UK: England and Wales: the reflective loss principle

The Court of Appeal decision Charles Frederick Webster v Sandersons Solicitors (a firm) [2009] EWCA Civ 830, which concerned the application of the reflective loss principle, was handed down at the end of last month. It has recently been reported in the Law Society Gazette: see here.

UK: financial regulation and the competitiveness of London

An interview with Lord Turner, the chairman of the Financial Services Authority, appears in the September edition of Prospect Magazine. Lord Turner's observations have been widely reported in today's newspapers with front page reports in the Financial Times and Guardian. The Financial Times reports:

The head of Britain’s top banking watchdog supports the idea of new global taxes on financial transactions, warning that a 'swollen' financial sector paying excessive salaries has grown too big for society. Adair Turner, chairman of the Financial Services Authority, says the debate on bankers’ bonuses has become a 'populist diversion' and that more drastic measures may be needed to cut the financial sector down to size. He also says the FSA should 'be very, very wary of seeing the competitiveness of London as a major aim', claiming the city’s financial sector has become a destabilising factor in the British economy".

Meanwhile, the Guardian's report states:

The government's top financial regulator last night backed radical plans for a multibillion-pound tax on banks as a way to tackle the City's persistent bonus culture. Lord Turner ... warned bankers that he would support a new wave of taxes on the City to prevent excessive profiteering if they continue to take excessive risks. In a searing critique of the industry, Lord Turner described much of the City's activities as 'socially useless' and questioned whether it has grown too large".

UK: the Code of Good Governance for the Voluntary and Community Sector - consultation launched

The steering group responsible for the voluntary and community sector's Code of Good Governance is seeking views on a revised version of the Code principles. The group proposes that the Code should contain six high level principles and operate on the 'comply or explain' basis. The group provides this introduction before explaining the six principles:

Good governance is acknowledged to be essential for the success of any organisation and is now more important than ever. Members of boards play a vital role in serving their causes and communities and bring passion and commitment as well as skills and experience to the organisations they lead. They provide long term vision and protect the reputation and values of their organisations. To make a difference a board needs to have proper procedures and policies in place but it also needs to work well as a team and have good relationships within the organisation. The purpose of these principles is to assist board members to enhance their decision making, increase their accountability and enable them to provide strong leadership. This will in turn assist the people and causes their organisations were set up to benefit.

The six high level principles are designed to be universal and applicable to all voluntary and community organisations. It is the practice and procedures which will vary according to the type and size of the organisation. Underlying each principle is the additional principle of equality-that of ensuring equality, diversity and equality of treatment for all sections of the community. We consider that this is fundamental and it is embedded in all the principles.

In the Code we have used the term “the board “to mean the organisation’s governing body. In your organisation it may be called the board (or board of directors or board of governors) the trustees, the management committee or some other name. It is the body with overall responsibility for governing the organisation, overseeing and controlling its management.

A good board will provide good leadership by:

i. Understanding their role.
ii. Ensuring delivery of organisational purpose.
iii. Being effective as individuals and a team.
iv. Exercising control.
v. Behaving with integrity.
vi. Being open and accountable".

A full copy of the so-called "refashioned principles" is available here. Last year a report was published which considered awareness of the Code and its impact; this report has influenced the steering group's work. 

Note: the National Council of Voluntary Organisations publishes guidance (some of which can be viewed free of charge) for those involved in the governance of voluntary and community organisations: see here. 

France: bankers' bonuses

The Financial Times newspaper reports that French banks are to be subject to new rules on traders' bonuses. The new rules provide that bonuses must be deferred over three years, one-third of the award should be in shares, and full payment must be dependent on long-term performance criteria. For further discussion, placing the proposals in their political context, see here.

Germany: updated corporate governance code published

The German Corporate Governance Code Commission has published an updated edition of its Code, following a meeting in May. Further information, including a copy of the new Code with the amendments highighted, is available here (currently only in German; a copy of the Code in English is likely to follow).

UK: Scotland: Companies Act 2006 - directors' duties and board ratification considered in the Outer House

Sitting in the Court of Session (Outer House), Lord Hodge gave his opinion in Eastford Ltd v Gillespie & Anor [2009] CSOH 119 last week. Of interest - in England as well as Scotland - will be his discussion of directors' duties under the Companies Act (2006) and the principles governing board ratification of directors' unauthorised acts. Lord Hodge observed (paras. [7] to [10]):

It is well established at common law that, unless a company's constitution otherwise provides, a board of directors can, within a reasonable time, ratify the acts of a director or directors who, when they acted, had no authority to bind the company ... The statutory statement of the general duties of directors in Chapter 2 of Part 10 of the Companies Act 2006 has not superseded that line of authority. Section 171 provides that a director of a company must act in accordance with the company's constitution. That might, taken by itself, suggest that an unauthorised act could not be ratified. But it is clear on examining the statutory statement of the general duties of directors that that statement does not prevent a company by a resolution of its board from ratifying the acts of a director which were unauthorised but were within the power of the board.

One must look to the purpose of the statutory statement which is revealed in the 2006 Act. Subsections (3) and (4) of section 170 set out the relationship between the general duties which are stated in the Act and the pre-existing common law rules and equitable principles on which they are based. Subsection (3) provides:

'The general duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director'.

Thus the statutory statements replace such of the common law rules as have been subjected to statutory formulation. But sub-section (4) provides:

'The general duties shall be interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties'.

This subsection seeks to address the challenge which the Law Commissions and the Company Law Review had identified, namely of avoiding the danger that a statutory statement of general duties would make the law inflexible and incapable of development by judges to deal with changing commercial circumstances. Parliament has directed the courts not only to treat the general duties in the same way as the pre-existing rules and principles but also to have regard to the continued development of the non-statutory law in relation to the duties of other fiduciaries when interpreting and applying the statutory statements. The interpretation of the statements will therefore be able to evolve. The statutory statement of the general duties of directors is intended to make those duties more accessible to commercial people. I see nothing in the statutory provisions, including section 180(5) (which provides that, subject to specified exceptions, the general duties have effect notwithstanding any rule of law), which suggests that Parliament intended to alter the pre-existing rules on ratification by a board of a director's unauthorised acts.

I am supported in my opinion by Lord Glennie in West Coast Capital (Lios) Ltd Petr [2008] CSOH 72, (at para 21) in which he expressed the view that section 171 of the 2006 Act did little more than set out the pre-existing law on the subject. I also derive some support from leading company law textbooks such as Gore-Browne on Companies (at para 15[8A]) and Palmer's Company Law, which (at para 8.2309) suggests that older cases remain relevant to the interpretation of the statutory duties 'since the codified duties are generally formulated in a way that quite faithfully reflects the older case law'. The statutory formulations do not, by a side wind, alter the law of agency or prevent ratification of the unauthorised acts of a director".

Australia: financial market regulation - a greater role for ASIC

The Treasurer, Wayne Swan MP, and the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, yesterday announced changes in the regulation of Australia's financial markets. A greater role is to be given to the Australian Securities and Investments Commission (ASIC), which will become responsible for the supervision and enforcement of the laws against misconduct on Australia's financial markets. For further information and an implementation timetable see here. A transcript for the press conference given yesterday by Chris Bowen MP is available here.

UK: draft remuneration consultant code of conduct - ABI calls for greater disclosure

Today's Financial Times reports that the Association of British Insurers is calling for changes to the draft remuneration consultant code of conduct signed by Deloitte, Hay Group, Hewitt New Bridge Street, Kepler, Mercer, Towers Perrin and Watson Wyatt. The FT report states:

Sir David Walker, who has been asked to look at reforms to the way British banks are run, gave a tentative welcome to the code in his report on corporate governance in financial services, released last month. However, when it makes its official response to the Walker Review in the coming weeks, the ABI said it would call for a more aggressive stance. It wants boards to disclose publicly how much they spend on pay consultancy each year, as well as how much management spend on other services from the same firms. The draft code of conduct recommends that this information be given to the chair of the remuneration committee but not be published".

Note: a copy of the draft code is available as annex 11 in Sir David Walker's first report on corporate governance in UK banks and other financial industry entities. 

UK: gender diversity and FTSE350 company boards

Yesterday's Observer newspaper reported the results of a survey commissioned by the newspaper concerning the number of male and female directors on FTSE350 company boards. The report noted:

Women occupy only 242 out of 2,742 seats on the boards of FTSE 350 companies, according to a study by The Co-operative Asset Management as part of our Good Companies Guide series of reports into ethical and socially responsible practice in corporate Britain. More than 130 companies out of those surveyed had an all-male board and the vast majority of female directorships are non-executive. Women hold only 34 executive board seats out of a possible 970".

Australia: board diversity in public limited companies - CAMAC report published

The Australian Government's Corporations and Markets Advisory Committee has released its report concerning board diversity in public limited companies (the report is dated March 2009 but has only recently been available on the CAMAC website). The report provides a brief overview of the legal framework governing boards and has an interesting, albeit short, chapter exploring what makes an effective board.

With regard to diversity, the Committee advises against the introduction of quotas for private sector companies, stating that this would run counter to the principle that board composition is the ultimate responsibility of the shareholders. The Committee notes, however, that there is scope for government and business leaders to encourage companies to take a more open approach to board selection. In this regard, the Committee recommends some changes to the commentary in the ASX Corporate Governance Council Principles and Recommendations in order remind nomination committees of the desirability of considering board diversity. 

UK: collective action by shareholders - FSA guidance published

Sally Dewar, managing director of wholesale and institutional markets at the Financial Services Authority, has written a letter to the chairman of the Institutional Shareholders Committee outlining the circumstances in which collective engagement by institutional shareholders would not breach the rules concerning market abuse, disclosure of substantial shareholdings and changes in control. In the accompanying press release, it is stated:

The FSA strongly supports Sir David Walker's proposals to strengthen shareholder engagement with the boards of investee companies aimed at promoting good corporate governance. The letter makes clear that its rules do not stand in the way of Sir David's proposals".

Australia: CAMAC to consider directors' guidance

The Hon Chris Bowen MP, Minister for Financial Services, Superannuation and Corporate Law, has asked the Corporations and Markets Advisory Committee to consider one aspect of Australia's corporate governance framework: the guidance provided to directors. Specifically, Mr Bowen has asked CAMAC to:

• examine the guidance or codes of conduct that are available overseas for corporate directors;
• examine whether there is sufficient guidance provided to executive directors and non-executive directors in Australia to ensure that they have a clear understanding of their roles and responsibilities; and
• advise whether the performance of directors would be enhanced by the introduction of guidance for directors, for example through a code of conduct or best practice guidance, by a relevant regulator; and if so what form that guidance should take. 
  

In his letter Mr Bowen writes:

While Australia has a world-class corporate governance framework, the importance of continuing to assess it against international best practice has been highlighted by the recent global economic crisis. An integral part of corporate governance best practice is that boards of publicly listed companies have executive directors, who are full time employees of the company, concerned primarily with the daily management of company business, and a majority of non-executive directors (NEDs) who are independent of management. NEDs provide a corporate board with particular skills, experience and independence, performing an important function in Australia’s corporate governance framework. In asking the Committee to examine what guidance is required for both executive directors and NEDs to fully understand the responsibilities of their role, I am particularly interested in what support can be provided to increase the engagement of NEDs with their position on the board and bring an independent and broad view to board decision making".

UK: Darling rejects calls for High Pay Commission

Today's Guardian newspaper reports that the Chancellor, Alistair Darling, has rejected yesterday's calls for the formation of a High Pay Commission. In an interview with the BBC, Mr Darling indicated that legislation would be introduced but the context of his comments suggests that any proposals are unlikely to appease those calling for wide reaching limits on bank and executive pay. Indeed, the Guardian reports Mr Darling's position: "I think the best way of deciding pay is between employers and employees". Instead, it's likely that the Government's proposals will focus on the role and powers of the Financial Services Authority and the recommendations in Sir David Walker's final report on bank corporate governance (to be published in November 2009).

Note: from a comparative perspective, it will be interesting to read the Australian Productivity Commission's draft report on executive remuneration, which is due to be published next month: see here for further information.

UK: the Overseas Companies Regulations 2009

The Overseas Companies Regulations 2009 have been republished today by OPSI: see here (html) and here (pdf). An explanatory memorandum is available here but no explanation for the republishing is provided (the presence of typographical errors in the original is a possible reason). The purpose of the Regulations is explained in the explanatory memorandum as follows:

Every company incorporated in a country outside the United Kingdom (an overseas company) that operates its business in the United Kingdom through at least one establishment (that is to say either a branch or a place of business that is not a branch) and is not a UK-incorporated subsidiary company, must register its particulars with the Registrar of Companies. The Overseas Companies Regulations 2009, made under the Companies Act 2006 (“the 2006 Act”), set out the UK company law filing requirements for this type of company, which come into effect on 1 October 2009".

UK: more on bankers' pay + the case for a High Pay Commission

Yesterday's Sunday Times newspaper contained a front page report titled "Alistair Darling: new law to curb city bonuses", based on an interview with the Chancellor. Mr Darling's actual comments were, however, rather more equivocal: “If we need to change the law and toughen things up, we can do that" he is reported as saying. The newspaper contained an editorial titled "Darling, you can't curb big bonuses", in which the familiar analogy between highly paid footballers and bankers and directors was repeated. It's often argued that if society is happy for footballers to be highly paid why not others including directors? There is a difficulty here: can the contribution of a director be measured and assessed in the same way as a footballer's contribution to his team's success?

Meanwhile, in a letter in today's Guardian newspaper, the case is made for the establishment of a High Pay Commission (HPC). The authors rightly broaden the debate on pay and argue that the HPC should:

... launch a wide-ranging review of pay at the top. It should consider proposals to restrict excessive remuneration such as maximum wage ratios and bonus taxation to provide the just society and sustainable economy we all want".

UK: Companies House update on Companies Act 2006 implementation

As 1 October 2009 approaches - the date for the final implementation of the Companies Act (2006) - Companies House has announced that it will be sending a letter and brief guide concerning the changes to all companies during August and September. According to the announcement on the Companies House website this will be:

... a large scale exercise and we are aware that over 4,000 registered offices cover more then 500,000 companies. To make it easier for agents and intermediaries who look after large numbers of companies to manage this, we will send only one copy to the registered office and offer an electronic version for sending on to individual companies".

UK: reforming corporate governance - another suggestion from Lord Myners

Today's Financial Times reports another suggestion from Lord Myners, HM Treasury's Financial Services Secretary, regarding bank corporate governance: non-voting shares. The FT reports:

Companies should issue non-voting shares to allow more activist shareholders to take a greater role in corporate governance issues, Lord Myners has suggested, in the latest of a flurry of controversial ideas put forward by the City minister. Under the latest proposal, Lord Myners said companies could make a 1-for-1 issue of non-voting shares to existing shareholders. These could then be traded in the market alongside voting shares.

'Those shareholders who value the right to engage and to vote would tend, if the price was right, to switch their investment from the new non-voting shares they receive into the additional purchases of old voting shares,' he said in a letter to commentary service Breakingviews. 'Investors with no intention of getting involved in stewardship, and who find voting and pressure to do so tiresome, would sell their old voting shares and add an equivalent interest in the new non-voting shares.' "

UK: FSA Handbook: remuneration code added

The remuneration code published yesterday by the Financial Services Authority has now been added to the FSA Handbook: click here to view it (you will need to change the handbook date at the top of the page to 1 January 2010). A permanent link has been added on the right of this page. 

UK: Sants defends FSA's remuneration code

"Watchdog 'gives green light' for huge City bonuses" is the headline of a front page report in today's Times newspaper, following publication yesterday of the Financial Services Authority's remuneration code. The FSA's chief executive, Hector Sants, has addressed this and other criticism in an interview this morning on the BBC Radio 4 Today programme (listen here). Mr Sants repeated the point that he has made already with regard to the FSA's role: it is not the regulator's role to challenge the remuneration of individuals where remuneration within firms is consistent with effective risk management. Mr Sants added that where remuneration - particularly bonuses - is seen by many to be excessive relative to rewards elsewhere in society, that is a matter for Government. 

Update (13 August 2009): Mr Sants' comments have been reported here and here by, respectively, the Guardian and Telegraph newspapers. 

Australia: corporate governance reporting under the second edition of the ASX's Principles and Recommendations

The Australian Securities Exchange has published the results of its first review of corporate governance reporting under the second edition of its Corporate Governance Principles and Recommendations for listed entities with a 31 December 2008 balance sheet date. The second edition applies to listed company's first financial year beginning on or after 1 January 2008. 

The ASX's review considered the annual reports of 168 entities (9% of the total number of listed entities). Key findings included the following:

The review of corporate governance reporting of the annual reports of entities having a 31 December 2008 financial year end demonstrates that compliance with the ASX Listing Rules and the Revised Recommendations is at a relatively high level. 

74% of entities reviewed were identified as having reported specifically against the Revised Recommendations. In addition, approximately 14% of entities were identified as being substantially in compliance with the Revised Recommendations and the Listing Rules but did not specifically make reference to the Revised Recommendations. The remaining 12% of entities reviewed were also found to be substantially in compliance with the Listing Rules but reported specifically against the 2003 Recommendations.

On a subjective assessment of corporate governance reporting for each of the 168 entities reviewed, 50 or 29% were described as 'very good', 76 or 45% were described as 'good', 34 or 20% were described as 'satisfactory' and 8 or 5% of entities were described as 'poor' ".

Portugal: CMVM proposes amendments to corporate governance code

The Portuguese Securities Commission (Comissão do Mercado de Valores Mobiliários) is seeking views on proposed amendments to its Corporate Governance Code. The consultation ends in early September. For further information see here. 

UK: FSA publishes remuneration code of practice

The Financial Services Authority has today published its remuneration code of practice for banks, building societies and broker dealers. The code comes into force on 1 January 2010. It contains the general requirement that firms must "establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote effective risk management". This is supported by eight principles and further guidance, including information on the requirement for firms to produce a remuneration policy statement (about which the FSA will shortly be writing to remuneration committee chairs).

With regard to the structure of bonuses, the Code is less prescriptive than that originally published by the FSA and instead contains, in principle 8, the requirement for the remuneration structures of senior employees and risk takers to be consistent with and promote effective risk management. The Code does, however, contain this guidance: 

'Guaranteed minimum bonuses' which run for a period of more than one year and similar payments in addition to an employee’s salary that are not based on performance during the performance period under review are likely to be inconsistent with Remuneration Principle 8". 

The level of bonuses paid within banks remains controversial (see, e.g., the letter in today's Guardian newspaper written by a group of UK university business school professors). With regard to the amount of remuneration paid, the Code states that it is:

... concerned with the risks created by the way remuneration arrangements are structured, not with the absolute amount of remuneration, which is a matter for firms’ remuneration committees".

The eight principles cover the following areas:

1. Role of the bodies responsible for remuneration policies and their members (e.g., the remuneration committee, the remuneration policy statement).
2. Procedures for setting remuneration and risk and compliance function input.
3. Remuneration of employees in risk and compliance functions.
4. Profit-based measurement and risk-adjustment.
5. Long-term performance measurement.
6. Non-financial performance metrics.
7. Measurement of performance for long-term incentive plans.
8. Remuneration structures.
   

Whether the Code should apply to all FSA authorised firms will be the subject of a consultation paper in the autumn. As it currently stands, the Code will apply to 26 firms. 

The Code will be included in the FSA Handbook and the relevant amendments are being made by the Senior Management Arrangements, Systems and Controls (Remuneration Code) Instrument 2009.

For further information see: FSA policy statement (including the Code) | FSA press release | FSA newsletter | March 2009 consultation paper | Article by the FSA chief executive in today's Financial Times newspaper | 

Update (13 August 2009): the FSA Handbook has now been updated to include the Code: click here (if the Code is not displayed, try changing the date at the top of the page to 1 January 2010).

UK: Moore Stephens in the Times Law Reports

Last week's House of Lords judgment Moore Stephens v Stone Rolls Ltd. [2009] UKHL 39 - noted in this earlier post - has been reported in the Times Law Reports this week: see here. The report will be available online for at least the next 7 days. 

UK: UK GAAP and IFRS convergence - ASB proposals published

The Accounting Standards Board has today published for consultation a policy proposal concerning the future of UK Generally Accepted Accounting Practice (GAAP) and its convergence with International Financial Reporting Standards (IFRS). The ASB is proposing substantial and wide ranging change through the creation of a three tier framework as follows:

• Tier 1 - publicly accountable entities [including listed companies] to apply the IFRS as adopted by the EU.
• Tier 2 – all other UK entities other than those who can apply the ASB's Financial Reporting Standard for Smaller Entities (FRSSE) to apply the IFRS for SMEs.
• Tier 3 – small entities to apply the ASB's FRSSE.

Entities in tiers 2 and 3 will have the option to adopt a higher tier's standard(s). The ASB's proposals (to quote from policy document at paras. 1.9 and 1.10):

... are intended to apply to all entities, other than those in the public sector, in the United Kingdom and the Republic of Ireland that are required to prepare financial statements that give a ‘true and fair’ view. That includes companies and other corporate structures in both the for profit and public benefit entity (also known as not-for-profit) sectors. They therefore encompass all the entities that are currently required to apply UK GAAP including those that presently apply the industry-specific guidance contained in the Statements of Recommended Practice (SORPs). It excludes those public sector entities for which government directly sets financial reporting requirements. We acknowledge the scale of such a proposal but consistent with our ambition we want to take this opportunity to deal with UK GAAP in a comprehensive manner to ensure reporting requirements are effective but simplified and produce more relevant, comparable and understandable information.

This will be a significant step in creating a common financial reporting language in the UK and the Republic of Ireland. In the Board’s view, it will potentially reduce costs of compliance with complicated financial reporting requirements and assist those who rely on published".

The consultation period ends on 1 February 2010.

Australia: the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 - progress report

The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 will require shareholder approval of directors' termination payments which exceed one year's base pay. At present it is possible for a director to receive a termination payment equivalent to seven years' base pay without shareholder approval. 

The Bill was introduced in the House of Representatives on 24 June 2009 and subsequently referred to the Senate Economics Legislation Committee for inquiry and report. On 27 July the inquiry presented its interim report and stated that it required more time to complete it final report, which is now likely to be published during the first half of September. Meanwhile, the Australian Parliament's Department of Parliamentary Services has provided a useful digest of the Bill here. Submissions to the Legislation Committee's inquiry have also been published: see here. 

Ireland: company law reform update

The Department of Enterprise, Trade and Employment has published its 2008 Companies Report. Chapter two of the report concerns company law reform and provides the following update: 

On 25th of July 2007 the Government approved the General Scheme of the Companies Consolidation and Reform Bill, as prepared by the [Company Law Review Group], for drafting by the Office of Parliamentary Counsel. It is envisaged that substantial progress towards the completion of drafting will be made by late 2009. The Companies Consolidation and Reform Bill will consolidate the existing 13 Companies Acts, as well as other regulations and common law provisions relating to the incorporation and operation of companies, into a single Act, comprising in the region of 1263 sections. In summary, the provisions cover the incorporation of companies, corporate governance, duties of directors and secretaries, financial statements and auditors, receivers, reorganisations and examinerships, windings-up and compliance and enforcement. The provisions are brought together in a coherent manner that will facilitate business people in incorporating and operating companies on a day-to-day basis.

The Bill also modernises company law to reflect modern business practice. Reflecting the fact that 90% of companies in Ireland today are in the form of a ‘private company limited by shares’, the first part of the Bill will set out all of the provisions relating to that type of company. In the second part, the provisions for the ‘private company’ are modified for other company types such as public limited companies (PLCs). The Bill is intended to simplify the process of establishing and operating a company subject to specific safeguards for shareholders and creditors. To promote compliance with the law and to protect investors and creditors, the Bill will also set out clearly the corporate governance duties of directors, company secretaries and auditors. The functions of the Companies Registration Office, the Office of the Director of Corporate Enforcement and the Irish Auditing and Accounting Supervisory Authority will also be detailed. The Bill will bring together the provisions relating to compliance and enforcement such as company investigations, compliance and protective orders, disclosure orders, disqualification and restriction of directors and prosecution, offences and evidential matters".

UK: the FSA and bankers' bonuses

The chief executive of the Financial Services Authority, Hector Sants, was interviewed yesterday on the BBC1 Andrew Marr Show. Mr Sants explained the role of the FSA with regard to the regulation of bonus payments:

… our job is to make sure that banks in their compensation policies, in their bonus policies do not put those institutions at risk, which was what happened in the past. They do not pay out when they should not be paying out, they do not pay out when they have not made those profits. We can certainly ensure that that does not happen again. We can say to them if they pay out or threaten to pay out more than they should do, we will increase the amount of capital they hold and take enforcement action. The question of the size of individual payments is not one for financial regulators. That is one for politicians and society as a whole. If politicians wish to take a view on that, then they should say so, but they should not be asking the regulator to carry out a pay policy. Our job is to make sure that banks do not pay out in aggregate more than they should do and do not put the banks themselves at risk.

Mr Sants also stated that the FSA would be publishing its remuneration code this week (a draft was published earlier this year). The interview is reported in today's Financial Times newspaper (see here) and Guardian (see here). A transcript of the interview is available here. A short extract of the interview can be viewed here.

Europe: European Corporate Governance Forum annual report

The European Corproate Governance Forum has published its 2008 annual report. This provides an overview of the Forum's work programme for 2008-2011 and a summary of its activities in the past year. The minutes of the Forum's most recent meeting have also been published. These provide a useful update on the work of the European Commission in the corporate governance field and the Commission's study on the monitoring and enforcement of corporate governance codes in the Member States.

Isle of Man: implementation of the Companies (Amendment) Act 2009

The Financial Supervision Commission has announced that the Companies (Amendment) Act 2009 will come into force on 1 September 2009. The Act makes changes to companies legislation with regard to prospectuses, registration of charges, accounting provisions, treasury shares and the Limited Liability Companies Act 1996. See the FSC's announcement for further information.

UK: disclosure of director loans in company accounts

The Department for Business, Innovation and Skills has issued a consultation paper concerning the scope of the requirement for disclosure of directors' loans in company accounts under Section 413 of the Companies Act (2006). The paper outlines various proposals for amending Section 413 as part of the Government's review of the adequacy of information provided to shareholders and other users of accounts in respect of directors' loans.

UK: model articles under the Companies Act (2006) - BIS draft guidance published

The Department for Business, Innovation and Skills has today published draft guidance concerning the model articles under the Companies Act (2006). The model articles will apply to all new companies incorporating under the 2006 Act on or after 1 October 2009. The document also explains the differences between the model articles and those under the Companies Act (1985). It also contains information on other changes to companies' constitutional documents.

Note: copies of the model articles, and related resources, are available within the collection of links on the right of this page. 

USA: say on pay legislation - update

The Corporate and Financial Institution Compensation Fairness Bill (HR 3269) - which will, inter alia, provide shareholders of public companies with an advisory vote on remuneration - was passed in the House of Representatives by 237 votes to 185 last Friday. The Bill was received in the Senate on Monday, read twice, and referred to the Committee on Banking, Housing and Urban Affairs. 

For further information and comment see this report from the Washington Post and this report from the New York Times. A summary of the Bill is available here. The record of debate in the House is available here. 

UK: Finance Act 2009 explanatory notes published

Explanatory notes for the Finance Act (2009) have been published: see here (html) and here (pdf). The notes provide a brief explanation of the new duty imposed on the senior accounting officer (or officers) of large companies by Section 93 and Schedule 46:

Large companies make a major contribution to the Exchequer. Inadequate tax accounting arrangements within such companies (or groups) can lead to misreporting of tax liabilities of very large amounts. Currently, there is no legal obligation on any particular director or company officer to ensure that the company has appropriate tax accounting arrangements. This section and Schedule will make the senior accounting officer of a company personally responsible for doing so. Ensuring appropriate tax accounting arrangements are in place is no more than compliant companies will be doing already. The requirement on senior accounting officers to take reasonable steps to ensure appropriate tax accounting should in most instances merely underpin that good practice. Where large companies have not established appropriate tax accounting arrangements to enable accurate tax reporting, tax is at risk. Senior accounting officers of such companies will be required by this section to take appropriate action to remedy that situation.

Section 93 and Schedule 46 provide that senior accounting officers of qualifying companies are required to take reasonable steps to ensure that the company establishes and maintains appropriate tax accounting arrangements. Qualifying companies must notify HMRC of the name of the senior accounting officer. The section includes a power to impose penalties on both senior accounting officers and companies who fail to comply with these requirements. The change has effect in relation to financial years beginning on or after the day this Act is passed.

India: Companies Bill 2009 introduced in the Lok Sabha

The Companies Bill 2009 was introduced today in the Lok Sabha by the Corporate Affairs Minister Shri Salman Khurshid. A copy of the Bill will be available here. For further information, including an overview of the Bill, see the press release published by the Ministry of Corporate Affairs. 

UK: Lord Myners on the Walker Review and the ownerless company

Lord Myners, the Financial Services Secretary, was interviewed by the BBC's Business Editor, Robert Peston, in a TV programme - Leading Questions - broadcast last Saturday. Lord Myners repeated his call for the radical reform of bank corporate governance and argued that institutional investors need to become effective owners (as opposed to investors) in order to prevent what he called the "ownerless company". 

Lord Myners suggested that Sir David Walker's recommendations had not gone far enough with regard to remuneration. He also stated that consideration should be given to introducing differential voting rights in order to provide an incentive for institutions to take ownership more seriously. This suggestion has attracted much attention. A report in today's Financial Times notes criticism from the National Association of Pension Funds. Criticism from the Association of British Insurers was noted in a report in Saturday's Telegraph newspaper. 

The interview can be viewed below (but only for those in the UK) and will be available until 4:59am on 8 August. If the video does not appear embedded below, try watching it here. 

Resources for learning and teaching: accounting education website

Within the past month the links on the right side of this page have been reorganised and expanded. A new category - Resources for Learning and Teaching - has been added which includes websites created for the specific purpose of supporting the teaching of corporate governance (and closely related subjects). Included in this category is the excellent Accounting Education site which provides, inter alia, very useful updates concerning UK financial reporting and accounting.

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

The ICAEW and ICAS have published a joint technical release: 01/09 - Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006.