime and proposes other amendments

2012-01-26T16:33:00.000Z

The Financial Services Authority has published for consultation proposed amendments to the Listing Rules, Prospectus Rules, and the Disclosure Rules and Transparency Rules: see here (pdf). The FSA is also seeking views on the nature of the premium listing standard more generally and whether changes are needed to enhance the protections provided to shareholders regarding, for example, related party transactions, free float requirements and whether it should be a condition of listing that companies with controlling shareholders should be capable of carrying out their business independently of such controlling shareholders.

UK: financial regulation reform - the approach of the FCA

2012-01-25T16:46:00.001Z

Martin Wheatley, the chief executive designate of the new Financial Conduct Authority, spoke today at the British Bankers' Association about his vision for the FCA: see here. Briefly put, Mr Wheatley said that "getting a fair deal for consumers" would be at the heart of the FCA's work and noted that "The global world of regulation has moved on from a belief that providing information to people combined with some conduct rules over the people selling products will lead to good outcomes". Much in his speech was about cultural change in firms but he also referred to the way in which the FCA would operate by, for example, taking an earlier judgment as to the suitability of products.

UK: Implementation of the Alternative Investment Fund Managers Directive

2012-01-24T00:01:00.001Z

As part of the UK's implementation of the AIFM Directive, the Financial Services Authority has published a discussion paper setting out provisional thoughts with regard to the approach that it will adopt: see here (pdf).

UK: Government announces executive pay proposals

2012-01-23T17:19:00.009Z

A day earlier than expected, and in response to an Urgent Question in Parliament, the Secretary of State for Business, Innovation and Skills today set out the Government's proposals regarding executive pay. Speaking in the House of Commons, the Secretary of State outlined measures concerning disclosure and shareholder voting and explained his aspirations regarding board diversity.

Changes in the structure of remuneration reports will be introduced through secondary legislation, separating the report into two sections, one on future policy and another on the implementation of policy in the previous year. A binding vote - on which further consultation will take place - will be introduced with regard to future policy. Shareholder approval will also be required where a director's notice period is greater than a year, which will bring the legal framework in line with the UK's Corporate Governance Code which provides that notice or contract periods should be set at one year or less (Provision D.1.5).

It appears that the advisory vote will remain in respect of that part of the remuneration report concerning policy implementation but further consultation will take place on the consequences of a vote against and the threshold required for shareholder approval. In this section of the report companies will be required to provide a single figure for each director's pay and an explanation of how rewards relate to the company's performance.

With regard to board diversity, no new proposals were offered but the Secretary of State said that he wanted to see boards contain at least two people with no previous board level experience. He also said that he supported greater worker participation but that there were too many problems associated with a mandatory approach to worker representation on boards. Greater transparency regarding the role of remuneration consultants was promised and the Secretary of State also said that the Financial Reporting Council would be asked to amend the UK Corporate Governance Code to provide specific provisions regarding clawbacks.

A copy of the Secretary of State's statement will be published in Hansard - see here - and further information will be published soon on the BIS website. The proposals follow the publication in 2011 of a discussion paper, a summary of the responses to which were published today: see here (pdf).

UK: financial regulation reform - the accountability of the Bank of England

2012-01-23T08:41:00.001Z

The debate about the accountability of the Bank of England within the new financial regulatory framework continued today with the publication by the Treasury Committee of a report - see here - regarding the suggestion last week from the Court of the Bank of England that an Oversight Committee, a sub-committee of the Court, should be created. The Treasury Committee has concluded, amongst other things, that the role of the Bank's proposed Oversight Committee "would be so heavily circumscribed that it could not be relied upon to provide adequate scrutiny".

UK: Scotland: company representation in court proceedings

2012-01-20T08:00:00.000Z

In Secretary of State for Business, Enterprise and Regulatory Reform v UK Bankruptcy Ltd [2010] CSIH 80, 2011 SC 115, it was held that in Scotland a company could not be represented in proceedings by anyone other than an advocate or solicitor possessing a right of audience. This rule has been considered again by the Court of Session in an opinion delivered earlier this week - Apollo Engineering Ltd (In Liquidation) v James Scott Ltd [2012] CSIH 4 - in which one of Apollo's directors sought permission to represent the company in legal proceedings where the company was unable to afford legal representation.

The court unanimously held that the director should not be permitted to represent the company. Different reasons for reaching this conclusion were given by Lady Paton and Lord Reed (Lord Bracadale supported Lord Reed's position). In Apollo and unlike the earlier Bankruptcy case, the court considered the relevance of Article 6 ("Right to a fair trial") of the European Convention on Human Rights. Nevertheless, with reference to Airey v Ireland (1979) 2 EHRR 305, Lord Reed found that Article 6(1) did not require the court to give the director permission to represent the company because this would not provide the company with an effective right of access to the court.

UK: Government promises consolidated legislation for co-operatives and mutuals

2012-01-19T17:23:00.000Z

In a speech delivered earlier today, the Prime Minister stated that the Government would seek to consolidate the legislation concerning co-operatives and mutuals during the current session of Parliament: see here.

UK: shareholder voting rights and takeovers

2012-01-19T10:20:00.004Z

In 2010 the Takeover Panel Code Committee conducted a review of certain aspects of the regulation of takeovers (here, pdf). One of the questions posed by the Code Committee in its review was whether shares acquired during the course of an offer period should be disenfranchised. In its response to the consultation (here, pdf) the Committee noted that most respondents were against this suggestion and changes to the Takeover Code were not proposed. However, the Code Committee stated that it would be logically consistent for the Code to be amended if qualifying periods (or weighted voting rights) were introduced through company law, thereby leaving the issue in the hands of Government.

It's possible, although probably unlikely, that specific proposals regarding voting rights will be published in July this year when the Government publishes the final report as part of its short-termism review. Meanwhile, in today's Financial Times newspaper, the Labour Party leader, the Rt Hon Ed Miliband, writes that he is considering a proposal to limit shareholders' voting rights during takeovers as well as increasing the threshold required for shareholder approval of a takeover.

UK: financial regulation reform - the accountability of the Bank of England

2012-01-18T08:24:00.000Z

The accountability of the Bank of England within the new financial regulatory framework being introduced in the UK has received much attention, with recommendations being made by the Treasury Committee and the Joint Parliamentary Committee formed to conduct pre-legislative scrutiny of the Financial Services Bill: see, respectively, here and here. The Court of the Bank of England yesterday responded to these recommendations - see here (pdf) - and suggested, amongst other things, that an oversight committee, a sub-committee of the Court, should be created.

Italy: updated corporate governance code published by Borsa Italiana

2012-01-17T00:01:00.020Z

The codes and principles directory maintained by the European Corporate Governance Institute was updated yesterday to include a copy of the revised edition of the corporate governance code published by the Italian Stock Exchange last December: see here (pdf, English) or here (pdf, Italian).

UK: Deputy Prime Minister on "responsible capitalism"

2012-01-16T16:30:00.000Z

The Deputy Prime Minister, the Rt. Hon Nick Clegg MP, delivered a speech in London today in which he reflected on "responsible capitalism" and argued that shareholders should "behave like business owners rather than absentee landlords": see here. In addition to the introduction of a binding vote on executive pay for shareholders - the proposals for which will be published next week by the Department for Business, Innovation and Skills - Mr Clegg stated that the Government intends to "overhaul the way shareholders – and others – can access information". This was necessary, he argued, because "Often, the reason investors are passive is because they can’t see the reasons to act". Mr Clegg also announced a Government review into what can be done to encourage greater employee share ownership and, in this regard, mooted the idea of giving employees a "right to request" shares.

UK: the Financial Conduct Authority - Treasury Committee recommendations

2012-01-13T08:44:00.006Z

The House of Commons Treasury Committee has published a report regarding the Financial Conduct Authority, the conduct of business regulator within the Government's new financial regulation framework: see here or here (pdf). Amongst other matters, the Committee raises concerns with regard to the accountability of the FCA and argues that much more detail should be provided in legislation regarding the relationship between the FCA, Prudential Regulation Authority and Financial Policy Committee. The Committee also argues that the Government should reconsider the FCA's strategic objective, explained as "protecting and enhancing confidence in the UK financial system” within the draft Financial Services Bill. In the Committee's view, the objective of ensuring "fair, efficient and transparent markets in financial services" would be an improvement. The Committee also argued that the promotion of competition should receive far greater prominence in the FCA's strategic and operational objectives.

Europe: ESMA's first credit rating agency annual report

2012-01-13T00:01:00.000Z

The European Securities and Markets Authority has published its first annual report in respect of its supervision of credit rating agencies: see here (pdf). Since 1 July 2011, ESMA has had the exclusive responsibility for the registration and supervision of credit rating agencies in the EU.

UK: some reform proposals from the Labour Party

2012-01-12T16:49:00.000Z

The Shadow Minister for Business, Innovation and Skills, Mr Chuka Umunna MP, delivered a speech today at the Institute for Public Policy Research in which he set out various proposals for the reform of the UK's corporate governance framework: see here. Mr Umunna said that reform was best achieved through changes to the UK Corporate Governance Code rather than legislation and he endorsed the recommendations made by the High Pay Commission (in the report it published last year) with regard to the transparency of executive rewards. He also said that consideration should be given to changing dramatically the composition of the nomination and remuneration committees. To quote directly from his speech:

We should consider moving towards a system which other countries have adopted where the nomination committee is not composed of board members but is composed of the four or five biggest shareholders in the company along with the non-executive chair of the board – that same committee, composed of shareholders, also recommends the structure and amount of remuneration. This would create far stronger lines of accountability to those who ultimately own the business and would promote the shareholder activism and engagement which is key".

Japan: an update from Olympus - legal action against directors

2012-01-12T09:50:00.000Z

Following the publication in December last year of the investigation report, Olympus has announced the commencement of legal action against certain current and former directors: see here (pdf).

UK: Labour Party to conduct review of short-termism

2012-01-11T14:03:00.004Z

At last year's Labour Party annual conference, the party's leader - the Rt. Hon. Ed Miliband MP - delivered a speech in which he argued that remuneration committees should have an employee representative. In a speech delivered yesterday Mr Miliband repeated this call and also said that the Labour Party would soon announce a review of "short-termism in British corporate life".

Conference: corporate governance after the crisis

2012-01-10T00:01:00.002Z

The European Corporate Governance Institute, in conjunction with Columbia Law School, the Faculty of Law at Oxford and Oxford's Saïd Business School, will be holding a conference later this week, the theme of which is corporate governance after the crisis. Whilst attendance at the conference is by invitation only, some of the papers being presented are publicly available on the ECGI's website: see here.

UK: shareholders to get binding vote on pay

2012-01-09T13:49:00.000Z

Later this month the Government will publish proposals following its consultation on executive remuneration. However, ahead of this announcement, the Prime Minister had made clear that shareholders in the largest companies are to be given a binding vote on remuneration: see here.

Basel Committee consults on revised Core Principles for Effective Banking Supervision

2012-01-09T00:01:00.002Z

The Basel Committee on Banking Supervision has published for consultation a revision of its Core Principles for Effective Banking Supervision: see here (pdf). A comparison between the existing Principles (dated 2006) and the proposed revised edition is available here (pdf) and an overview of the changes is available here.

Europe: EBA Internal Governance Guidelines - compliance information published

2012-01-06T00:01:00.006Z

The European Banking Authority has published a document setting out whether Member States' competent authorities comply (or intend to comply) with the EBA's Guidelines on Internal Governance published in September 2011: see here (pdf).

Under Article 16(3) of the EBA Regulation (available here, pdf), Member States' competent authorities are required to inform the EBA whether they comply (or intend to comply) with EBA guidelines or recommendations within two months of the publication of such guidelines and recommendations. Where a competent authority does not comply, or does not intend to comply, it is required to provide reasons to the EBA, which the EBA has the discretion to publish.

USA: PCAOB proposes auditing standard on communication with audit committees

2012-01-05T15:18:00.015Z

Towards the end of last year the Public Company Accounting Oversight Board proposed for comment an auditing standard on communication with audit committees: see here. The standard, which was originally proposed in March 2010 (see here, pdf), seeks to enhance the relevance and quality of the communications between the auditor and audit committee. It retains many existing requirements but establishes additional categories of information requiring disclosure by the auditor including, for example, significant transactions outside of the normal course of the company's business.

Netherlands: compliance with the Dutch Corporate Governance Code

2012-01-04T09:41:00.001Z

Towards the end of last year, the Corporate Governance Code Monitoring Committee published its annual survey of companies' compliance with the Dutch Corporate Governance Code: see here (pdf). A summary of the findings, in English, is expected to be published soon.

UAE: Cabinet approves draft of new companies legislation

2012-01-03T10:35:00.001Z

The Cabinet has approved a draft of new companies legislation which, if enacted, will herald significant change: see here. For media comment see here and here.

Season's greetings and best wishes for 2012

2011-12-23T00:05:00.000Z

Season's greetings and best wishes for 2012 to all visitors to this blog and recipients of the daily blog e-mail updates (sign up by scrolling down and entering your e-mail address in the box on the right of the page). The next post will appear on January 3.

Gibraltar: a new Companies Act

2011-12-23T00:01:00.041Z

Elections were held in Gibraltar earlier this month (see here, pdf) and a new Government, a coalition between the Socialist Labour Party and Liberals, was formed. In the joint SLP/Liberal manifesto - available here (pdf) - a pledge was made to replace the Companies Act (1930) as soon as possible with a revised and consolidated Act. The Government announced this week that it had "given instructions for the preparation of a draft bill to replace the Companies Act": see here (pdf).

Austria: Governance Code amendments published

2011-12-23T00:00:00.003Z

The Working Group for Corporate Governance has published, in German, amendments to the Austrian Corporate Governance Code: see here (pdf). A copy of the amendments in English is likely to be published soon. The amendments concern board diversity and the relationship between the supervisory board and auditors.

Canada: proposed Securities Act not valid finds Supreme Court

2011-12-22T14:57:00.001Z

The Supreme Court has held that the proposed Securities Act, which would create a national securities regulator, is not valid under the general branch of the federal power to regulate trade and commerce under the Constitution Act (1867): see here.

ECGI codes and principles directory: recent additions

2011-12-22T09:44:00.000Z

The codes and principles directory maintained by the European Corporate Governance Institute has been updated this month to include codes for the following countries (click the country name to go the relevant directory page): Guernsey | Jordan | Mongolia | Taiwan | UAE |

Malaysia: Financial Sector Blueprint 2011-2020

2011-12-22T00:01:00.001Z

Malaysia's central bank - Bank Negara Malaysia - has published a report titled Financial Sector Blueprint 2011-2020, which sets out proposals for the development of financial regulation and the financial system over the next ten years: see here. Chapter four of the report, available here (pdf), contains a section (numbered 4.2) setting out corporate governance related proposals, including the codification in law of the functions of boards and the responsibilities of individual directors.

UK: Remuneration Code and Pillar 3 disclosures on remuneration - FSA guidance on proportionality

2011-12-21T00:01:00.004Z

The Financial Services Authority has, in respect of the Remuneration Code (SYSC 19A) and the Pillar 3 disclosures on remuneration (BIPRU 11), published general guidance on proportionality: see here (pdf).

UK: Walker Guidelines Monitoring Group - fourth compliance report published

2011-12-21T00:01:00.001Z

The Guidelines Monitoring Group has published its fourth report concerning compliance with the Walker Guidelines on transparency within the private equity industry: see here (pdf). The Group found an improvement in the level of overall compliance but significant variations in the quality of disclosure.

Canada: the proposed national securities regulator - Supreme Court judgment due this week

2011-12-20T08:00:00.001Z

Last year proposals for the creation of a national securities regulator for the provinces and territories of Canada were published and a reference was made to the Supreme Court in order to determine whether the proposed Securities Act was within the legislative authority of Canada's Parliament. The Supreme Court has announced that its decision will be given on Thursday this week: see here.

An overview of the proposed Act is available here and further information is available here. The Government's proposals build on the recommendations of the Expert Panel on Securities Regulation, which published its final report in 2009.

UK: banking reform - update from Government

2011-12-20T00:01:00.015Z

Yesterday the Government published its response to the final report published earlier this year by the Independent Commission on Banking: see here (pdf). The response provides a very strong endorsement of the Commission's report and recommendations. The Government intends to pass legislation requiring the ring-fencing of retail banking activities whereby the ring-fenced bank is legally and operationally independent from the rest of its corporate group. Large ring-fenced banks will be subject to higher equity requirements. A White Paper will be published in the spring explaining how the Government's plans will be implemented. It is envisaged that full implementation will be achieved by 2019.

France: AMF consults on takeover rule changes

2011-12-20T00:01:00.002Z

Autorité des marchés financiers (AMF), the financial regulator, has published a consultation paper setting out changes to the takeover rules. A press release, in English, setting out the principal changes is available here (pdf). The consultation paper, in French, is available here (pdf).

Isle of Man: Tynwald approves new financial services legislation

2011-12-20T00:00:00.000Z

Changes to financial legislation were approved last week by Tynwald, the Isle of Man's Parliament; Hansard, the record of debate, is available here (pdf). Further information, and links to the new legislation, has been provided here by the Financial Supervision Commission.

UK: Commons Treasury Committee begins credit rating agency inquiry

2011-12-19T09:55:00.000Z

The House of Commons Treasury Committee has published the terms of reference for its inquiry into credit rating agencies: see here.

UK: the draft Financial Services Bill - Parliamentary Committee report published

2011-12-19T09:50:00.003Z

The Joint Parliamentary Committee formed to conduct pre-legislative scrutiny of the draft Financial Services Bill published its report today: see here or here (pdf). An executive summary is available here. The Committee makes many recommendations; the Government and regulators are asked, for example, to consider increasing the share of executive remuneration that is deferred and conditional on medium term outcomes. The Committee also suggests that further consideration be given to the introduction of a strict liability regime for executives and directors in respect of the adverse consequences of poor decisions. Elsewhere in the report, recommendations are made regarding the governance of the Bank of England and the objectives of the new Prudential Regulation Authority.

UK: APB publishes revised editions of ES1 and ES5

2011-12-19T00:01:00.007Z

Earlier this year the Auditing Practices Board sought views on a couple of amendments to Ethical Standards 1 and 5: see here (pdf). The APB announced last week that it would be making the proposed amendments and published revised copies of ES1 (here, pdf) and ES5 (here, pdf). A copy of the APB's feedback statement is available here (pdf) and the responses received are available here.

As a result of the changes, the transitional arrangement for tax services provided on a contingency fee basis where contracts were entered prior to 31 December 2010 will be extended to 31 December 2014. Additionally, Ethical Standard 1 will be amended to provided a simplified illustrative template for communicating information on audit and non-audit services to those charged with governance which reflects amended UK regulations on auditor remuneration disclosures.

UK: Scotland: the criminal liability of partnerships - Law Commission report published

2011-12-16T16:33:00.004Z

The Scottish Law Commission has published its report on the criminal liability of partnerships: see here (pdf) or here (html) or here (rtf). The report, which includes a draft Bill, recommends that it should be possible to prosecute a partnership during a period of 5 years following its dissolution. In Balmer v HM Advocate 2008 SCCR 765, 2008 SLT 799, 2008 GWD 26-410, [2008] HCJAC 44, the High Court of Justiciary held that such a prosecution was not possible because the partnership no longer had legal personality. Further background information is available here.

USA: GMI's 2011 CEO Pay Survey

2011-12-16T16:00:00.014Z

GovernanceMetrics International has published its 2011 survey of CEO pay: see here (pdf). GMI reports, amongst other things, that the total realized compensation for CEOs in the S&P 500 has risen by a median 36.5%.

India: Companies Bill introduced in the Lok Sabha

2011-12-16T00:01:00.005Z

The Companies Bill was introduced in the Lok Sabha earlier this week. A copy of the Bill is available here (pdf) and it is accompanied by a document containing corrigenda (here, doc). The Bill is wide-ranging, covering core company law matters, insolvency and governance provisions which are often found in codes of best practice.

A good indication of the Bill's breadth is provided by the following brief review. Clause 144 imposes a restriction on auditors performing certain non-audit services (there was no such restriction in the earlier Act). Clause 165 imposes a restriction on the number of directorships that one person may hold. Clause 166, a new provision, is titled 'Directors' duties' and subsection (2) contains this duty which is not that easy to interpret: "A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment".

The requirement for listed companies to have an Audit Committee is contained in Clause 177. A similar requirement for Nomination and Remuneration Committees is contained in Clause 178, a new provision, which also sets out the requirements for a Stakeholders Relationship Committee. Under Clause 135, certain companies will be required to form a Corporate Social Responsibility Committee for the purposes of formulating a CSR policy. Subsection (4) of this Clauses provides that the Board "shall make every endeavour to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy".

Clause 197 imposes limits on the total remuneration that may be paid to the directors, with reference to the company's net profits. An oppression remedy is provided for shareholders in Clause 241 but its scope is wide because a shareholder is given the right to complain not just about conduct prejudicial or oppressive to him but also where the company's affairs are being conducted in a manner that is prejudicial to the public interest. However, as Clause 244 explains, the right to apply under Clause 241 is not one available to each individual shareholder because, as Clause 244 explains, in companies having a share capital, an application must be made by 100 or more shareholders or at least one tenth of the total number of shareholders.

UK: FTSE UK Index Series - free float minimum to become 25%

2011-12-15T00:01:00.002Z

Following its recent consultation, the FTSE Group has announced that the minimum free float for UK incorporated companies in the FTSE UK Index Series will be increased from 15% to 25%, from 1 January 2012: see here (.doc). Those companies already admitted with a lower free float have 24 months to comply with the new requirement. The FTSE Group has also announced
FTSE will undertake further consultation on whether a higher threshold would be appropriate, or whether additional governance standards should be incorporated in the FTSE All-Share Index.

UK: FRC reports on corporate governance in 2011

2011-12-14T08:36:00.000Z

The Financial Reporting Council has published a report titled Developments in Corporate Governance 2011 - The impact and implementation of the UK Corporate Governance and Stewardship Codes: see here (pdf). The report highlights changes that have taken place in the past year and draws upon FRC and other organisations' research to explain the changes in governance practices which have occurred and areas requiring improvement. The report notes, for example, that 80% of FTSE350 companies have adopted annual re-election of all directors and that over 230 asset managers, asset owners and service providers gave signed up to the Stewardship Code in its first year. However, the FRC reports, based on its discussions, that the majority of companies (and in particular smaller companies) say that they have seen relatively little change in institutional investors' approach to engagement.

The report also highlight areas where the FRC wishes to see improvements, including reporting by audit and remuneration committees. The FRC identifies the rights of minority shareholders in listed companies with dominant shareholders as requiring further attention, and welcomes the FTSE Group’s consultation on increasing its minimum free float requirement for UK incorporated companies.

UK: the UK implementation of Directive 2010/73/EU - consultation paper published

2011-12-14T00:01:00.005Z

The Financial Services Authority and HM Treasury have published a consultation paper setting out how the UK proposes to implement Directive 2010/73/EU, which revised the Prospectus Directive (2003/71/EC) and Transparency Directive (2004/109/EC): see here (pdf).

UK: Competition Commission's audit market inquiry - issues statement published

2011-12-14T00:01:00.002Z

The Competition Commission has published an issues statement as part of its inquiry into the audit market: see here (pdf). The statement draws on evidence so far received by the Commission and sets out some initial theories of what might be adversely affecting competition and what might be the adverse outcomes. These theories and findings provide the framework for the Commission's investigation (they are not, the Commission states, findings or conclusions).

UK: corporate governance since the mid 1980s - what has changed?

2011-12-13T14:12:00.010Z

Yesterday's Financial Times newspaper highlighted research by Professor Annie Pye at University of Exeter Business School in respect of the changes seen in board practice over the last 24 years. Based on interviews spanning the period, the research also highlights the changes in regulation which have occurred. Further information is available here.

UK: Scotland: the defective exercise of fiduciary powers

2011-12-12T09:18:00.000Z

The Scottish Law Commission has published a consultation paper in which it sets out proposals for a statutory procedure under Scots law to permit challenge to the exercise of fiduciary powers which are defectively exercised: see here (pdf). Whilst the Commission notes that the exercise of discretionary powers by trustees is the main area of interest, its proposal would apply to all exercises of fiduciary powers.

UK: the failure of RBS - FSA report published

2011-12-12T08:28:00.001Z

The Financial Services Authority today published its report into the failure of Royal Bank of Scotland: see here (full report, pdf) or here (links to report chapters). The report concludes that six factors contributed to the failure of RBS:

Significant weaknesses in RBS’s capital position, as a result of management decisions and as permitted by an inadequate regulatory capital framework;
Over-reliance on risky short-term wholesale funding;
Concerns and uncertainties about RBS’s underlying asset quality, which in turn was subject to little fundamental analysis by the FSA;
Substantial losses in credit trading activities, which eroded market confidence. Both RBS’s strategy and the FSA’s supervisory approach underestimated how bad losses associated with structured credit might be;
The ABN AMRO acquisition, on which RBS proceeded without appropriate heed to the risks involved and with inadequate due diligence; and
An overall systemic crisis in which the banks in worse relative positions were extremely vulnerable to failure. RBS was one such bank.

Part 2 of the report - see here (pdf) - is titled "Management, governance and culture" and in this part of the report the FSA concludes that it is highly probably that aspects of RBS's management, governance and culture played a role in the failure of the bank. In his Foreword, Lord Turner, the chairman of the FSA, states that there is a strong public interest in ensuring that bank executives and boards reach a different balance between risk and return than would be acceptable in non-bank companies, which suggests that directors and boards should face different personal risk return trade offs compared with non-bank directors and boards. One suggestion made in this regard is the introduction of a strict liability regime for the adverse consequences of poor decisions.

UK: the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2011

2011-12-12T00:01:00.010Z

The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2011 were laid before Parliament last week and come into force on 31 December 2011: see here or here (pdf). The Regulations provide that subsections (4) and (8) of Section 118 (Market abuse) of the Financial Services and Markets Act (2000) will remain in force until 31 December 2014. The accompanying explanatory memorandum explains why the subsections are to remain in force for a further three years: see here (pdf).

Hong Kong: HKEx consults on guide to ESG reporting

2011-12-09T13:30:00.000Z

The Hong Kong Stock Exchange has published for consultation its proposed Environmental, Social and Governance (ESG) Reporting Guide: see here (pdf). The purpose of the Guide is to raise awareness and encourage listed companies to disclose more ESG information. The Exchange is not proposing that compliance with the Guide should be mandatory but it indicates that in future the Guide may operate on a 'comply or explain' basis.

Europe: Commission consults on application of Directive 2007/44 EC

2011-12-09T00:01:00.002Z

The European Commission is seeking views on the application of Directive 2007/44 EC (regarding the procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector) and in particular whether it has reduced barriers to cross-border mergers and acquisitions. The consultation paper is available here (pdf).

UK: FSA consults on NED retail conduct risk guidance

2011-12-08T00:01:00.004Z

The Financial Services Authority has published for comment draft guidance setting out what it expects from non-executive directors with regard to retail conduct risk (i.e., the risk that a firm will treat its retail customers unfairly and deliver inappropriate outcomes): see here (pdf). Further information is available here.

UK: the Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012 - draft published

2011-12-08T00:01:00.001Z

The Department for Business, Innovation and Skills has published a draft of the Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012: see here (pdf). The purpose of the Regulations is to amend provisions in Part 23 of the Companies Act (2006) in order to permit investment companies, in certain circumstances, to make distributions out of revenue profits.

Europe: European Venture Capital Funds - Commission proposal published

2011-12-08T00:00:00.001Z

The European Commission has published a proposal for a Regulation on European Venture Capital Funds: see here (pdf). For further information see: Press release | FAQs | Citizens' summary (pdf) | Impact assessment: full text (pdf) or summary (pdf) |

Basel Committee consults on revised internal audit supervisory guidance

2011-12-07T00:01:00.001Z

The Basel Committee on Banking Supervision has published a consultation paper titled 'The internal audit function in banks' in which its sets out revised supervisory guidance for assessing the effectiveness of the internal audit function in banks: see here (pdf).

UK: the Financial Services Act 2010 (Executives’ Remuneration Report) Regulations 2011 - draft published

2011-12-07T00:00:00.001Z

HM Treasury has published a consultation paper containing a draft of the Financial Services Act 2010 (Executives’ Remuneration Report) Regulations 2011: see here (pdf). The purpose of the Regulations is to require certain large banks to disclose the remuneration received by their eight highest paid senior executive officers. A Treasury press release is available here.

Japan: Olympus - Investigation report published

2011-12-06T16:42:00.001Z

A copy, in English, of the report prepared for Olympus by the Committee formed to investigate the hiding of investment losses has been published: see here (pdf). The report contains various recommendations, including changes to the board and the appointment of truly independent directors. More generally, the long-term challenge will be in addressing what the report describes as "corporate culture and mind": ensuring that board members are prepared to challenge and bring independence of mind to proceedings. These are not new concerns, as the white paper published in 2008 by the Asian Corporate Governance Association made clear (see here, pdf). Meanwhile, it has been reported that proposed changes to company law in Japan are likely to be published shortly: see here.

UK: Wales: the RTM Companies (Model Articles) (Wales) Regulations 2011

2011-12-06T13:49:00.000Z

The RTM Companies (Model Articles) (Wales) Regulations 2011 were made on 5 November, laid before the Welsh Assembly on 8 November 2011 and came into force on 30 November: see here. An explanatory note is available here (pdf). The Regulations apply to RTM (right to manage) companies which exercise the right to manage premises in Wales.

Australia: CAMAC to review the annual general meeting

2011-12-06T13:21:00.003Z

The Treasury has asked the Corporations and Markets Advisory Committee to consider, amongst other things, the future of the annual general meeting in Australia. The terms of reference are outlined in a letter sent to CAMAC by the Hon David Bradbury MP, Parliamentary Secretary to the Treasurer: see here (pdf).

Mr Bradbury's letter refers to a report published in 2008 by the Parliamentary Joint Committee on Corporations and Financial Services - titled 'Better shareholders – Better company: shareholder engagement and participation in Australia", available here (pdf) - in which the role of the AGM was considered. The Joint Committee took the view that the AGM remained a useful engagement forum for retail investors.

UK: England and Wales: piercing the corporate veil

2011-12-05T00:01:00.006Z

Earlier this year, in Antonio Gramsci Shipping Corp v Stepanovs [2011] EWHC 333 (Comm), Burton J. held that that there was a good arguable case that the veil of incorporation should be pierced in order to make liable under various charterparties the ultimate beneficial owners of companies which had been formed for the perpetuation of fraud. In reaching this decision, he observed that there was "no good reason of principle or jurisprudence why the victim cannot enforce the agreement against both the puppet company and the puppet who, all the time, was pulling the strings. ... I accept ... that the puppeteer can be made liable, as a party to the contract, but that as a matter of public policy he cannot enforce the contract" (at paras. [26] and [27]) .

Last week, in VTB Capital Plc v Nutritek International Corp [2011] EWHC 3107 (Ch), Arnold J. declined to follow much of Burton J.'s reasoning, observing that the decision was "not so much a decision to pierce the corporate veil as a decision to ignore privity of contract ... Neither in Gilford v Horne [1933] Ch 935 nor in Jones v Lipman [1962] 1 WLR 832 were damages awarded against the puppet for breach of the puppeteer's contract. Rather, equitable relief was granted against the puppet to stop the puppeteer evading his own contractual liability. Thus the puppet was not treated as being party to the puppeteer's contract" (para. [101]).

Germany: the Stock Corporation Act - English translation

2011-12-05T00:01:00.001Z

Norton Rose LLP has published an English translation of the German Stock Corporation Act (the Aktiengesetz), as amended by the German Restructuring Act (Restrukturierungsgesetz) of 2010: see here (pdf).

Ireland: the Central Bank's fitness and probity regime

2011-12-02T15:58:00.000Z

The Central Bank has published the final version of its Guidance on Fitness and probity Standards, in respect of the new regime which came into effect on 1 December: see here (pdf). The revised Regulations and Standards for Fitness and Probity, which were originally issued earlier this year, have also been published: see, respectively, here (pdf) and here (pdf).

Europe: empty voting - responses to ESMA's consultation

2011-12-02T13:40:00.000Z

Earlier this year the European Securities and Markets Authority published a call for evidence concerning empty voting: see here (pdf). The responses received have now been published: see here.

UK: the Government's consultation on executive remuneration

2011-12-01T09:58:00.000Z

The Government's consultation on executive remuneration ended last month. Responding to a submission from the Confederation of British Industry - available here (pdf) - the Secretary of State for Business, Innovation and Skills today announced that the Government's response would be published early next year: see here.

UK: NAPF publishes updated Corporate Governance Policy and Voting Guidelines

2011-12-01T00:01:00.003Z

The National Association of Pension Funds has published an updated edition of its Corporate  Governance  Policy  and  Voting  Guidelines: see here (pdf). A summary of the amendments is available here (pdf).

Europe: the Commission's audit market reform proposals

2011-11-30T11:42:00.005Z

The European Commission today published wide-ranging proposals for the reform of the audit market. If these become law they will make dramatic changes to the legal framework governing the audit and the organisational structure of the largest firms.

With regard to public-interest entities, the Commission is proposing, amongst other things, mandatory audit firm rotation after six years (9 years if two audit firms are used) and a ban on the auditor providing certain non-audit services. Mandatory tendering of the audit is also proposed and contract clauses requiring a company to be audited by one of the 'Big Four' will be prohibited. The Commission also wants structural changes within the largest firms so that there is a complete separation between auditing and non-auditing activities.

Elsewhere in the proposals, a greater role is proposed for the audit committee, which the Commission says should consist of non-executive directors, with at least one NED having experience and knowledge of auditing and another experience and knowledge in accounting and/or auditing. A greater role for the European Securities and Markets Authority is proposed with regard to coordination between regulators in Member States but also with regard to the publication of guidance on various matters identified in the Regulation including, for example, the content of the handover file to be provided by outgoing auditor to the incoming auditor.

Requiring firms to have joint auditors is not proposed at this stage although it is clear that the Commission believes that there is merit in the largest firms having two auditors (note what is said in the below video).

For further information see: Press release | FAQs | Draft Regulation (pdf) | Draft Directive (pdf) | Impact assessment: full version (pdf) or summary (pdf) | Video summary (and below) |

Europe: freedom of establishment and taxation

2011-11-30T00:01:00.001Z

The Court of Justice of the European Union gave its opinion yesterday in National Grid Indus BV v Inspecteur van de Belastingdienst Rijnmond / kantoor Rotterdam (C‑371/10). A summary of the court's opinion is available here (pdf), from which this headline is taken: "EU law does not in principle preclude the charging of tax on unrealised capital gains relating to the assets of a company when it transfers its place of management to another Member State".

UK: board trends and practices - SpencerStuart report

2011-11-30T00:00:00.000Z

SpencerStuart has published the 2011 edition of its review of the governance practices of the largest 150 companies in the FTSE indexes: see here (pdf). The report notes an increase in the number of foreign non-executive directors and an increase in the number of companies having a separately constituted risk committee (up to 19, from 12 last year).

UK: England and Wales: Court of Appeal upholds decision to wind-up companies offering extended warranties

2011-11-29T15:46:00.002Z

Earlier this year, in Re Digital Satellite Warranty Cover Ltd. [2011] EWHC 122 (Ch), the High Court held that three companies should be wound-up where they carried on business in contravention of the general prohibition found in Section 19 of the Financial Services and Markets Act (2000). The companies offered extended warranty contracts which the trial judge held were contracts of insurance as defined in Article 3(1) and Schedule 1 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/344).

An appeal against the winding-up orders was made and the Court of Appeal gave its opinion today: see Digital Satellite Warranty Cover Ltd v The Financial Services Authority [2011] EWCA Civ 1413. The court held that the trial judge was entitled to find that the warranties were contracts of insurance within class 16(b) in Schedule 1 of the 2001 Order.

UK: the Autumn Statement and financial regulation

2011-11-29T15:28:00.000Z

The Chancellor delivered his Autumn Statement today: see here. Whilst principally focussed on Government spending and taxation, the Statement contained a couple of items concerning financial regulation (at paras. 1.70 to 1.74). First, the Government has reiterated its intention to introduce legislation next year to reform the UK's financial regulatory framework (draft legislation is currently under scrutiny in Parliament). Second, the Government states that by the end of the year it will publish further information regarding the options for the implementation of the recommendations made by the Independent Commission on Banking.

UK: England and Wales: permission granted to continue derivative claim

2011-11-29T14:39:00.000Z

The High Court gave judgment today in Parry v Bartlett [2011] EWHC 3146 (Ch) and granted permission to continue a derivative claim under Part 11 of the Companies Act (2006) in respect of alleged breaches of directors' duties. The case was, in the view of the trial judge, a classic case for a derivative claim (and would have been so under the common law framework which was in place prior to Part 11).

UK: IoD calls for binding shareholder vote on remuneration

2011-11-28T00:01:00.002Z

The deadline for submissions to the Government's consultation on executive remuneration closed last week. On Friday the Institute of Directors published a press release setting out what it had argued in its submission: see here. A binding shareholder vote on remuneration policy and greater simplification of remuneration packages were two of several recommendations made.

UK: Grant Thornton's FTSE350 Corporate Governance Review 2011

2011-11-25T15:16:00.001Z

Grant Thornton has published the 2011 edition of its annual corporate governance review: see here (pdf). The review is based upon the annual reports of 298 FTSE350 companies with year ends between May 2010 and April 2011 (excluding investment companies). The review notes, amongst other things, that 70% of companies have introduced annual re-election for directors (one of the recommendations made in the revised UK Corporate Governance Code published last year). It is also reported that, on average, FTSE350 companies change their statutory auditor once every 34 years. With regard to board size, eleven is the average for FTSE100 companies.

Europe: free movement of capital and the VW law

2011-11-25T14:56:00.000Z

The European Commission has referred Germany to the Court of Justice of the European Union in respect of its failure to comply fully with the court's earlier decision - Commission v Germany (C-112/05) - regarding the so-called Volkswagen law: see here.

India: company law reform and Companies Bill 2011

2011-11-25T09:10:00.000Z

Further progress has been made with regard to the reform of company law in India. The Companies Bill 2009 was introduced in the Lok Sabha on 2009 and later referred to the Standing Committee on Finance for examination. The Committee's report was published in 2010 - see here (pdf) - and, since then, further work on the Bill has been undertaken. In a recent interview the Minister for Corporate Affairs said that an "entirely rewritten" Bill - the Companies Bill 2011 - would be introduced in the winter session of Parliament, following Cabinet approval. It is now being widely reported that Cabinet approval was given yesterday: see here or here.

UK: the Open-Ended Investment Companies (Amendment) Regulations 2011

2011-11-25T08:57:00.000Z

A draft of the Open-Ended Investment Companies (Amendment) Regulations 2011 was laid before Parliament earlier this week: see here or here (pdf). Accompanying the publication of the draft Regulations is an explanatory memorandum here (pdf) and an impact assessment (here, pdf). The purpose of the Regulations is to introduce a protected cell regime for open ended investment companies in order to ensure the segregation of liabilities of different sub funds held under the same OEIC umbrella company.

Deloitte publishes second edition of 'women in the boardroom'

2011-11-24T09:31:00.000Z

Deloitte has published the second edition of its report Women in the boardroom - a global perspective: see here (pdf). The report provides a summary of measures that have been taken (or which are being taken) with regard to the gender diversity of boards in Australia, Belgium, Canada, China, France, Germany, Hong Kong, India, Italy, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain, the United Kingdom and the United States of America.

Singapore: MAS publishes revised corporate governance code

2011-11-23T00:01:00.002Z

Earlier this year the Corporate Governance Council, formed by the Monetary Authority of Singapore, published a consultation paper (here, pdf) containing proposed changes to the Corporate Governance Code to which listed companies are subject on a comply or explain basis. The Council has now finalised its recommendations: a copy of the revised Code is available here (pdf) and a feedback statement from the Council is available here (pdf).

UK: HIgh Pay Commission publishes final report

2011-11-22T13:20:00.005Z

The High Pay Commission published its final report today: see here (pdf). Titled Cheques with Balances: why tackling high pay is in the national interest, the report makes various recommendations including the simplification of remuneration structures, greater disclosure and employee representation on remuneration committees. The Commission considered whether the current shareholder advisory vote regarding the remuneration report should be binding but decided instead to propose that shareholders' advisory votes should relate to remuneration arrangements for the three years following the vote. With regard to remuneration consultants, the Commission recommends that companies disclose the nature and extent of all services provided in order to address perceived conflicts of interest. It is also recommended that all non-executive positions should be publicly advertised.

NB: the Government's consultation on executive pay ends this week.

Hong Kong: amendments to the governance code and listing rules

2011-11-22T00:01:00.001Z

In December last year the Hong Kong Stock Exchange published a consultation paper reviewing its corporate governance code and associated listing rules (here, pdf). The results of that consultation, and the Exchange's proposed changes, have now been published: see here.

UK: the Kay Review of UK Equity Markets and Long Term Decision Making

2011-11-21T13:03:00.001Z

The Secretary of State for the Department for Business, Innovation and Skills, the Rt. Hon. Dr Vince Cable MP, earlier this year announced the launch of an independent review, chaired by Professor John Kay, to consider the effect of UK equity markets on the competitiveness of business. An initial call for evidence was made (here, pdf), the deadline for which passed last week. On Saturday The Independent newspaper reported - see here - that Professor Kay has indicated that he is "ready to recommend a radical overhaul of the duties of big investors in monitoring companies in which they invest".

Europe: Commission's audit market reform proposals expected next week

2011-11-21T00:01:00.005Z

The European Commission has announced - see here - that its audit market proposals will be published on 30 November, following the consultation which ended last year. The Financial Times has reported - see here - that the ambitions of the internal market commissioner, Michel Barnier, have met with some resistance from his fellow Commissioners and that this seems likely to result in Mr Barnier compromising on plans to require large companies to have joint auditors.

New Zealand: the Auditor Regulation Act 2011 - first consultation paper published by FMA

2011-11-18T14:07:00.000Z

The Financial Markets Authority has published the first of several consultation papers concerning the implementation of the Auditor Regulation Act 2011. The first paper - available here (pdf) - covers matters including the minimum standards a person would need to meet in order to receive a licence to perform issuer audits and the minimum standards an audit firm must meet in order to be registered.

UK: governance issues raised by Labour Party leader

2011-11-18T13:40:00.000Z

The Leader of the Labour Party, the Rt. Hon. Ed Miliband MP, delivered a speech yesterday at the Social Market Foundation in which governance issues received his attention: see here. More specifically, Mr Miliband, observed:

The second area where we need fundamental change is in the way companies have been told to think about their worth. The old way said that short term shareholder value should drive business strategies, and that would deliver for everyone. That the board should first and foremost be concerned with the short term share price. That institutional investors were right to be impatient for quick returns. But again what business has told me is that it is hampering their ability to create productive wealth. Instead, our economy has been held back by the short-term pressures under which our companies operate. Examples abound. The inability of a great British firm like Cadburys to resist Kraft’s takeover once speculating shareholders had decided there was a short term profit to be made. The battles with institutional shareholders in which Rolls Royce had to engage during the 1990s, so that it could make the long term investments that have made it such a success today.

In recent weeks, travelling around the country, I have met business people over and over again who tell me they simply cannot get support for the long-term investments they need. What is interesting is that sometimes it is different forms of ownership, from mutuals to family owned businesses, that provide protection against the predatory short-termism of the system. So to address this short-termism we will need to address a whole range of areas. Including those raised by Richard Lambert, the former Director General of the CBI. We need to look at why so many funds of institutional investors seem to be managed as if the only important issue was the next quarterly announcement. We need to look at whether the voting rights of shareholders should always be the same from day one of ownership. And we need to look at how the tax system can encourage and discourage short-term behaviour that holds Britain back".

Europe: ESMA's AIFM Directive rules

2011-11-17T09:56:00.001Z

The European Securities and Markets Authority has published its final advice on the detailed rules underlying the Alternative Investment Fund Managers Directive: see here. The purpose of ESMA's proposed rules is to establish a comprehensive framework for alternative investment funds, their managers and depositaries.

UK: England and Wales: implied terms and the articles of association

2011-11-16T08:45:00.001Z

The Court of Appeal gave judgment last week in Cream Holdings Ltd v Davenport [2011] EWCA Civ 1287 and unanimously held that the trial judge (at [2010] EWHC 3096 (Ch), [2010] All ER (D) 100 (Nov)) was right to find that a term should be implied in a company's articles of association providing that a shareholder should not unreasonably withhold his consent to the appointment of an accountant in the context of provisions in the articles for the transfer and valuation of shares.

Europe: Commission publishes credit rating agency proposals

2011-11-16T08:20:00.003Z

Yesterday afternoon the European Commission published proposals for a Regulation and a Directive regarding credit rating agencies. A video recording of the Commission's press conference, at which the Internal Market Commissioner (Michel Barnier) spoke, is available here. It is proposed, amongst other things, that an agency should not provide a rating for a paying issuer for a period greater than three years. It would appear that Mr Barnier was unable to secure agreement amongst his fellow Commissioners for proposals concerning the suspension of sovereign ratings in exceptional circumstances; further analysis and work will therefore take place. For further information see: press release | FAQs | proposed Regulation (pdf) and Directive (pdf) | Impact assessment: executive summary (pdf) and full version (pdf) |

Europe: consultation on the EU corporate governance framework - feedback statement published by Commission

2011-11-15T14:25:00.002Z

The European Commission has a published a feedback statement summarising the responses received in respect of its corporate governance green paper: see here (pdf). The statement provides a summary of the individual responses received; it does not contain any policy pronouncements.

Gibraltar: proposed corporate tax changes constitute state aid

2011-11-15T14:11:00.001Z

The Court of Justice of the European Union (Grand Chamber) gave its opinion today in Commission v Government of Gibraltar and United Kingdom: see here. A press summary is available here (pdf). The court decided that proposed changes to the taxation of companies in Gibraltar - the effect of which was that offshore companies would pay no tax - constituted state aid and were therefore incompatible with EU law. The court found that offshore companies enjoyed a selective advantage under the proposals which, in the court's view, was not the random consequence of the proposed regime: it was the inevitable consequence of the proposed bases of assessment (the number of employees and occupation of premises).

Australia: the Commonwealth Government Business Enterprise Governance and Oversight Guidelines

2011-11-15T11:19:00.000Z

The Australian Government Department of Finance and Deregulation has published Commonwealth Government Business Enterprise Governance and Oversight Guidelines: see here (pdf) or here (.doc). These apply to Government Business Enterprises (GBEs) that are Commonwealth authorities and GBEs that are wholly-owned Commonwealth companies.

Germany: the Code Commission's response to the European Commission's governance green paper

2011-11-14T00:01:00.001Z

A copy, in English, of the the Code Commission's response to the European Commission's recent corporate governance green paper has been published: see here (pdf). In its response, the Code Commission states, amongst other things, that it would be premature to conclude with regard to German companies that there are deficiencies in the explanations provided for non-compliance with the Code.