Friday 29 October 2010

UK: the future of financial reporting in the UK and Ireland

The Accounting Standards Board, part of the Financial Reporting Council, has today published far reaching proposals for a three-tier financial reporting framework, the aim of which, it states, is to "balance the needs of preparers and users of accounts". The framework will be based on three sets of standards: IFRS (tier 1), FRSME (tier 2) and FRSSE (tier 3).  Here is an overview of the new framework (taken from the ASB's press release, available here).

Quoted groups will continue to report under international financial reporting standards (IFRS), as adopted by the EU. They would be joined in Tier 1 by other companies that are publicly accountable. This would apply if their debt [or equity] is traded on public markets, or if they hold deposits or manage other people’s money. (Some very small financial institutions would be exempt.) The smallest companies will continue to use the simplified version of UK standards, known as the FRSSE. Those in between would report under a new standard based on the IFRS for SMEs, which is considerably shorter and less complicated than current UK standards. The FRSME, as it would be called, would be modified to comply with UK and EU law and to ease tax reporting. It runs to about 400 pages".

For further information see the Financial Reporting Exposure Draft available here (part 1: explanation, pdf), here (part 2: draft standards, pdf) and here (appendices, pdf) and a key facts document available here (pdf).

UK: FTSE100 directors' pay - IDS report

Income Data Services has recently published its Directors' Pay Report for the year to June 2010. In the accompanying press release it is reported:

FTSE-100 directors saw their total earnings [basic salary, annual bonus payments, benefits in kind, notional/actual value of exercised share option gains, total cash value of long-term incentive plans and miscellaneous payments, including special payments for pensions, housing assistance, one-off bonuses for particular projects and profit share] boosted by an average of 55% while across the FTSE 350 as a whole total board pay went up by an average 45% ... On the back of these increases FTSE 100 chief executives took home £4.9 million on average in total earnings during the year. The report shows there has been a dramatic reversal in fortunes in the last 12 months. While basic salary increases across the board were subdued, growing at just 3.6% for FTSE-100 chief executives, pay packages were boosted by a resurgence in bonus payments, the value of share option gains and separate long-term incentive plans (LTIPs)"

UK: registration of company charges - responses to BIS consultation published

Earlier this year the Department for Business, Innovation and Skills 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). A summary of the responses received was published yesterday: see here (pdf).

Europe: strengthening the single market

Earlier this week the European Commission published a Communication titled Towards a Single Market Act – for a highly competitive social market economy: see here (pdf). The Communication sets out 50 proposals the purpose of which is to strengthen the single market. Of particular interest are the following:

Proposal 14: The Commission will propose a review of the accounting Directives in 2011 to simplify financial reporting obligations and to reduce the administrative burden, especially for SMEs.

Proposal 16: The Commission will explore measures with the potential to encourage private investment – particularly in the long term – to make a more active contribution towards achieving the objectives of the Europe 2020 strategy. These measures might concern the reform of corporate governance and create incentives for the long-term, sustainable and responsible investment required by smart, green and inclusive growth.

Proposal 19: The Commission will take steps to improve the coordination of national tax policies, notably by proposing a Directive introducing a common consolidated corporate tax base (CCCTB) in 2011.

Proposal 21: In 2011 the Commission will propose legislation to introduce the linking of company registers.

Proposal 38: The Commission will launch a public consultation (Green Paper) on corporate governance. It will also launch public consultation on possible ways to improve the transparency of information provided by businesses on social and environmental matters and respect for human rights. These consultations could lead to legislative initiatives.

Thursday 28 October 2010

UK: insider dealing penalty increased by Tribunal

Earlier this year the Upper Tribunal (Tax and Chancery Chamber) upheld a decision of the Financial Services Authority that an individual, Mr Scerri, had committed market abuse: see here (pdf). A separate hearing later took place to determine the penalty and, in particular, whether Mr Scerri should face a penalty of £ 20,000 in addition to disgorgement of his profits. The FSA had originally decided not to impose an additional penalty on the grounds that it would cause serious financial hardship but it was subsequently discovered that the Mr Scerri had provided the FSA with incomplete and misleading information and that he had, following notification of the proposed fine, lost significant funds through trading.

In the second hearing, the Tribunal found - see here (pdf) - that Mr Scerri's financial position was self-induced after he became aware of the proposed penalty and that the seriousness of his actions warranted the imposition of the £ 20,000 penalty. In the words of the Tribunal: "...the penalty of an amount that merely covers the insider information profit is inappropriate; it does not penalise the abuse of breach" (para. 18). The Financial Services Authority has, unsurprisingly, welcomed the Tribunal's decision: see here.

Europe: Michel Barnier on corporate governance

Earlier this week the European Internal Market Commissioner, Michel Barnier, delivered a speech titled Re-establishing Responsibility and Accountability at the Heart of the Financial System: see here (pdf). This speech provides a very interesting insight into the Commissioner's current thinking on corporate governance and the actions he believes necessary at European level. For example, with regard to the board of directors, Mr Barnier observed:

Ability and willingness of directors to exercise effective control over senior management must be improved. In particular for non executive directors. Boards of directors too often failed to act as the principal decision-making body of the company. Or dare challenge decisions and practices. That must change in future. The right balance between independence and skills needs to be struck. I want Directors to dedicate more time to their functions. This can be achieved by limiting the number of directors' memberships in boards. Their expertise must be evaluated more widely, for instance by extending the 'fit and proper test'. I also think more effort needs to be made for a more diverse boardroom. It is always difficult to take good decisions. But debate and different views help us get there. And diversity in all forms creates the right conditions for a real exchange of views".

Wednesday 27 October 2010

UK: narrative reporting in financial reports - Deloitte survey published

Deloitte has published the results of its survey of narrative reporting by companies: see here (pdf). The survey report contains sections on governance in which its stated that 35% of companies in the sample complied fully with the provisions of the Combined Code on Corporate Governance. In 13% of companies the individual occupying the role of chief executive was also the chairman.

Tuesday 26 October 2010

Europe: country-by-country reporting by multinationals - Commission consultation

The European Commission is seeking views on financial reporting by multinationals and, in particular, country-by-country reporting which would require multinationals to disclose financial information on their operations in 'third countries' (i.e., countries that are not Member States of the European Union and the European Economic Area) in their annual financial statements: see here.

Hong Kong: draft Companies Bill - second phase consultation conclusions published

Conclusions arising from the second phase of consultation on the draft Companies Bill have been published by the Financial Services and the Treasury Bureau (FSTB): see here (pdf). Written submissions are available here. The FSTB has decided, amongst other things, to modify its proposals for relaxing the restriction on companies providing financial assistance for the purchase of their shares and it will be proceeding with plans to widen the category of individuals from whom auditors are able to request information and explanations.

Isle of Man: private companies and annual general meetings

Earlier this year the Isle of Man Treasury consulted on a proposal to permit private companies incorporated under the Companies Act (1931) to dispense with holding an annual general meeting: see here (pdf). The consultation is now closed (see the responses hereWord) and the Regulations bringing the proposal into effect - the Companies Act 1931 (Dispensation for Private Companies) (Annual General Meeting) Regulations 2010 - were approved by the Tynwald Court last week. This decision is recorded in Hansard, the parliamentary record, at line 3902: see here (pdf). The Regulations are expected to come into force on 1 November 2010.

Note: the UK Companies Act (2006) requires only public and traded companies to hold an annual general meeting: see section 336 (as amended by the Companies (Shareholders' Rights) Regulations 2009, reg 15).

Monday 25 October 2010

UK: the Government's review of corporate governance - stage 1: a call for evidence with 17 questions

The Government launched its review of the UK corporate governance framework today with the publication of a consultation document titled A Long-Term Focus for Corporate Britain: see here (pdf) or here (Word, .doc). The document provides a succinct overview of the issues and contains questions regarding the board of directors, shareholders and their role in equity markets, directors' remuneration and takeovers. Here are the questions:
  • Do UK boards have a long-term focus – if not, why not?
  • Does the legal framework sufficiently allow the boards of listed companies to access full and up-to-date information on the beneficial ownership of company shares?
  • What are the implications of the changing nature of UK share ownership for corporate governance and equity markets?
  • What are the most effective forms of engagement?
  • Is there sufficient dialogue within investment firms between managers with different functions (i.e. corporate governance and investment teams)?
  • How important is voting as a form of engagement? What are the benefits and costs of institutional shareholders and fund managers disclosing publically how they have voted?
  • Is short-termism in equity markets a problem and, if so, how should it be addressed?
  • What action, if any, should be taken to encourage a long-term focus in UK equity investment decisions? What are the benefits and costs of possible actions to encourage longer holding periods?
  • Are there agency problems in the investment chain and, if so, how should they be addressed?
  • What would be the benefits and costs of more transparency in the role of fund managers, their mandates and their pay?
  • What are the main reasons for the increase in directors‟ remuneration? Are these appropriate?
  • What would be the effect of widening the membership of the remuneration committee on directors‟ remuneration?
  • Are shareholders effective in holding companies to account over pay? Are there further areas of pay, e.g. golden parachutes, it would be beneficial to subject to shareholder approval?
  • What would be the impact of greater transparency of directors' pay in respect of: [a] linkage between pay and meeting corporate objectives, [b] performance criteria for annual bonus schemes and [c] relationship between directors' pay and employees' pay?
  • Do boards understand the long-term implications of takeovers, and communicate the long-term implications of bids effectively?
  • Should the shareholders of an acquiring company in all cases be invited to vote on takeover bids, and what would be the benefits and costs of this?
  • Do you have any further comments on issues related to this consultation?
Will the review result in revolutionary change in the UK model of corporate governance and the preference for market-based solutions? This appears most unlikely, not least because Dr Cable observes in the introduction to the paper that:

The best solutions are those which are owned and driven by market participants, investors and companies. We need clear, consistent rules which work with the grain of the market".

UK: the Business Secretary on takeovers and remuneration

In an interview published in yesterday's Telegraph newspaper, the Secretary of State for Business, Innovation and Skills, the Rt. Hon. Vince Cable MP, commented on the conclusions reached by the Takeover Panel's Code Committee following its recent review: see here. Whilst welcoming the Committee's conclusions, Dr Cable stated:

There does remain a problem that as far as we can see from the objective evidence takeovers tend to reduce value, not increase it. We are going to have to look [at it]. I want to take what the Takeover Panel has done – and it is positive – and probably go rather further. We want to consult properly, not just as they did predominantly amongst the people in the City who are in the takeover business but amongst business more widely".

With regard to remuneration, Dr Cable observed:

... there is an issue that certainly over the last decade executive pay has far outstripped shareholder performance. It is a tricky issue whether we legislate to give shareholders more voting power. I don't want to rush in to some crass change that has unintended consequences but we do need to acknowledge that there is a real problem here".

According to the Telegraph article, Dr. Cable will this week launch the wide-ranging consultation on corporate governance, which was announced last month. It's also likely that Dr Cable will say something about the consultation in his speech today at the CBI conference.

Update (1215 hrs): the consultation has been launched (see here) and for a copy of Dr Cable's speech, see here.

UK: ICSA publishes new terms of reference guidance for board committees

The Institute of Chartered Secretaries and Administrators has published new guidance on the terms of reference for the audit, risk, nomination and remuneration committees: see here.

Belgium: Governance Committee identifies priorities

The Belgian Corporate Governance Committee met earlier this month and agreed its priorities for the next 12 months. These were listed in a statement published following the meeting - available here (pdf) - and include producing a model remuneration report and examining measures to increase the representation of women on listed company boards.

Friday 22 October 2010

Europe: EU law and penalties on public company shareholders

The European Court of Justice delivered its opinion in Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis (Case C‑81/09) earlier this week: see here. The court found that the imposition of penalties on the shareholders of public companies operating television stations was contrary to the principles of freedom of establishment and free movement capital, as (now) found in Articles 49 and 63 of the Treaty on the Functioning of the European Union. A summary of the opinion is available here (pdf).

Under the Greek law in question, shareholders in companies operating television stations were subject to a maximum holding of 25% and those shareholders holding over 2.5% of the share capital were potentially subject to penalties where the company infringed certain broadcasting rules. This latter rule was introduced to create an incentive for shareholders to ensure companies' compliance.

The court held that the First Company Law Directive (68/151/EEC) did not prohibit rules under which shareholders were held liable for a fine imposed on a company. It found, however, that the liability rule had a deterrent effect on investors, affecting their access to the equity market. The court observed (at paras. 57 to 59);

The national measure allows shareholders of a public limited company in the television sector to be held liable for fines imposed on that company in order that they see to it that the company observes Greek legislation and rules of good conduct, whereas the powers accorded to those shareholders by the rules applicable to the operation of public limited companies’ organs do not actually give them a possibility of so doing.

Furthermore, although the measure is applicable without distinction to Greek investors and investors from other Member States, its deterrent effect is greater for investors from other Member States than for Greek investors.

Inasmuch as the objective of the Law is to induce shareholders to ally themselves with other shareholders in order to be able to influence the decisions of the company’s management, even though this option is applicable to all shareholders it is indisputably much more difficult for use to be made of it in the case of investors from other Member States who know less about the realities of media life in Greece and are not necessarily acquainted with the various groups or alliances represented amongst the shareholders of a company holding a licence to found, establish and operate a television station".

UK: Code Committee proposes changes to the Takeover Code

The Takeover Panel Code Committee has outlined its conclusions, in a statement available available here (pdf), in respect of the principal issues on which it consulted earlier this year in its review of certain aspects of the takeover process (about which see herepdf). The Committee has rejected proposals that would have extended the scope of the Code and which would, in its view, require changes in company law, such as disenfranchising certain shareholder and raising the minimum acceptance condition threshold of ‘50% plus one’.

The Committee is, however, proposing changes to the Code, reflecting its view that hostile offerors "have, in recent times, been able to obtain a tactical advantage over the offeree company to the detriment of the offeree company and its shareholders" (para. 2.6). Amongst the changes proposed are the following:
  • requiring potential offerors to clarify their position within a short period of time;
  • prohibiting deal protection measures and inducement fees other than in certain limited cases;
  • clarifying that offeree company boards are not limited in the factors that they may take into account in giving their opinion and recommendation on the offer;
  • improving the quality of disclosure by offerors and offeree companies in relation to the offeror’s intentions regarding the offeree company and its employees; and
  • improving the ability of employee representatives to make their views known.

Consultation papers regarding these matters will be published in due course.

Europe: crisis management in the financial sector - the Commission's proposed framework

The European Commission has published a Communication in which it sets out its proposals for a crisis management framework for the financial sector: see here (pdf). For further information see: frequently asked questions | Commission press release | video of the press conference with the Internal Market Commissioner |

UK: the bank levy - draft legislation

The Government has published draft legislation in respect of the bank levy: see here.

Thursday 21 October 2010

Ireland: NEDs and new governance standards

Jonathan McMahon, Assistant Director General, Financial Institutions Supervision at the Central Bank of Ireland, delivered a speech yesterday at the Irish Banking Federation National Conference: see here (html) or here (pdf). Governance matters formed a major part of his speech and Mr McMahon took the opportunity to suggest solutions for the apparent difficulties in the recruitment of non-executive directors. He also announced that new corporate governance standards would be published on 8 November.

Wednesday 20 October 2010

UK: a permanent bank levy - draft legislation expected tomorrow

Included in today's Spending Review was an announcement from the Government concerning the proposed bank levy. To quote from the Spending Review report (here, pdf), at para. 1.73:

The Government is taking forward its announcement in the Budget of a Bank Levy [see here, pdf] as an additional and permanent tax on the industry and will publish draft legislation on 21 October, following a consultation with industry over the Summer. Final legislation will follow before the end of the year. Once fully in place, the Government expects the Levy to generate around £2.5 billion of annual revenues, higher in net terms than the previous government’s payroll tax. Working with international partners, the Government is committed to taking forward work on a Financial Activities Tax on profits and remuneration".

USA: SEC publishes rules on 'say on pay' and proxy vote reporting

The Securities and Exchange Commission has published rules regarding the introduction of an advisory vote on remuneration and the reporting of proxy voting by institutional investment managers: see, respectively, here (pdf) and here (pdf). A short commentary on the rules is available here, which explains:

Under the proposed rules implementing the Dodd-Frank Act, companies subject to the federal proxy rules would be required to provide shareholders with an advisory vote on executive compensation. Section 14A(a) of the Exchange Act, which was added under the Dodd-Frank Act, specifies that these votes, generally known as say-on-pay votes, are required at least once every three years beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011".

See here for further information, from the SEC, concerning the implementation of the Dodd-Frank Act.

Tuesday 19 October 2010

UK: the UK approach to corporate governance

An updated edition of the Financial Reporting Council publication The UK Approach to Corporate Governance has been published this month: see here (pdf).

UK: Stewardship Code commitment statements published

The Financial Reporting Council has published a list of 68 organisations that have declared their support for the UK's Stewardship Code: see here. According to the FRC's chairman, Baroness Hogg, "[a] critical mass of investors is coming through and this is a very important first step". See here for further information.

Ireland: the IFIA governance code for Irish domiciled collective investment schemes

The Irish Funds Industry Association has published a corporate governance code for Irish domiciled collective investment schemes: see here (pdf). Information about the context in which the code has been introduced is available here (pdf). It should also be noted that the Financial Regulator has recently consulted on the corporate governance requirements for credit institutions and insurance undertakings: see the consultation paper here (pdf) and the responses here.

Monday 18 October 2010

UK: the AIC Code of Corporate Governance

The Association of Investment Companies has published an updated edition of its Code of Corporate Governance for Investment Companies: see here (pdf). A version of the Code for Jersey domiciled companies is also available: see here (pdf). Accompanying the publication of these Codes is an AIC corporate governance guide for investment companies: see here (pdf).

Sweden: Code amendment proposed by Board

The Swedish Corporate Governance Board has announced its intention to make a change to its Code in respect of remuneration. Rule 9.8 of the Code (available here, pdf) currently provides:

Share- and share-price-related incentive programmes are to be designed with the aim of achieving increased alignment between the interests of the participating individual and the company’s shareholders. Programmes that involve acquisition of shares are to be designed so that a personal holding of shares in the company is promoted. The vesting period or the period from the commencement of an agreement to the date for acquisition of shares is to be no less than three years".

The Board is proposing - see here - that the above requirement regarding the vesting period should also include synthetic options and other share price related incentive programmes that do not involve the acquisition of shares.

Friday 15 October 2010

UK: England and Wales: High Court orders reconstitution of boards in Liverpool FC case

Earlier this week, against the background of much media attention and publicity, the High Court ordered that the boards of two companies should be reconstituted. The membership of the boards had been changed by the controlling shareholders in breach of an agreement with Royal Bank of Scotland, which had provided finance for the purchase of Liverpool Football Club, and which required certain governance structures to be adopted (including a limitation on the shareholders' ability to appoint new board members).

There is a good summary of the legal issues here and a copy of the trial judge's main judgment in the proceedings is available here (pdf). The judgment is not yet available on the BAILII database.

UK: FSA consults on proposed Handbook changes

The Financial Services Authority has published a consulted paper titled Decision Procedure and Penalties manual and Enforcement Guide review 2010: see here (pdf). Amongst the changes proposed is a new rule in the FSA Handbook prohibiting authorised firms (but not sole traders) from paying any financial penalties imposed on present or former employees, directors or partners of the firm or affiliated companies. A summary of the changes is available in the accompanying newsletter: see here (pdf).

UK: the Financial Reporting Council and the Public Bodies Review

The Government announced yesterday, as part of its review of public bodies, that the Financial Reporting Council would be retained and "substantially reformed" with its funding from the Department for Business, Innovation and Skills (BIS) ended: see here (pdf). The FRC's chief executive, Stephen Hadrill, welcomed this announcement (see here), noting that the decision would reinforce the FRS's independence as a regulator and that only 5% of its current funding came from BIS. No hint is offered as to what substantial reform is envisaged and it will therefore be interesting to see what is included in the proposed Public Bodies Bill.

Thursday 14 October 2010

UK: England and Wales: directors' disqualification

The ICLR has published, as part of its WLR Daily service, a summary for Re Stakefield (Midlands) Ltd. and others [2010] WLR (D) 249: see here. The summary's headnote reads:

A defendant to disqualification proceedings brought by the Secretary of State for Business, Enterprise and Regulatory Reform [now BIS] would not be entitled to have the proceedings struck out on the basis that the Secretary of State had committed a breach of duty by failing to obtain evidence or otherwise to investigate. Where, however imperfect the investigations might have been, the Secretary of State had in fact assembled evidence of a defendant's unfitness to be concerned in the management of a company, it was for the court to determine at trial whether the Secretary of State had made out his case".

Update (12 November 2010): a copy of the judgment is now available on BAILII: see here.

Wednesday 13 October 2010

Europe: Commission publishes green paper on audit policy

The European Commission has published a green paper titled Audit Policy - Lessons from the Crisis: see here (pdf). Accompanying the green paper is a press release and a list of frequently asked questions: see, respectively, here and here.

The green paper is wide-ranging in scope and seeks views on, amongst other things, the role of the auditor and the audit; whether the International Standards on Auditing should be binding throughout the EU; the provision by auditors of non-audit services to audit clients and whether this should be prohibited; and measures to reduce concentration in the audit market including, for example, the mandatory formation of an audit firm consortium with the inclusion of at least one smaller, non systemic audit firm.

UK: HoL enquiry into auditors' role and market concentration

The House of Lords Economic Affairs Committee heard evidence yesterday from Professors Michael Power, Vivien Beattie and Stella Fearnley, as part of its enquiry into the role of auditors and concentration in the audit market. The proceedings are available to view here (Silverlight) or here (Windows Media Player).

The Committee has also published the written submissions it has received following a call for evidence earlier this year: see here (pdf) and here (pdf). Many of the issues being considered by the Committee will feature in a green paper being published later today by the European Commission.

UK: first corporate manslaughter trial adjourned (again)

Beachcroft solicitors report - see here - that the first trial for corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act (2007) has been adjourned (again). The trial is now scheduled to begin in January 2011.

UK: the Financial Services Act 2010 (Commencement No. 1 and Transitional Provision) Order 2010

The Financial Services Act 2010 (Commencement No. 1 and Transitional Provision) Order 2010 was made on Monday. A copy was published yesterday on the Legislation website: see here (pdf, also including an explanatory note).

The Order brought into force yesterday various provisions of the Financial Services Act (2010), including sections 2(2) to (4), the effect of which is to remove public awareness from the list of statutory objectives given to the Financial Services Authority by section 2 of the Financial Services and Markets Act (2000). The FSA will, however, be required to take into account the desirability of enhancing the understanding and knowledge of members of the public of financial matters (including the UK financial system) in discharging its general functions.

Tuesday 12 October 2010

Europe: CEBS publishes draft remuneration guidelines

The Committee of European Banking Supervisors (CEBS) has published draft guidelines on remuneration policies and practices: see here (pdf). There is further background information here.

Australia: board composition and NED pay in the S&P/ASX 100

The Australian Council of Super Investors has published research on the composition of S&P/ASX 100 listed company boards and the pay of non-executive directors in respect of financial years ending in 2009: see here (pdf). Amongst the findings were the following (to quote directly from the report):
  • Independent directors held 69% of all board seats. This is the highest level recorded in the history of ACSI's longitudinal studies of Top 100 boards over the past eight years and is an increase from the level of approximately 65% for the past four years.
  • The number of Top 100 directors holding no other ASX listed board seats increased compared to 2008, with 55% of all individuals holding office as a director of an S&P/ASX 100 entity holding no other ASX listed board seats, up from 31.4% in 2008.
  • Female representation on boards remained stagnant in 2009 as it has since 2006. Women accounted for 11.1% of all individuals holding S&P/ASX 100 board seats and 12.1% of all board seats (in 2008 women accounted for 10.1 percent of all S&P/ASX 100 directors and 11.1% of all board seats).

Monday 11 October 2010

UK: women on listed company boards - call for evidence

The Department for Business, Innovation and Skills has opened a call for evidence regarding the (low) proportion of women on listed company board: see here. This will contribute to the review being undertaken on the Government's behalf by Lord Davies of Abersoch, which is expected to conclude in February 2011 with the publication of recommendations.

ICGN Corporate Risk Oversight Guidelines

The International Corporate Governance Network has published guidelines to help investors assess the oversight of risk management by a portfolio's company's board. A short version is available here (pdf). The full version is not available online but can be requested from Audrey Hart at the ICGN (

Friday 8 October 2010

Pakistan: SECP publishes revised code for comment

The Securities and Exchange Commission of Pakistan has published for comment a revised edition of its corporate governance code: see here (pdf). The accompanying press release - see here (pdf) - provides an overview of some of the proposed changes, which include new principles regarding the leadership role of the chairman and the roles, skills and independence of the non-executive directors.

Thursday 7 October 2010

UK: financial regulation reform consultation - IoD response

The UK's Institute of Directors has offered its views on the proposed changes to the financial regulatory framework: see here. The IoD believes that it does not make sense to separate the UK Listing Authority from the regulatory body that will be responsible for regulating and supervising wholesale capital markets. The IoD also states that the Financial Reporting Council is "currently making an effective and independent contribution in its existing areas of responsibility. Consequently, until there is greater clarity in the overall financial regulatory structure, we do not advocate any changes to the position of the FRC in the regulatory system".

Japan: company law reform - a letter from the ACGA

The Asian Corporate Governance Association has published its letter to the Ministry of Justice concerning reforms to company law being considered by the Legislative Advisory Council's Company Law Sub-Committee: see here (pdf). According to the letter, the reforms being considered are wide-ranging and include, for example, the general model of governance, the role and authority of statutory auditors and the role of directors. The ACGA's letter sets out its position on various matters including independent directors, board committees, the role of statutory auditors and shareholder rights.

Wednesday 6 October 2010

Australia: Women in Leadership Census published

The Equal Opportunity for Women in the Workplace Agency has published the latest edition of its biennial Australian Women in Leadership Census: see here (pdf). The key findings are available here (pdf). The census examined the number of male and female board directors and executive key management personnel in ASX200 listed companies. The findings include the following (to quote directly from the census report):
  • Women chair five boards and hold 8.4% of board directorships in the ASX 200 companies (123 seats out of 1467). This compares with 8.3% (125 seats out of 1504) reported in the 2008 Census, 8.7% (129 out of 1487) reported in 2006 and 8.2% (119 out of 1456) reported in 2004.
  • In 7.0% of ASX 200 companies, 25% or more of the board directors are women. This is a return to just below the level of 2004 (7.1%). The increase to 12% in 2006 has not been sustained. In 13.0% of companies there are two or more women board directors, up from 11.5% in 2008 but still down from 13.5% in 2006.
  • Industry groups with the highest percentage of women board directors were insurance, consumer services, banks, software and services, and diversified financials.

Tuesday 5 October 2010

USA: SEC stays new proxy access rules

As already noted, the U.S. Chamber of Commerce and the Business Roundtable are challenging the Securities and Exchange Commission's proxy access rules, which were adopted earlier this year: see the petition for review, available here (pdf). The SEC announced yesterday - see here (pdf) - that it would stay the relevant rules but did not comment on the merits of the petitioners' claims. The SEC noted:

The Commission has discretion to grant a stay of its rules pending judicial review if it finds that 'justice so requires.' Without addressing the merits of petitioners’ challenge to the rules, the Commission has determined to exercise its discretion to stay Rule 14a-11 and related amendments to the Commission’s rules, including the amendment to Rule 14a-8, pending resolution of petitioners’ petition for review by the Court of Appeals.

The Commission finds that, under all of the circumstances of this matter, a stay of Rule 14a-11 and related rule amendments is consistent with what justice requires. Among other things, a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity. Because the Commission and petitioners will seek expedited review of petitioners’ challenge, questions about the rules’ validity will be resolved as quickly as possible".

Basel Committee publishes Principles for Enhancing Corporate Governance

The Basel Committee on Banking Supervision yesterday published its Principles for Enhancing Corporate Governance - see here (pdf) - following a consultation earlier this year. Comments received in respect of the consultation draft are available here. The Principles are grouped into six sections: (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: before the Supreme Court today

The UK Supreme Court hears argument today in Progress Property Company Limited (Appellant) v Moorgarth Group Limited (Respondent), on appeal from [2009] EWCA Civ 629. The case details page - available here - reports the principal issue to be:

Whether the sale at undervalue of a company’s assets to its shareholder is ultra vires, in accordance with the common law rule, in circumstances where the director who procured the sale (acting on behalf of both the company and the shareholder) subjectively believed the sale to be at a proper market value".

UK: can culture be regulated?

The chief executive of the Financial Services Authority, Hector Sants, delivered a speech yesterday - see here - titled Can culture be regulated? Mr Sants argued that regulators should recognise culture as a legitimate area of intervention and stated that the FSA had the means to intervene through, for example, influencing the composition of management and incentives for good behaviour as well as requiring high standards of effective risk-management. With regard to boards, Mr Sants observed:

Boards have a greater role to play. Historically, there has been insufficient discussion and challenge in this area. Boards need to show leadership. Boards should ensure that their firms have the right culture that permeates throughout the organisation. A culture, however, should not be confused with ‘atmosphere’. Of course, a dealing room will have a different atmosphere to that of a retail branch. However, both can have the same culture and ascribe to the same ethical values. To this end, I would particularly encourage boards to have a structured process for reviewing their firm’s culture, identifying its drivers, and the behaviours and outcomes it delivers. This process could be allied to reviewing employee engagement, customer satisfaction and brand perception, as these are all interlinked. If we are to really bring about a change in culture in our institutions, this needs to be driven by their boards".

Monday 4 October 2010

USA: SEC's proxy access rules challenged

The Manifest Blog reports - see here - that the U.S. Chamber of Commerce and the Business Roundtable have mounted a legal challenge to the Securities and Exchange Commission's proxy access rules, which were adopted earlier this year. The petition for review, filed in the United States Court of Appeals for the District of Columbia Circuit, is available here (pdf).

Friday 1 October 2010

UK: annual election for FTSE350 directors

The UK Corporate Governance Code recommends that the boards of FTSE350 companies should be elected annually. Companies are, however, free to adopt alternative arrangements, subject to the 'comply or explain' principle. Pensions and Investment Research Consultants (PIRC) - a long standing advocate of annual election for the board - has announced this week that its voting recommendations from 2012 onwards will be based on the expectation that FTSE350 companies will comply with the recommendation on annual election: see here.

UK: Scotland: directors' duties, board ratification and the Companies Act 2006

The opinion of Lord Hodge in Eastford Ltd. v Gillespie and anor [2010] CSOH 132 was given yesterday. It is noteworthy because there is discussion of directors' duties under the Companies Act (2006), including Section 175 (duty to avoid conflicts of interest), and consideration of whether the 2006 Act altered the pre-existing rules on ratification by a board of a director's unauthorised acts (it did not, Lord Hodge found).

With regard to Section 170(4) of the 2006 Act - which provides that "The general duties [in Sections 171 to 177] shall be interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties" - Lord Hodge stated (at paras. [13] to [14]):

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

I am supported in my opinion by Lord Glennie in West Coast Capital (Lios) Ltd Petr [2008] CSOH 72, (at para 21) in which he expressed the view that section 171 of the 2006 Act did little more than set out the pre-existing law on the subject. I also derive some support from leading company law textbooks such as Gore-Browne on Companies (at para 15[8A]) and Palmer's Company Law, which (at para 8.2309) suggests that older cases remain relevant to the interpretation of the statutory duties "since the codified duties are generally formulated in a way that quite faithfully reflects the older case law". The statutory formulations do not, by a side wind, alter the law of agency or prevent ratification of the unauthorised acts of a director".
Update (1 October 2010): I have been reminded that Lord Hodge first considered the matters noted above in respect of this case last year: see [2009] CSOH 119. His views on board ratification and the significance of West Coast Capital have not changed.