FSB progress report on compensation structure reforms

The Financial Stability Board has today published a review of progress in applying the Principles for Sound Compensation Practices and their Implementation Standards: see here (pdf). The following overview is provided in the accompanying press release (available here, pdf)

The FSB Principles and Standards were endorsed by the G20 Leaders at their summits in London in April 2009 and Pittsburgh in September 2009. In their Pittsburgh statement, the G20 Leaders tasked the FSB “to monitor the implementation of FSB standards and propose additional measures as required by March 2010".

Significant progress has been made in incorporating the FSB Principles and Standards into domestic regulatory and supervisory frameworks. Compensation structures in the major financial firms have changed [in] response. But full implementation is far from complete. Sustained efforts by firms and authorities remain necessary to effectively align compensation structures in major financial institutions with prudent risk-taking".

UK: building society capital and related issues - consultation paper

HM Treasury yesterday published a consultation paper seeking responses to some very broad questions concerning capital raising by building societies and related governance issues: see here (pdf).

The paper contains many suggestions including providing Core Tier 1 capital instrument holders with the right to nominate a board member, with the society's members retaining the right to remove such board members at the annual general meeting.

UK: England and Wales: major professional negligence claims against accountants

Law firm Reynolds Porter Chamberlain LLP reports "a sudden jump in the number of professional negligence claims against accountants last year (to December 31st) ... there were 13 major High Court professional negligence claims launched against accountants last year, eclipsing the four claims there had been over the previous five years". See here for further information.

Europe: wide-ranging governance green paper likely this year

In an interview with Financial News, available here, Internal Market Commissioner Michel Barnier is quoted as follows:

Many shareholders acted with a short-term perspective rather than acting with the long-term viability of the institution they own in mind ... We need to reconsider the role and responsibilities of shareholders, how risk committees work, whether internal and external audits are working as they should, and the composition of executive boards. I hope to launch a Green Paper, a wide consultation with all stakeholders, on this issue before the end of the year".

UK: the Building Society Sourcebook

Following a consultation last year, the Financial Services Authority has now published a copy of the Building Society Sourcebook, which becomes part of the FSA Handbook: see here (pdf). For further information see the FSA press release and newsletter (pdf).

UK: ICGN conference - a couple of speeches

At last week's ICGN corporate governance conference, speeches were delivered by, amongst others, Lord Myners, the Financial Services Secretary at HM Treasury, and Sir Christopher Hogg, chairman of the Financial Reporting Council: see, respectively, here (html) and here (pdf).

Lord Myners used his speech to repeat the point that he has long made - "Shareholders have duties as owners; and they should fulfill them" - and questioned the reluctance expressed by some for further changes in the governance framework.

Sir Christopher Hogg's speech concerned the FRC's work on the proposed Stewardship Code for Institutional Investors. He recognised that it was appropriate for the FRC to undertake this work but warned that it represented a considerable challenge in terms of difficulty and reputational risk. Sir Christopher also observed:

In the years since the Cadbury Committee Code was published in 1992 a great deal has been achieved in corporate governance. However, the monitoring of corporates by their shareholders is being profoundly affected by some major trends in the investment industry ... The FRC is acutely aware of the impact of these trends, which has been indicated by many consultations in recent years and brought to a head by the financial crisis ... There is scope and time for the FRC to remedy this. But success in doing so cannot be taken for granted, will take years, not months, and will require changed attitudes, practices and policies on both sides of the engagement process".

UK: Treasury Committee calls for radical reform of financial regulation

The Parliamentary Treasury Committee has published a report as part of its inquiry Financial Institutions - Too Important too fail? The report is divided into two volumes - see here (pdf) and here (pdf) - and calls for the radical reform in order that financial institutions face the consequences of their own actions. The Committee states (vol 1, pp. 68-69):

Given the lamentable consequences of the previous regulatory approach, the Government should be prepared to embrace radical change, rather than settling for adaptation to an existing, failed model".

With regard to governance, the Committee has once more expressed its concerns with the value of the external audit process (vol 1, pp. 16-17):

If investors are to assess properly the level of risk they are prepared to take, they need clear and impartial information about the companies in which they invest. Company audits should provide such material, but as we concluded in our Report on Banking Crisis: reforming corporate governance and pay in the City, the current audit process results in "tunnel vision", where the big picture that shareholders want to see is lost in a sea of detail and regulatory disclosures. The recent revelations about Lehman’s use of Repo 105 illustrates the extent to which audit reports can seemingly omit crucial information. We call for progress on our earlier recommendations, to ensure that audit reports are an effective tool for investors".

UK: FRC Combined Code review - responses published

The Financial Reporting Council has published the responses received in respect of the report and recommendations published in December as part of its review of the Combined Code on Corporate Governance: see here.

UK: England and Wales: contributions for fraudulent trading under Section 213(2) of the Insolvency Act (1986)

In Goldfarb v Higgins & Ors [2010] EWHC 613 (Ch), handed down yesterday, the trial judge held that a company secretary (Mr Higgins) and director (Mr Charalambous) of a company in liquidation were liable to contribute to the assets of the company under Section 213, the fraudulent trading provision in the Insolvency Act (1986).

In assessing their contribution the trial judge was required to consider whether, as counsel for the liquidator contended, the company secretary and director should be jointly and severally liable for the totality of the loss. The liquidator's counsel was unable to cite any authority considering whether Section 213(2) required joint and several liability. The trial judge stated (paras. [29] - [32]):

I find some assistance ... from the judgment of Park J in In Re Continental Assurance Co [2001] BPIR 733. That case concerned not section 213 but section 214 of the 1986 Act. Section 214 is concerned with wrongful trading and provides that the court may declare that 'a person who is or has been a director of the company' is liable 'to make such contribution (if any) to the Company's assets as the court thinks proper'. Where several respondents were subject to an application by the liquidator under section 214, Park J rejected the argument that the starting point is one of joint and several liability. He held that the wording of the section clearly 'concentrates individually on each director who is a respondent to an application by a liquidator' [386]. And he continued at [387]: '…The initial duty of the court where it finds that liability exists on the part of two or more respondents is to determine in the case of each respondent how much he individually ought to contribute'.

The wording of section 213 is different from section 214 in that the statutory jurisdiction under the former is addressing "persons" in the plural rather than a single "person". But the reference in section 213 to "contributions" is in my view a clear indication that the contribution need not be the same for each respondent. I think it would be surprising if the 1986 Act sought to prescribe a different approach in a fraudulent trading case within section 213 from that in a wrongful trading case within section 214. The fact that immediately adjacent provisions in the statute adopt almost identical wording is in my view a strong indication that, as a matter of interpretation, no such distinction is intended.

It is clearly possible for the court to determine that several respondents should all be jointly and severally liable for the full loss caused to the creditor(s). However, in my judgment, it is appropriate to make a separate assessment of the contribution of Mr Higgins and of Mr Charalambous on the facts here".

UK: restoration to the register of companies

Companies House reports that there have been problems with the information being supplied in connection with applications for administrative restoration of companies to the register under Section 1024 of the Companies Act (2006). Additional guidance has therefore been provided: see here.

UK: Budget 2010 - financial regulation and governance

The Chancellor delivered his annual budget today and in his speech expressed support for an international systemic tax on banks. Elsewhere in the budget report there is more of interest to note. Chapter 3 of the report - titled "Reforming financial services" - mentions several company law and governance matters, many of which are likely to remain if there is a change of Government later this year. To quote directly from the report (para. 3.24-3.25 and 3.65):

Sir David Walker was commissioned by the Government in 2009 to review governance practices in the financial services sector. The Government, in collaboration with other bodies with a governance remit, will implement Sir David’s recommendations throughout 2010. Consequently, the FSA is consulting on changes to its ‘significant influence controlled functions’ regime. The Financial Reporting Council (FRC) is consulting on revisions to the Corporate Governance Code, and separately on the adoption and coverage of a Stewardship Code for investors. As part of the development of the Stewardship Code on which the FRC is currently consulting, the Government will also consider whether the existing institutional investor voting disclosure regime should become mandatory as provided for in section 1277 of the Companies Act 2006.

On 10 March 2010 the Government published draft Regulations to require enhanced disclosure of remuneration in the financial services sector. After the Financial Services Bill gains Royal Assent, the Government will formally consult on those Regulations. As part of that process, and given the key role that owners should play in managing remuneration contracts, the Government will consult on whether further practical measures can be identified to facilitate the consent, by owners, of executive remuneration in the financial services sector.

The Government proposed in the 2009 Pre-Budget Report the introduction of a specific governance code for building societies and other financial mutuals. It also announced that it would consider the introduction of a regular independent review of financial mutuals’ adherence to the code. HM Treasury has commissioned a working group to take this work forward and to make recommendations to Ministers. The objectives are to ensure that an appropriate code is there for those that need it; the Walker recommendations are appropriately reflected in guidance for mutuals; there is independent input into this process; the governance and ownership characteristics of the mutual model are fully reflected in governance guidance; and the guidance provides a useful resource in promoting good governance among financial mutuals. The Government will update on the group’s work in the Pre-Budget Report".

Europe: European Company (SE) - study and consultation

The European Commission has launched a consultation the purpose of which is to test the results of a study by Ernst & Young concerning the operation of the European Company Statute. The following background information is provided in the accompanying press release:

The European Company Statute, commonly known by its Latin name of 'Societas Europaea' or SE, was adopted on 8 October 2001, after more than 30 years of negotiation, and became available for use on 8 October 2004. A total of 431 SEs were registered as at 10 September 2009.

The SE has proved to be very popular in some Member States. Well known examples of successful SEs are Allianz, BASF, Porsche, Fresenius and MAN from Germany, SCOR from France, Elcoteq from Luxembourg and Strabag from Austria. However, in other Member States the SE has not taken off ... In order to determine whether changes are needed to make the SE Statute work better, the European Commission has launched a public consultation. With the review of the SE Statute, the Commission is aiming to increase the use of the SE across the European Union".

For further information, including a summary of the E&Y study report, see here.

UK: insider dealing - arrests made in first joint FSA/SOCA investigation

The Financial Services Authority and Serious Organised Crime Agency have made arrests in connection with their first joint investigation of insider dealing. The investigation began in 2007. The FSA reports on its website:

Six men including two senior city professionals at leading city institutions and one city professional at a hedge fund have been arrested on suspicion of being involved in a sophisticated and long-running insider dealing ring. It is believed that the city professionals passed inside information to traders (either directly or via middlemen) who traded based on this information and have made significant profits as a result".

UK: the Credit Rating Agencies Regulations 2010

The Credit Rating Agencies Regulations 2010 were laid before Parliament today and come into force on 7 June 2010: see here (pdf). An explanatory memorandum is available here (pdf) and this explains:

The Regulations contain provisions that ensure that the EC Regulation [No 1060/2009 of the European Parliament and of the Council on credit rating agencies] is effective in the United Kingdom. The Regulations designate the Financial Services Authority (“the Authority”) as the UK competent authority for the purposes of the EC Regulation, in accordance with Article 22(1) of the EC Regulation. They confer investigatory powers on the Authority in accordance with Article 23 of the EC Regulation, and create national penalties in accordance with Article 36 ...

The EC Regulation introduces a harmonised approach to the regulation of credit rating activities in the European Union. The Regulation: [a] establishes a registration system for credit rating agencies; [b] requires registered agencies to comply with various provisions relating to independence, conflicts of interest, employees and analysts, methodologies and models, outsourcing, and disclosure and presentation of information; and [c] requires specified financial institutions to use credit ratings for regulatory purposes only if they have been issued or endorsed by a registered credit rating agency, or issued by an overseas agency that has been certified in accordance with the Regulation".

Italy: Corporate Governance Code amended

Borsa Italiana, the Italian Stock Exchange, has announced several amendments to its corporate governance code. See here for further information. A copy of the revised code will be available here (English) and here (Italian).

USA: female directors on company boards

The Corporate Library has published research exploring the proportion of women on the boards of companies in the Russell 3000 index. The report is available for download here (some personal information is required). The report notes (to quote from its executive summary):

Almost 90 percent of S&P 500 companies do have at least one woman on their boards, which accounts for the perception in some quarters that women’s representation is widespread. However, only 60 percent of companies comprising the Russell 3000 as a whole, and only half of Russell 2000 companies, have at least one female director".

Hong Kong: the HKEx Listing Committee report

The Hong Kong Stock Exchange Listing Committee has recently published its 2009 report: see here (pdf). The report notes (pp. 5-6):

The Listing Committee has formed a sub-committee to consider whether issuers should set up a corporate governance committee and how the role of the company secretary may be further enhanced. The sub-committee is also taking the opportunity to review other issues relating to the Code on Corporate Governance Practices (“CG Code”) as well as items pertaining to corporate governance that have arisen in the course of our administration of the Listing Rules in recent years. The objective is to make possible enhancements to the CG Code that is benchmarked against international standards. Topics covered include disclosure of information on directors, shareholders meetings and matters relating to directors, in particular, independent non-executive directors".

The report states that the enhancement of listed issuers' corporate governance standards is a priority for 2010. Specifically, the following are amongst the issues to be considered: the development of a corporate social responsibility code for listed companies; a review of the role of company secretaries; contributing to the Companies Ordinance rewrite; and the continuation of the Corporate Governance review (noted above).

UK: ICSA responds to FRC Combined Code recommendations

The Institute of Chartered Secretaries and Administrators has published its response to the final report and recommendations published by the Financial Reporting Council in respect of its review of the Combined Code: see here (pdf).

ICSA supports in general the draft Code and the approach taken by the FRC but expresses reservations concerning annual election for the board and/or chairman. In this regard, ICSA states in its submission: "our strongly preferred route is to maintain the status quo of triennial elections".

UK: FRC chief executive on the new governance and stewardship codes

Stephen Haddrill, the chief executive of the Financial Reporting Council, yesterday delivered the keynote speech at ICSA's corporate governance conference. In his speech - available here (pdf) - Mr Haddrill commented on the FRC's recent review of the Combined Code and its work developing the Stewardship Code. He stated that a revised corporate governance code would most likely be published in May. He also made this important point:

No code or regulation can ever be an adequate substitute for an effective board. We have to entrench governance in the spirit of the boardroom, not in compliance with rules. I would even argue that, for some companies and some investors, compliance with the Code provided false comfort that governance was adequate. And this is very damaging if it discourages boards from thinking about governance in the context of the particular challenges facing their company. Compliance with the Code is not a substitute for proper leadership by the board or proper scrutiny by shareholders".

Singapore: MAS consultation on corporate governance framework

The Monetary Authority of Singapore has published a consultation paper containing proposed changes to the corporate governance framework for financial institutions: see here (pdf). The changes focus on directors' skills, commitment and independence as well as board committees, remuneration and risk management.

Europe: relaxing the financial reporting obligations of small companies

The European Parliament has adopted a text supporting the Commission's proposal to give Member States the power to remove the financial reporting obligations imposed on small companies by Directive 78/660/EEC (on the annual accounts of certain types of company). See here for further information about the Commission's proposal.

UK: BIS consultation on registration of charges

The Department for Business, Innovation and Skills has, at last, published a consultation paper seeking views on proposals for the reform of the legal framework governing the registration of charges by companies and limited liability partnerships: see here (pdf). Responses can be made online here.

UK: FSA publishes 2010/11 business plan

The Financial Services Authority has published its 2010/11 business plan: see here (pdf). Section 1, which deals with financial stability, discusses the FSA's role with regard to regulated firms' governance, financial reporting and remuneration policies. With respect to its supervisory role, the FSA states (p. 16):

Key areas that we will continue to build on in 2010/11 are: focusing on corporate governance; financial reporting; firms’ remuneration; recovery and resolution plans; and further developing our ability to identify and mitigate risk".

Basel Committee consultation on principles for enhancing corporate governance

The Basel Committee on Banking Supervision yesterday published Principles for enhancing corporate governance - a consultation paper: see here (pdf). The paper provides 14 principles, divided into 6 broad categories: (1) board practices, (2) senior management, (3) risk management and internal controls, (4) compensation, (5) complex or opaque corporate structures and (6) disclosure and transparency.

UK: Corporation Tax Act (2010) - explanatory notes published

Explanatory notes for the Corporation Tax Act (2010) were published yesterday on the OPSI website: see here (pdf). Tables of destinations and origins have also been published: see, respectively, here (pdf) and here (pdf).

USA: Senator Dodd's Restoring American Financial Stability Act of 2010

Senator Chris Dodd, the chairman of the Senate Banking Committee, yesterday published the text of his proposed Restoring American Financial Stability Act of 2010. Mark-up by the Committee is scheduled for March 22. A copy of the Act is available here (pdf) and a summary is available here (pdf).

With regard to corporate governance, the Act contains several provisions including, for example, the introduction of a non-binding 'say on pay' vote for shareholders; the requirement that compensation/remuneration committees contain only independent directors and the requirement for public companies to establish policies for the clawing back of executive compensation if found to be based on inaccurate financial statements not complying with accounting standards.

USA: Lehman Brothers, the Valukas Report and the auditor's role

Anton R. Valukas, chairman of law firm Jenner and Block, published his Chapter 11 Proceedings Examiner's Report for Lehman Brothers Holdings Inc. last week: see here. To quote from the report (vol 1, p. 3):

Lehman’s financial plight, and the consequences to Lehman’s creditors and shareholders, was exacerbated by Lehman executives, whose conduct ranged from serious but non‐culpable errors of business judgment to actionable balance sheet manipulation; by the investment bank business model, which rewarded excessive risk taking and leverage; and by Government agencies, who by their own admission might better have anticipated or mitigated the outcome"

Much attention has focused on the devices through which the balance sheet manipulation was achieved and the role of the firm's auditors in this regard, discussed in volume 3 of the report: see here (pdf). To quote from the report (pp. 732-)

Lehman employed off‐balance sheet devices, known within Lehman as 'Repo 105' and 'Repo 108' transactions, to temporarily remove securities inventory from its balance sheet, usually for a period of seven to ten days, and to create a materially misleading picture of the firm’s financial condition in late 2007 and 2008 .. Lehman regularly increased its use of Repo 105 transactions in the days prior to reporting periods to reduce its publicly reported net leverage and balance sheet ... Lehman never publicly disclosed its use of Repo 105 transactions, its accounting treatment for these transactions, the considerable escalation of its total Repo 105 usage in late 2007 and into 2008, or the material impact these transactions had on the firm’s publicly reported net leverage ratio ... Repo 105 transactions were not used for a business purpose, but instead for an accounting purpose: to reduce Lehman’s publicly reported net leverage and net balance sheet ...

... The Examiner concludes that sufficient evidence exists to support colorable claims against Ernst & Young LLP (“Ernst & Young”) for professional malpractice arising from Ernst & Young’s failure to follow professional standards of care with respect to communications with Lehman’s Audit Committee, investigation of a whistleblower claim, and audits and reviews of Lehman’s public filings".

So, once more, the value of the external audit is under the spotlight in the USA and beyond. The UK's Financial Reporting Council has requested information from Ernst & Young as part of an enquiry into how the 'Repo' transactions were accounted for and audited in the UK. With regard to the auditor's function, an editorial in today's Financial Times newspaper offers some interesting suggestions, including:

A more manageable change might be a shift from the binary convention that accounts are either fine or qualified. One way to beef up the due diligence value of the audit would be for the auditor to pass judgment on the quality of the information provided – perhaps on some scale with reasons given. This would give the investor a clearer appraisal of the value of the financial information. It would also force the auditor to remember who its customer actually is".

UK: audit firms' provision of non-audit services to listed companies they audit

Last year the Auditing Practices Board - part of the Financial Reporting Council - published a consultation paper concerning audit firms' provision of non-audit services to the listed companies they audit. This followed a recommendation by the Treasury Select Committee, in its report Banking Crisis: Reforming Corporate Governance and Pay in the City (May 2009) (see para. 237 in chapter 6). Responses to the consultation have now been published: see here.

UK: financial regulation after the crisis

The future shape of the regulatory framework rests on the outcome of the general election. The Conservative Party is committed to giving the Bank of England a greater role in the regulation of banks and abolishing the FSA: see here (pdf). In a speech delivered last week, Hector Sants, the chief executive of the Financial Services Authority, defended the actions made by the FSA to change its regulatory approach and stated:

My personal view is that the structure of regulation was not a major contributory factor in the crisis. Yes, there were deficiencies in the Tripartite system. But what matters here is that we have the right people making the right decisions, and the right policies and rules in place to support that process".

Mr Sants also identified several unresolved issues which he believed were not being adequately addressed or debated, including culture and investor responsibility, about which he observed:

Firstly, on the issue of culture and behaviour – dare I say it, ethics? Poor risk management was a key driver of the crisis. We need to answer the question of whether a regulator has a legitimate focus to intervene on the question of culture. This arguably requires both a view on the right culture and a mechanism for intervention. Answering yes to this question would undoubtedly significantly extend the FSA’s engagement with industry. My personal view is that if we really do wish to learn lessons from the past, we need to change not just the regulatory rules and supervisory approach, but also the culture and attitudes of both society as a whole, and the management of major financial firms. This will not be easy ... From the regulators’ perspective it is probably the case that seeking to set ourselves up as a judge of ethics and culture would not be feasible or acceptable. More realistic would be to relate the consequences of culture to regulatory outcomes. However, developing this line of thinking requires much further debate which I would welcome.

Secondly, which is linked to the first, is the question of investor/shareholder responsibility. Are they owners with owner’s responsibilities or investors who merely trade the shares with their obligation being to their investors? I suspect they will insist on remaining the latter. Thus while investors will resist taking on additional responsibility, they should recognise the value to them of challenging management to ensure their business plans are credible. With regard to investors, the other important point is whether they fully understood the investments they were buying. Adherence to the maxim ‘do not buy something that you do not understand’ is critical".

UK: GC100 publishes response to the FRC Combined Code review

GC100 - the Association for the General Counsel and Company Secretaries of FTSE100 companies - has published its submission to the Financial Reporting Council with regard to the proposed changes to the Combined Code on Corporate Governance: see here (pdf).

The GC100 continues to argue that substantial change is not required and that greater prescription should be avoided. It also notes, amongst other things, its disappointment that the FRC has retained the description "comply or explain" to describe the basis of the Code's operation in preference to "apply or explain". The GC100 membership continues to be divided on whether annual re-election for all directors is preferable to three year rotation.

Ireland: financial regulation priorities

In a speech delivered yesterday, the Head of Financial Regulation at the new Central Bank outlined, for the first time in public, his priorities: see here (pdf). Here is an extract from the speech:

... the Government has decided to introduce legislation that will create a new Central Bank of Ireland encompassing activities currently carried out by the Financial Regulator. This legislation is expected very shortly ...

... I intend to implement a framework of assertive risk-based regulation underpinned by the credible threat of enforcement. We need to insist that the biggest and riskiest firms manage themselves better and that firms and their management are held more accountable for their actions ...

... it is clear that there have been fundamental failings in corporate governance. We will be coming forward with a package of proposals covering corporate governance standards, tougher fitness and probity requirements and guidelines on remuneration and risk taking. Many of these will extend beyond the banking sector to other categories of financial services firms but will be developed, in line with our risk-based approach, in a proportionate manner".

UK: Company Law Committees respond to FRC Combined Code proposals

A joint committee formed by Company Law Committee of the Law Society of England and Wales and the City of London Law Society Company Law Committee has published its response to the changes proposed to the Combined Code on Corporate Governance by the Financial Reporting Council: see here (pdf).

The joint committee expresses its broad support for the approach of the proposed changes and provides comments concerning the legal and practical issues associated with their implementation. For example, with regard to the proposal to amend Main Principle A1 to include a reference to the "long term" success of the company, the joint committee observes:

In legal terms the duty of a director to promote the success of a company is not so circumscribed. Is it correct that a board must always be responsible for long-term success? How should they consider bid proposals or administration/ insolvency events? Can a company not be formed to undertake a particular venture? We query whether it is appropriate to include the qualifying reference to the long-term, when the board is also responsible for success in the short and medium term".

UK: issuer liability - extending the statutory regime

HM Treasury has published its response to last year's consultation on extending the statutory regime for issuer liability: see here (pdf). The Financial Services and Markets Act (2000) will be amended in order to provide for the liability of issuers to pay compensation to investors in respect of (a) a misleading statement or dishonest omission in certain published information relating to securities, or (b) a dishonest delay in publishing such information. This will be achieved by the Financial Services and Markets Act 2000 (Liability of Issuers) Regulations 2010, a draft of which has been published here (pdf). An explanatory memorandum is available here (pdf).

Australia: audit quality consultation paper published by FRC

Australia's Financial Reporting Council has published a consultation paper titled Audit Quality in Australia - A Strategic Review: see here (pdf) or here (rtf). The report concludes that the audit framework is robust and stable and that fundamental change is not required. It nevertheless identifies possible areas for reform including, for example, key finding 23:

... having regard to the important role that the audit committee plays in the good governance of a company, Treasury considers that it would be appropriate to examine whether the requirement for a company listed on the S&P/ASX All Ordinaries Index to establish an audit committee should be included in the Corporations Act rather than the Listing Rules, and whether the existing requirement should be extended to all listed companies.

Another related issue that Treasury considers should be examined is whether the mandatory requirement for the top 300 listed companies to comply with the recommendations of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations on the composition, operation and responsibility of the audit committee should be applied to all 500 companies listed on the S&P/ASX All Ordinaries Index. Treasury proposes to explore these issues with relevant stakeholders including ASIC, the Australian Institute of Company Directors (AICD) and the ASX".

UK: Companies House publishes revised guidance

Companies House has published revised editions of two of its guidance booklets: [1] GP4 - Strike Off, Dissolution and Restoration and [2] GPLLP3 - Limited Liability Partnership Strike Off, Dissolution and Restoration.

UK: Corporation Tax Act 2010 published

A copy of the Corporation Tax Act 2010 has been published on the OPSI website: see here (pdf). The Act comes into force on 1 April 2010 although some sections are already in force (see Section 1184 for further information).

UK: female director recruitment - Government asks FRC to consider disclosure principle

The Government Equalities Office has published a press release in which it announced that the Government has asked the Financial Reporting Council to consider including a new principle in the UK Combined Code on Corporate Governance (aka the UK Corporate Governance Code) which would require companies to "report on what they're doing to get more women into their boardrooms".

Ireland: time for an Irish corporate governance code?

The Irish Stock Exchange has responded to the publication last week of Grant Thornton's 2010 Corporate Governance Review. In a press release - available here (pdf) - the Exchange's Head of Market Supervision (Mike Duignan) is quoted as follows:

The Report deals with one aspect of corporate governance, namely the [UK] Code. Good corporate governance is, of course, wider than that and requires companies to give appropriate regard to other aspects of corporate governance such as company law, strategy and ethics. In the coming weeks the ISE will be considering the findings and recommendations in the Report and how these can best be implemented in the Irish market. The ISE will then engage in a market-wide consultation in relation to the recommendations of the Report and this consultation will also consider amendments to the Code currently being proposed by the Financial Reporting Council in the UK. In addition, we intend to use the consultation process to address some broader governance issues, such as whether there should be a stand-alone Irish corporate governance code".

Note: companies with their ordinary shares listed on the main market of the Irish Stock Exchange are required under the Exchange's Listing Rules (chapter 6) to state whether they have complied with the UK Combined Code on Corporate Governance and, if not, to explain why.

Update: its been pointed out to me that the ISE's press release is a little ambiguous about the Report to which it is referring. It seems likely that it was published not in response to the Grant Thornton report but to a separate report commissioned by the ISE and the Irish Association of Investment Managers - available here (pdf) - exploring listed companies' compliance with the Code.

UK: Takeover Panel Code Committee consultation

Last Friday the Takeover Panel Code Committee published a consultation paper containing proposed amendments to the Takeover Code with respect to profit forecasts, asset valuations, and merger benefit statements which are made before or during an offer: see here (pdf). The purpose of the amendments, the Code Committee states, is to improve the Code's consistency and coherency.

UK: Parliamentary Bills update

The Corporation Tax Bill received Royal Assent earlier this week: see here. The Bill, now an Act, will soon be published on the OPSI website. It largely completes the Government's rewrite of the corporation tax code and is the sixth Act produced by the Tax Law Rewrite Project.

The Bribery Bill, which was introduced in the House of Lords, received its Second Reading in the House of Commons on Wednesday: see here. This provided MPs with their first opportunity to debate the Bill. Background information about the Bill, covering debate in the Lords, is available in a House of Commons Library research paper published on 1 March: see here (pdf).

UK: corporate governance - an FSA perspective

Yesterday, at a corporate governance seminar organised by the Building Societies Association, the FSA's Director of Permissions, Decisions and Reporting (Graeme Ashley-Fenn) delivered a speech titled Corporate Governance - an FSA Perspective: see here. The speech provides a useful overview of some of the actions that the FSA has taken with regard to governance of regulated firms as well as its proposals in the recently published consultation paper Effective Corporate Governance (CP10/3).

UK: ICSA review of the Higgs Guidance - consultation paper published

The Financial Reporting Council, as part of its recent review of the Combined Code on Corporate Governance, commissioned the Institute of Chartered Secretaries and Administrators to review the Higgs guidance and to consider whether additional guidance was required. As part of its review, ICSA this week published a consultation paper titled Improving Board Effectiveness: see here (pdf).

The paper sets out a suggested framework for new guidance around five areas: [1] roles and responsibilities of the board and its members; [2] skill levels in the boardroom; [3] board decision-making; [4] the individual on the board; and [5] accountability. Responses should be submitted by 16 April. In June, ICSA will publish a further consultation paper with the aim of submitting completed guidance to the FRC in October.

Ireland: the Combined Code - compliance and disclosure

Grant Thornton Ireland has published its 2010 Corporate Governance Review: see here (pdf). The report examines compliance with the UK Combined Code on Corporate Governance by companies having their ordinary shares listed on the main market of the Irish Stock Exchange. Such companies are required under the Exchange's Listing Rules (chapter 6) to state whether they have complied with the Code and, if not, to explain why.

The report notes a decline in the proportion of companies claiming full compliance with the Code (down from 51% to 36%) but notes an improvement in the quality of disclosure provided by companies in respect of non-compliance. This said, the report identifies many areas where improvements in disclosure are needed. A summary of the report is available here.

The 2009 report is available here (pdf).

Europe: CESR calls for pan-European short selling disclosure regime

The Committee of European Securities Regulators published a report yesterday in which it recommended the introduction of a pan-European short selling disclosure regime: see here (pdf).

UK: FRC review of the Combined Code - IoD responds to final report

The Institute of Directors has published its response to the final report report published by the Financial Reporting Council as part of its review of the Combined Code on Corporate Governance: see here (pdf).

The IoD is broadly supportive of the proposed changes but states that greater attention should be given by policymakers and market participants to the way in which the Code is implemented. With regard to the Stewardship Code for Institutional Investors, the IoD argues that its likely impact should not be overplayed because institutional shareholders' preference for 'exit' rather than 'voice' is likely to persist where holdings in individual companies remains small.

OECD: corporate governance and the financial crisis - report

The OECD has published a report titled Corporate Governance and the Financial Crisis: Conclusions and Emerging Good Practices to Enhance Implementation of the OECD Principles: see here (pdf).

The purpose of the report is to help companies and policy makers more effectively implement the OECD Principles of Corporate Governance, reflecting the Steering Group's view that the Principles continue to provide a good basis on which to address the main governance concerns that have been raised.

The report represents the third phase of the OECD Steering Group on Corporate Governance's action plan on corporate governance and the financial crisis. It builds on the report Corporate Governance Lessons from the Financial Crisis and subsequent, preliminary findings in Corporate Governance and the Financial Crisis: Key Findings and Main Messages.

Spain: Principles of Good Corporate Governance for Unlisted Companies

The codes and principles directory maintained by the European Corporate Governance Institute has been updated today with a copy of the Principles of Good Corporate Governance for Unlisted Companies published by the Instituto de Consejeros-Administradores: see here. For a list of additions to the ECGI directory since 1 January, see here.

Europe: ECGF statement on empty voting and transparency of shareholder positions

The European Corporate Governance Forum has published a statement on empty voting and transparency of shareholder positions: see here (pdf). Here is an extract from the statement:

Empty voting and hidden ownership techniques increasingly exercise significant influence on companies, mostly listed companies, and the key decisions shareholders can take. The Forum is of the opinion that this deserves special attention in order to safeguard the integrity of the governance of European – especially listed – companies and the markets on which their shares are traded.

... The Forum recommends the introduction of an assumption in company law that shareholders who take part in a general meeting own the corresponding economic interest in the voted shares. A principle should then be introduced that where shareholders who have retained legal title to the shares and exercise the vote that goes with them but have ceded all or part of the economic interest should disclose this to the market above an appropriate threshold. Parties not making the required declarations may be considered to have made an untrue statement".

UK: Lord Mandelson calls for takeover reform

Today's Financial Times newspaper reports the comments of the Secretary of State for Business, Innovation and Skills, Lord Mandelson, with regard to the rules governing the conduct of takeovers in the UK. The comments were given in a speech delivered yesterday at the Mansion House in London. A transcript of the speech is not yet available on the BIS website.

According to the report, Lord Mandelson welcomed the Takeover Panel's review of the Takeover Code and argued for reform to reflect the "values of the long-term or organic growth and value creation over the temptations of excessive leverage and the fast buck".

Update: a copy of the speech is available here. It is more wide-ranging than takeovers and there is discussion of the duties of directors under the Companies Act (2006), about which Lord Mandelson stated:

... the Companies Act sets out the duties of directors to consider the best outcome for a company in the long term, considering the interests of all the stakeholders – employees, suppliers, and its brands and capabilities. Getting a higher price in a takeover may not be perfect proxy for that. It seems to me that we need to have a debate about how these various duties should be understood in the fast-moving circumstances of a takeover, when some of the company’s newest shareholders may not have a long term commitment to the company. Obviously we need Directors equipped to be stewards rather than just auctioneers. If this requires re-stating the 2006 Companies Act, then I am willing to do that".

UK: corporate manslaughter trial adjourned

The BBC News website reports that the first trial for corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act (2007), which began last week at Bristol Crown Court, has been adjourned for 18 weeks: see here.