Wednesday 30 June 2010

Australia: the ASX Corporate Governance Principles and Recommendations

Earlier this year the Australian Securities Exchange Corporate Governance Council published for consultation proposed changes to the second edition of its Corporate Governance Principles and Recommendations. The submissions have been published (here) along with the Council's response (here, pdf). The majority of submissions provided strong support for the Council's changes, which address, for example, board structure and diversity and the remuneration committee.

A copy of those Principles and Recommendations which have been amended is available here (pdf). A comparative table showing the Principles and Recommendations before and after the changes is available here (pdf). An overview of the changes is available here (pdf).

Japan: shareholder meetings

The majority of listed companies in Japan hold their annual general meeting in the last week of June. This concentration of meetings was described by the Asian Corporate Governance Association, in its 2008 white paper (here, pdf), as being a "major obstruction to the exercise of shareholder rights and good corporate governance, and is unnecessary".

The annual general meeting period remains concentrated although the proportion of meetings held on the same day has fallen in recent years. Yesterday was nevertheless a popular day: 40% of companies listed on First Section of the Tokyo Stock Exchange held their AGM (see here).

Tuesday 29 June 2010

UK: England and Wales: derivative claims under the Companies Act (2006)

The High Court gave judgment today in Stainer v Lee & Ors [2010] EWHC 1539 (Ch). Although only a first instance decision, it is nevertheless important because of the guidance it provides on the operation of the new statutory regime governing derivative claims under Chapter 1, Part 11, of the Companies Act (2006). There have been only a handful of reported cases so far and Stainer is of interest because permission to continue a derivative action was granted, subject to various conditions including one relating to costs. Two points of immediate interest are:

[1] Section 263 sets out the matters which the judge must consider in deciding whether to grant permission. In this regard, the trial judge observed (at para. [29]):

I consider that section 263(3) and (4) do not prescribe a particular standard of proof that has to be satisfied but rather require consideration of a range of factors to reach an overall view. In particular, under section 263(3)(b), as regards the hypothetical director acting in accordance with the section 172 duty, if the case seems very strong, it may be appropriate to continue it even if the likely level of recovery is not so large, since such a claim stands a good chance of provoking an early settlement or may indeed qualify for summary judgment. On the other hand, it may be in the interests of the Company to continue even a less strong case if the amount of potential recovery is very large".

[2] With regard to the claimant's costs, the trial judge observed (at para. [56]):

The Applicant seeks an indemnity for his costs, relying on Wallersteiner v Moir (No 2) [1975] 1 QB 373. I think that is clear authority that a shareholder who receives the sanction of the court to proceed with a derivative action should normally be indemnified as to his reasonable costs by the company for the benefit of which the action would accrue. But where the amount of likely recovery is presently uncertain, there is concern that his costs could become disproportionate. Accordingly, I place a ceiling on the costs for which I grant an indemnity for the future ...".

UK: auditors' contribution to prudential regulation - FRC and FSA issue joint discussion paper

The Financial Reporting Council and Financial Services Authority have today issued a joint discussion paper - available here (pdf) - the purpose of which is to start a debate on how the FSA, FRC and auditors can work together to enhance auditors' contribution to prudential regulation.

The paper makes clear the view of the FSA and FRC that auditors need to challenge management more. In chapter 3, for example, the paper notes (para. 3.9 and 3.10):

In some cases the FSA has seen concerning valuations, provisions and disclosures, the auditor’s approach seems to focus too much on gathering and accepting evidence to support managements’ assertions, and whether managements’ valuations and disclosures comply with the letter of accounting standards, rather than whether the standards’ requirements have been applied in a thoughtful way that would better meet the standards’ objectives. In some areas, it can be questioned whether auditors always exhibit sufficient professional scepticism".

UK: the Corporate Governance Code

The new edition of the UK's Corporate Governance Code - available here (pdf) - applies to financial years beginning on or after today. All companies with a Premium Listing of equity shares in the UK are required under the Listing Rules to report on how they have applied the Code in their annual report and accounts. The Financial Reporting Council is expected to publish soon the final version of the Stewardship Code for Institutional Investors.

Monday 28 June 2010

UK: key trends in the accountancy profession - POB report

The Professional Oversight Board, part of the Financial Reporting Council, has published the eighth edition of its Key Facts and Trends in the Accountancy Profession report: see here (pdf). The report notes, for example, that:

Over the past six years, the Big Four have experienced a steady increase in the proportion of fee income from non‐audit work for non‐audit clients. In contrast their fee income from non audit work to audit clients has been falling".

Europe: revising the Market Abuse Directive - Commission consultation

The European Commission has today published a consultation paper seeking views on revisions to the Market Abuse Directive (MAD) (2003/6/EC): see here (pdf). Amongst the questions asked are:
  • Should MAD be extended to cover attempts to manipulate the market?
  • How can the powers of competent authorities to investigate market abuse be enhanced?
  • To what extent need the sanction regimes be harmonised at the EU level in order to prevent market abuse?
  • How can the system of cooperation among national and third country competent authorities be enhanced? What should the role of the European Securities and Markets Authority be in this regard?

Friday 25 June 2010

USA: Supreme Court opinions on 'honest services' - Skilling and Black

The Supreme Court gave its opinions yesterday in Skilling v United States and Black v United States: see, respectively, here (pdf) and here (pdf). These are important opinions concerning honest services fraud (as defined in the US Code by Section 1346 of Title 18, Part I, Chapter 63), under which Skilling, Enron's former chief executive, had been found guilty for conspiring to defraud Enron’s shareholders by misrepresenting the company’s fiscal health for his own profit.

The Supreme Court held that Section 1346 was limited to bribes and kickbacks. A wider interpretation, the Court found, would raise constitutional vagueness concerns. As such, the Court found that Skilling did not violate Section 1346 (but it did not overturn his convictions). To quote from the opinion's headnote:

Skilling did not violate §1346, as the Court interprets the statute. The Government charged Skilling with conspiring to defraud Enron’s shareholders by misrepresenting the company’s fiscal health to his own profit, but the Government never alleged that he solicited or accepted side payments from a third party in exchange for making these misrepresentations. Because the indictment alleged three objects of the conspiracy — honest-services wire fraud, money-or-property wire fraud, and securities fraud — Skilling’s conviction is flawed. See Yates v. United States, 354 U. S. 298. This determination, however, does not necessarily require reversal of the conspiracy conviction, for errors of the Yates variety are subject to harmless error analysis. The Court leaves the parties’ dispute about whether the error here was harmless for resolution on remand, along with the question whether reversal of Skilling’s other convictions".

For further background information see Prof. Bainbridge's excellent summary here and the comments of Prof Ribstein here.

Thursday 24 June 2010

USA: NASDAQ's corporate governance standards

Last year the NASDAQ Listing and Hearing Review Council undertook a review of its corporate governance listing standards. The Council identified a number of emerging governance practices that it believed could assist boards and sought views on whether these or other governance practices should be designated as best practices and subject to 'comply or explain'.

In a report published earlier this month - available here (pdf) - the Council announced its decision not to recommend that NASDAQ change its corporate governance standards. The Council reached its decision following comments received and in the light of forthcoming legislative changes. A report was published because the Council wished to make public the issues it discussed and to provide guidance for boards. The Council concluded in its report:

Regulatory changes implemented throughout the course of the past decade by the SEC, Congress, NASDAQ and the other national securities exchanges are continuing to lead to significant changes in corporate governance in the United States. Following every reform, new events occur that reopen the debate on corporate governance practices. While we are not recommending that NASDAQ change its governance listing standards or designate best practices at this time, we urge all boards to engage in periodic review of board functions, procedures, and responsibilities. We also urge NASDAQ-listed and other companies to follow closely the current debates about governance issues".

Europe: implementation of the Shareholder Rights Directive

The European Commission has announced that it has referred Belgium, Cyprus, Greece, Spain, France, Luxembourg, The Netherlands and Sweden to the Court of Justice for late implementation of the Shareholder Rights Directive (2007/36/EC): see here. In its press release the Commission states:

The Shareholders' Rights Directive introduces minimum standards to ensure that shareholders of companies whose shares are traded on an EU regulated market have timely access to the relevant information ahead of the general meeting and simple means to vote at a distance. The publication of documents on the internet as well as enabling proxy voting and electronic participation are important elements of this. The Directive also abolishes share blocking and introduces minimum standards for the rights to ask questions, put items on the general meeting agenda and table resolutions.

While nineteen Member States have already fully implemented the Directive, eight Member States (Belgium, Cyprus, Greece, Spain, France, Luxembourg, The Netherlands and Sweden) still have to implement some or all of its provisions. Incomplete implementation means that shareholders in those Member states do not enjoy the same rights as elsewhere in Europe and are denied the rights the Directive gives them when investing in publicly listed companies. The deadline for implementation was 3 August 2009".

Wednesday 23 June 2010

Japan: remuneration disclosure

Earlier this year, Japan's Financial Services Agency adopted new rules increasing the disclosure obligations of listed companies with regard to governance structure, directors' remuneration, cross-shareholdings and voting results: see here (pdf). The BBC News website reports - see here - on the disclosures which are beginning to be made with with regard to remuneration.

Australia: derivative actions - who bears the costs?

In a report published in 2006 - available here (pdf) - Prof Ian Ramsay and Benjamin Saunders provided an empirical analysis of the statutory derivation action introduced in Australia by Part 2F.1A of the Corporations Act (2001). The authors noted that "[n]either the statutory provisions, nor the approach of the courts, provide any certainty of litigation funding. The analysis of the cases indicates that courts have been cautious in relation to the issue of costs" (p. 38).

Against this background, a Federal Court decision - Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 - is of particular interest. At issue was whether a company should be required to meet a shareholder's costs in bringing a derivative action under Part 2F.1A of the Corporations Act (2001). The trial judge, Finkelstein J., held that it should and stated that he was unable to see why the approach taken in Sub Rosa Holdings Pty Ltd v Salsa Sudada Production Pty Ltd [2006] NSWSC 916 - in which, at [49], it was stated that it was "common place for a person given permission to pursue a claim on behalf of a company to be required, in the first instance, to bear the burden of costs" - had been adopted. Finkelstein J. observed (paras. [9] - [11]):

The purpose of permitting a person to bring an action in the name of the company is to prevent conduct which involves some element of harm. In most cases the wrongdoer will be in control of the company. That will be the reason the company itself is not bringing the action. The purpose of the exceptions outlined in Foss v Harbottle [1843] ER 478, as well as the purpose of Part 2F.1A, is to increase the likelihood that someone brings a claim which the company ought to have commenced. In those circumstances, I can think of no good reason why the company should not bear the costs. Put another way, the principle adopted by Marks J [under the old law, in Farrow v Registrar of Building Societies [1991] 2 VR 589: if the shareholder's action “is bona fide to protect the [company] and the [company] will receive the benefit of success, there is no good reason why the expenses should be met out of the private resources of [the] shareholders”] should continue to apply under the statute.

This is not to suggest that a costs order will be made in all cases ... If a costs order is made and at any later time it turns out the claim is unmeritorious, the costs order can be recalled".

Tuesday 22 June 2010

UK: the bank levy and bank remuneration

In today's budget the Government announced the introduction of a bank levy. The levy will apply to: the consolidated balance sheet of UK banking groups and building societies; the aggregated subsidiary and branch balance sheets of foreign banks and banking groups operating in the UK; and the balance sheets of UK banks in non-banking groups. Further information is available here (pdf). The budget report is available here.

The budget report also states, in a short paragraph titled "Bank remuneration" at para. 2.79:

The Government will explore the costs and benefits of a Financial Activities Tax. The Government has asked the FSA to consider a number of factors in its forthcoming review of its Remuneration Code. Alongside this the Government will consult on a remuneration disclosure regime".

Ireland: the Central Bank's banking supervision strategy

The Central Bank, which will be given responsibility for the supervision of individual firms and the stability of the financial system generally (see the Central Bank Reform Bill 2010), has published its strategy on banking supervision in Ireland: see here (pdf). A more assertive, risk based and challenging approach to banking supervision is promised.

UK: England and Wales: the true and fair view

Judgment was given yesterday by the Court of Appeal in Macquarie Internationale Investments Ltd v Glencore UK Ltd [2010] EWCA Civ 697. The court upheld the trial judge's finding (at [2009] EWHC 2267 (Comm)) that there had been no breach of a warranty which provided that [a] audited accounts were prepared in accordance with accounting standards and a true and fair view of a company's assets and liability [b] a set of management accounts had been prepared in accordance with relevant accounting standards.

The decision is of interest because of what is said about the true and fair view; in this regard, Jackson LJ observed (paras. [51] and [52]):

... a joint opinion written by Mr Leonard Hoffmann QC and Ms Mary Arden in September 1983 has been highly influential and was relied upon by the judge in the present case. I recall that that joint opinion was in general circulation in the 1980s. It appears to have left an imprint on judicial thinking and on legal writing in subsequent decades. The essential thesis of Mr Hoffmann and Ms Arden was that the concept of "true and fair view" as used in the Companies Acts is an abstraction. It is for the courts to decide in any given case whether the accounts do give a true and fair view. However, in deciding this question the courts look for guidance to the ordinary practices of accountants and in particular to the standards published by the relevant professional body. These published standards not only guide accountants in the preparation of accounts but also mould the expectations of those who read or use the accounts. Therefore compliance with professional standards is prima facie evidence that the accounts present a true and fair view of the assets and liabilities of the company or the group. Deviation from accepted accounting principles is prima facie evidence that the accounts do not present a true and fair view of the assets and liabilities of the company or the group.

In subsequent decisions courts have treated compliance with published professional standards as strong evidence that the accounts in question did present a true and fair view: see Lloyd Cheyman & Co Ltd v Littlejohn & Co [1987] BCLC 303 at 313; Senate Electrical Wholesalers Ltd v STC Submarine Systems Ltd (20th December 1996, unreported) at page 20 of the transcript; Bairstow v Queen's Moat Houses plc (23rd July 1999) at pages 31-32 of the transcript and Revenue and Customs Commissioners v William Grant & Sons Distillers Ltd [2007] UKHL 15; [2007] 1 WLR 1448 at paragraphs 2 and 38".

USA: Guidance on Sound Incentive Compensation Policies

The Federal Reserve and several other agencies have adopted final guidance on incentive compensation policies in banking organisations: see here (pdf).

Monday 21 June 2010

UK: Photo-Me International plc fined for DTR and Listing Principle breach

The Financial Services Authority today announced the imposition of the largest fine it has imposed in respect of the failure by a listed company to disclose inside information to the market in accordance with Disclosure Rules and Transparency Rules 2.2.1R and Listing Principle 4: see here.

The fine was £ 500,000 and it was imposed on Photo-Me International plc in respect of its failure to disclose that it was no longer engaged in exclusive negotiations for a contract when the contract was re-tendered and the company was in competition with others. Photo-Me issued a statement today - see here - in which it stated that it would not be challenging the FSA's decision and reaffirmed its position that "the FSA has underestimated the real-time difficulties faced by the Company in updating the market on the possible outcome of the relevant complex contractual negotiations".

UK: the FRC's annual report and work programme

The Financial Reporting Council has published its annual report for 2009/10 and its work programme for 2010/11: see, respectively, here (pdf) and here (pdf).

Plans include the introduction of the Stewardship Code for Institutional Investors and work exploring the ways in which the usefulness of information in audit reports can be enhanced from the perspective of investors and other users.

Friday 18 June 2010

UK: financial regulation reform - Parliamentary statement

The Financial Secretary to the Treasury delivered a statement to the House of Commons yesterday on the Government's proposals for financial regulation reform: see here. The statement provides further information on the new institutional structure and the responsibilities of the Bank of England, Financial Policy Committee, Prudential Regulation Authority and Consumer Protection and Markets Authority.

USA: 'say on pay' votes lost at KeyCorp and Occidental Petroleum

Two more American companies, in addition to Motorola, have lost 'say on pay' votes this year: KeyCorp and Occidental Petroleum. See the results here and here.

Jersey: the general principles of partnership law

Earlier this year the Jersey Law Commission confirmed that the basic principles of the law of partnership should be placed on a statutory footing and that, in the interim, recourse should be had to English authorities in the absence of local authority: see here. The Commission's recommendations follow the publication of a consultation paper in 2008 (available here, pdf).

Thursday 17 June 2010

UK: Hector Sants calls for directors' duties reform

Hector Sants, the chief executive of the Financial Services Authority, today delivered a thought provoking speech - available here - titled Do regulators have a role to play in judging culture and ethics? Whilst careful to note that he was offering his personal views, his comments are noteworthy because of the influential position he will occupy, under the new financial regulatory structure, as the chief executive of the prudential regulator and deputy governor of the Bank of England. Of particular interest are his thoughts on the scope of directors' duties:

I would thus strongly advocate intervention in the UK through changing the Companies Act framework for directors, for example. The current requirement [in Section 172 of the Companies Act (2006)] is for directors is to promote the success of the company. This is often interpreted in terms of shareholder value. Whilst this does include the need to have regard to, for example, the impact on the community, I do not believe that is sufficient. There must be a stronger and more explicit obligation to wider society. There must be clear recognition of the need for institutions to contribute to the common good".

UK: financial regulation reform - reactions

Lord Adair Turner, the chairman of the Financial Services Authority, was interviewed this morning on Radio 4's Today programme about the changes announced yesterday: listen here. The Chancellor was also interviewed: listen here. The Governor of the Bank of England, Mervyn King, welcomed the new responsibilities being given to the Bank of England in his speech last night at the Mansion House: see here.

UK: the abolition of the FSA and the new financial regulation framework

Last night the Chancellor of the Exchequer, the Rt Hon George Osborne, delivered his first Mansion House speech - see here - and outlined, in general terms, significant changes to the structure of financial regulation in the UK. The Financial Services Authority will be abolished in its current form and a new prudential regulator, a subsidiary of the Bank of England, will be created.

Other changes are outlined in the following extract from the Chancellor's speech (further information will be provided in Parliament later today by the Financial Secretary to the Treasury, Mark Hoban MP):

... the Government will abolish the tripartite regime, and the Financial Services Authority will cease to exist in its current form. We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England. It will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

We will create an independent Financial Policy Committee at the Bank, which will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and take effective action in response. We will also establish a powerful new Consumer Protection and Markets Authority. It will regulate the conduct of every authorised financial firm providing services to consumers. It will also be responsible for ensuring the good conduct of business in the UK’s retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world’s leading global financial centres.

I can also confirm that we will fulfil the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime that is currently dispersed across a number of Government departments and agencies. We take white collar crime as seriously as other crime and we are determined to simplify the confusing and overlapping responsibilities in this area in order to improve detection and enforcement.

I have thought longer and harder and spoken to more people about all these issues than almost any other issue to have crossed my desk. We do not undertake these reforms lightly, and we do so only because we believe they are absolutely necessary. We will handle the transition carefully, consult widely and get this right. The process will be completed in 2012".

Wednesday 16 June 2010

IOSCO publishes revised Objectives and Principles of Securities Regulation

The International Organization of Securities Commissions has published a revised edition of its Objectives and Principles of Securities Regulation: see here (pdf). Eight new principles have been added including a couple relating to auditing: auditors should be subject to adequate levels of oversight and should be independent of the entity that they audit. Further information is available here (pdf).

Tuesday 15 June 2010

Europe: consultations on derivatives and short selling

The European Commission has published two consultation papers on draft legislation as part of its work on reforming financial regulation. The first concerns derivatives and market infrastructures: see here (pdf). The second concerns short selling and credit default swaps: see here (pdf). FAQs in respect of these consultations are available here and here.

Monday 14 June 2010

UK: culture and corporate governance - recommendations from the Future of Banking Commission

The Future of Banking Commission published its report yesterday: see here (pdf). This sets out wide ranging recommendations concerning the regulation of banks. Chapter 4 - titled "Culture and Corporate Governance" - contains recommendations under the following headings: boards and directors, remuneration, accounting and auditing, shareholder oversight, credit rating agencies and the adoption of a code of conduct for banking. Some of the specific recommendations include:
  • The duties of directors under the Companies Act (2006) should require them to consider the effect of the company's activities on the stability of the financial system as a whole.
  • Fundamental questions should be asked about the purpose of the audit.
  • Auditors should be asked to attest that banks' accounts represent a "true, fair and comprehensive statement" of the affairs of the company.
  • The Stewardship Code for Institutional Investors should be mandatory for those fund managers which own bank shares.
  • Non-executive directors should be charged with particular tasks and particular areas where their "challenge" is expected.

Friday 11 June 2010

UK: OFT market study on equity underwriting

The Office of Fair Trading is seeking views on the scope of a forthcoming market study into equity underwriting and associated services. In a press release published yesterday - see here - the OFT stated:

In 2009, companies raised an estimated £70 billion of equity capital in the UK, paying an estimated £2 billion in fees for equity underwriting and associated services. Initial discussions have confirmed that there is some dissatisfaction with these services among corporate users of the market.

The OFT proposes that the market study, which will commence this summer, should take a focused look at rights issues and other types of equity-raising by the 350 largest UK public companies, to consider whether users' concerns are justified. It intends to assess:
  • How underwriting and related services are provided, including the level of competition for the work and how these different services such as advice, arranging the issue and the actual underwriting are sold.
  • How underwriting services are purchased, including the information available to buyers and the incentives on them.
  • How the regulatory environment affects the provision of these services.

Further information is available here.

Thursday 10 June 2010

UK: the FSA's annual report 2009/10

The Financial Services Authority has published its 2009/10 annual report: see here (pdf). Whether this will be the last report from the FSA as it is currently organised should become clear (or clearer) this month. The emergency budget on June 22 provides a good opportunity for plans to be published but the Financial Times newspaper suggests (here) that proposals may be published next week.

Meanwhile, the report provides an overview of the FSA's actions in the past year. There is a section titled "Corporate governance and Significant Influence Functions" which states:

As part of our supervisory enhancement programme,we now place much greater emphasis on the role of senior management at firms ... in 2009/10 we completed 377 cases involving a significant influence function (SIF) interview where 27 were withdrawn by the firms concerned ...

On governance more widely, in November 2009 Sir David Walker completed his Treasury-commissioned review of corporate governance in banks and other financial industry entities; our proposals in the January [Consultation Paper] cover the FSA-specific recommendations in the review. Sir David’s recommendations address many current governance concerns and, as we have said publicly, we intend to play our part in supporting their delivery alongside the Financial Reporting Council (FRC) and work in relation to the Corporate Governance Code (formerly the Combined Code)".

Ireland: banking crisis enquiry - preliminary report published

A preliminary report on the sources of Ireland's banking crisis, recently published as part of a Government initiated enquiry, is available here (pdf). The report's authors conclude that "official policies and bank governance failings seriously exacerbated Ireland’s credit and property boom, and depleted its fiscal and banking buffers when the crisis struck" and they offer policy lessons and areas for consideration by the planned Commission of Investigation.

The report contains a section on bank management and governance and this begins as follows:

In [the] setting of macroeconomic ease and growing financial integration, bank managements in Ireland faced major new opportunities. However, this environment also entailed challenges for bank governance – governance notably in areas such as internal priority setting; risk assessment systems; the enforcement of due processes for loan evaluation; disclosure standards; and checks and balances on the day-to-day operations of management. These challenges were not met. Errors of judgement in bank management and governance contributed centrally to Ireland’s financial crisis. It seems that there were key weaknesses in some banks’ internal risk management in areas such as stress-testing; the assessment of credit risks; and in some cases major lapses in the documentation of loans – and that these were factors that allowed vulnerabilities to develop".

There's some initial analysis of the report on the Irish Law Forum: see here.

Wednesday 9 June 2010

OECD Guidelines for Multinational Enterprises

The OECD has published the terms of reference for the forthcoming update of its Guidelines for Multinational Enterprises: see here (pdf). For further information see here.

Europe: shareholder liability and the First Company Law Directive

Advocate General Trstenjak gave her opinion in Idryma Typou (Law relating to undertakings) (case C-81/09) last week. The case raised an interesting question regarding European law and the liability of public company shareholders.

Under Greek law, a fine in respect of infringements of legislation and other rules governing the operation of television stations was imposed jointly and severally on a company, its directors and those shareholders holding over 2.5% of the share capital. An annulment of the fine was sought and the court hearing this claim requested a preliminary ruling from the European Court of Justice as to whether the provision providing for the imposition of the fine was precluded by the First Company Law Directive (Council Directive 68/151/EEC) (now Directive 2009/101/EC).

In the opinion of Advocate General Trstenjak, which is not binding on the court, the First Company law Directive did not preclude provisions of the kind adopted by Greece. However, such provisions were, in her opinion, precluded by Articles 43, 48 and 56 of the EC Treaty (see now, respectively, Articles 49, 56 and 63 of the Treaty on the functioning of the European Union: here, pdf). The Advocate General noted (para. [57]):

In the absence of express provision in Directive 68/151 ... the power to prescribe the exceptional extension of liability to shareholders of public limited companies falls within the competence of the national legislature. In the absence of harmonisation, it is for the Member States, in principle, to decide to what extent they wish to take account of the protection of the interest in question in relation to extending liability to the shareholders of a public limited company".

Tuesday 8 June 2010

USA: IFRS and US GAAP convergence

Following the publication of a joint statement (here, pdf) by the IASB and FASB in connection with their standards convergence work, the chairmain of the Securities and Exchange Commission, Mary Shiparo, has announced (see here):

I foresee no reason that the adjustment to the targeted timeline for certain joint projects should impact the staff's analyses under the Work Plan issued in February 2010, particularly when that adjustment is designed to enhance the quality of the standards. Indeed, focused efforts on those standards the boards consider highest priority for the improvement of U.S. GAAP and IFRS will facilitate the staff's analyses. Accordingly, I am confident that we continue to be on schedule for a Commission determination in 2011 about whether to incorporate IFRS into the financial reporting system for U.S. issuers".

Monday 7 June 2010

UK: ICSA review of the Higgs guidance - consultation responses published

Earlier this year the Institute of Chartered Secretaries and Administrators began a review of the Higgs guidance with the publication of a consultation paper titled Improving Board Effectiveness (available here, pdf). The paper set 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.

The consultation period ended in April and responses have now been published by ICSA: see here. A further consultation paper is expected within the next month or so.

UK: the Code of Governance for NHS Foundation Trusts

Earlier this year, Monitor, the independent regulator of National Health Service foundation trusts, published an updated edition of its Code of Governance for NHS Foundation Trusts: see here (pdf). A summary of the changes introduced in the new Code is available here (pdf).

Friday 4 June 2010

Poland: WSE Code of Best Practice for Listed Companies - new edition published

The Warsaw Stock Exchange has published a revised edition of its Code of Best Practice for Listed Companies: see here (pdf). The revised Code comes into force on 1 July 2010. A summary of the revisions is available here (pdf) and further background information is available here. The amendments to the code concern, amongst other things, gender diversity at board level, remuneration policy and electronic communication.

Ireland: ISE consultation on corporate governance framework

Following the publication last week of a revised UK Corporate Governance Code by the Financial Reporting Council, the Irish Stock Exchange has announced that it will begin a consultation this month on the governance framework for Irish listed companies: see here (pdf). Views will be sought on whether a separate corporate governance code for Irish listed companies should be adopted and, if not, how best to incorporate the FRC's Code into the ISE's Listing Rules.

UK: choice in the audit market - FRC progress report

The Financial Reporting Council has published its fifth progress report on the implementation of the recommendations of the Market Participants Group (here, pdf) on promoting choice in the UK audit market: see here (pdf).

The report summarises recent developments, including the publication of the audit firm governance code, and also describes the results of recent FRC research. It is noted that the revised Guidance to Audit committees has had a limited impact on disclosure and, with regard to market concentration, the FRC reports:

It is apparent that, despite previous increases in the number of FTSE 350 companies retaining a non‐Big Four auditor from 2006 – 2009, this trend has now ceased and may even have reversed. The February 2010 figures also show a slight drop in the number of smaller listed companies retaining a non‐Big Four auditor.

[Of] the thirteen FTSE 350 companies the [Professional Oversight Board] is aware have changed auditor since February 2008, none has switched from a Big Four to a non‐Big Four firm, and two which previously retained a non‐Big Four auditor have changed to a Big Four firm. There appears therefore to be little indication that concentration in the audit market is reducing or is likely to reduce in the near future".

UK: takeovers - more from the BIS Secretary of State

The new Secretary of State for Business, Innovation and Skills - the Rt Hon Dr Vince Cable MP - delivered a speech yesterday in which he set out in general terms the work programme for his department and his approach in this regard: see here. He touched upon takeover regulation and, against the background of the Takeover Panel's consultation paper on the Takeover Code, observed:

Too many takeovers in the UK fail even by the limited criterion of shareholder value – and often with serious implications for the people who work for the firms on both sides. For me this is not about foreign or domestic ownership – it draws no distinction between the two ...

So it is not about protectionism or strategic industries. It is certainly not about protecting bad management by blocking takeovers. It is about changing the way in which unfettered short term speculation can have damaging long term consequences. It is also about responsibility. It is renewing a sense that a company is an enterprise, not just a set of paper assets. It is about insisting that running a company and owning shares in a company should be an important responsibility, and never more so than when a company changes hands. This is an important issue for me because I think in many ways it captures something simple and important about the economy we want to build".

Thursday 3 June 2010

Germany: draft copy of revised Code available in English

A copy in English of the draft revised Code published last week by the Government Commission on the German Corporate Governance Code is now available: see here (pdf).

Europe: Commission Communication on financial services regulation

The European Commission has published a Communication titled Regulating Financial Services for Sustainable Growth: see here (pdf). The Communication describes the actions already taken by the Commission as well as forthcoming proposals. The Commission intends that the vast majority of its new proposals will be presented to the Council and European Parliament by the end of 2010.

These proposals will cover derivatives, credit default swaps, short-selling, improvements in the Markets in Financial Instruments Directive, revisions to the Deposit Guarantee Schemes Directive and the Investor Compensation Schemes Directive, revisions to expand the scope of the Market Abuse Directive to include derivatives, amendments to the Capital Requirements Directive (CRD IV), a Communication on sanctions in the financial services sector to promote convergence, and further work on international accounting standard convergence.

Europe: Recommendations on remuneration - Commission reports

The European Commission has published reports on Member States' implementation of the Commission's recent Recommendations on remuneration (2009/384/EC and 2009/385/EC): see, respectively, here (pdf) and here (pdf). The reports are accompanied by two staff working documents which describe the measures taken by Member States: see here (pdf) and here (pdf). For further information see here.

Wednesday 2 June 2010

Europe: the supervision of credit rating agencies

The European Commission has published a proposal for a Regulation to amend Regulation (EC) No 1060/2009 on credit rating agencies: see here (pdf). The purpose of the Regulation is to give the new European supervisory authority - the European Securities and Markets Authority (about which see here) - exclusive supervisory powers over credit rating agencies registered in the European Union.

For further information see: press release | faqs |

Europe: the governance of financial institutions - Commission publishes green paper

The European Commission has published a green paper titled Corporate governance in financial institutions and remuneration policies: see here (pdf). The paper contains a large number of questions for consultation and sets out possible ways to:
  • improve the functioning and composition of boards of financial institutions in order to enhance their supervision of senior management;
  • establish a risk culture at all levels of a financial institution in order to ensure that long-term interests of the business are taken into account;
  • enhance the involvement of shareholders, financial supervisors and external auditors in corporate governance matters;
  • change remuneration policies in companies in order to discourage excessive risk taking.
Amongst the questions on which views are sought are:
  • Should the number of boards on which a director may sit be limited?
  • Should combining the functions of chairman of the board of directors and chief executive officer be prohibited in financial institutions?
  • Should a specific duty be established for the board of directors to take into account the interests of depositors and other stakeholders during the decision-making procedure?
  • Should cooperation between external auditors and supervisory authorities be deepened?
  • Should supervisory authorities be given the power and duty to check the correct functioning of the board of directors and the risk management function?
  • What could be the content and form, binding or non binding, of possible additional measures at EU level on remuneration for directors of listed companies?
  • Should disclosure of institutional investors' voting practices and policies be compulsory? How often?
The paper makes clear (at p. 11) the Commission's view that there is a role for financial regulators to play:

The main challenge in seeking to improve existing corporate governance practices will be to ensure real change in the behaviour of the relevant actors. This cannot be achieved through new regulatory and non-regulatory requirements alone. It must also be backed up by effective financial supervision".

Interestingly, whilst the paper is concerned with financial institutions, it is noted (at p. 3):

... the Commission will soon launch a broader review on corporate governance within listed companies in general and, in particular, on the place and role of shareholders, the distribution of duties between shareholders and boards of directors with regard to supervising senior management teams, the composition of boards of directors, and corporate social responsibility".

Germany: draft of revised Code published

The Government Commission on the German Corporate Governance Code met last last week to recommend changes to the Code. The changes focus on gender diversity on supervisory boards as well as board training and education. For further information see the press release published following the meeting, available in English here (pdf). A draft of the new Code has not yet been published in English but a copy, in German, is available here (pdf).

Update (3 June 2010): a copy of the draft code, in English, is available here (pdf).

Tuesday 1 June 2010

UK: the regulation of takeovers - Takeover Panel consultation paper published

The Takeover Panel Code Committee has published a wide-ranging consultation paper titled Review of Certain Aspects of the Regulation of Takeover Bids: see here (pdf).

The issues discussed include: the minimum threshold of acceptance for a bid by the offeree company shareholders (is the current “50% plus one” too low?); whether voting rights should be withheld from shares in an offeree company acquired during the course of an offer period; the level of information provided by offerors in relation to the financing of takeover bids; and whether protections similar to those afforded by the Code to offeree company shareholders should be afforded to shareholders in an offeror company.

The consultation paper is unusual because the Committee has departed from its usual practice of setting out proposals and draft amendments to the Code. The Committee has, instead, set out background information for each of the issues and the arguments for and against possible change, in order to instigate further debate. Further consultation papers will be published should the debate establish that there is a case for change in respect of the issues covered.

Getting the UK takeover framework right for the future is an important step in Government efforts to renew and reform the way markets work. This is not about economic nationalism. Open markets have made a huge contribution to growth in the UK over the past 30 years and must continue to do so in the future. We welcome foreign investors but we want all shareholders to be empowered, the takeover process to be more transparent, directors to think about their wider long term legal duties, and takeovers to be decided on the basis of long term shareholder value rather than short-term speculation. The Takeover Panel's work can play an important part in realising these goals".