Monday 28 February 2011

Australia: Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011

The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 - the subject of an earlier post - was introduced in the House of Representatives last week and received its first reading: see here. One of the purposes of the Bill is to make dramatic changes to the operation of the 'say on pay' vote in Australia through the introduction of a process described as 'two strikes and re-election', explained more fully in the explanatory memorandum accompanying the Bill: see here (pdf).

UK: gender diversity and FTSE100 non-executive board appointments

To continue the theme of board diversity, following Lord Davies' recommendations last week, the Financial Times newspaper reports that 12 of the 34 FTSE100 non-executive director positions filled so far this year have been taken by women: see here.

UK: the duty to keep accounting records - ICAEW guidance for directors published

The ICAEW has published Technical Release 01/11 - Guidance for Directors on Accounting Records under the Companies Act (2006): see here (pdf).

Friday 25 February 2011

Taiwan: ACGA corporate governance white paper

The Asian Corporate Governance Association yesterday published its white paper on corporate governance in Taiwan: see here (pdf). The white paper makes suggestions for improving governance with regard to shareholder meetings and voting, board effectiveness and shareholder rights.

Thursday 24 February 2011

UK: women on boards - Lord Davies' report

Lord Davies' report and recommendations were published earlier today: see here (pdf). There is further background information, including a podcast, here. Lord Davies recommends (to quote directly from his report):

  • All Chairmen of FTSE 350 companies should set out the percentage of women they aim to have on their boards in 2013 and 2015. FTSE 100 boards should aim for a minimum of 25% female representation by 2015 and we expect that many will achieve a higher figure. Chairmen should announce their aspirational goals within the next six months (by September 2011). Also we expect all Chief Executives to review the percentage of women they aim to have on their Executive Committees in 2013 and 2015.
  • Quoted companies should be required to disclose each year the proportion of women on the board, women in Senior Executive positions and female employees in the whole organisation.
  • The Financial Reporting Council should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives.
  • Companies should report on the matters in recommendations 1, 2 and 3 in their 2012 Corporate Governance Statement whether or not the underlying regulatory changes are in place. In addition, Chairmen will be encouraged to sign a charter supporting the recommendations.
  • In line with the UK Corporate Governance Code provision B2.4 “A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments”. Chairmen should disclose meaningful information about the company’s appointment process and how it addresses diversity in the company’s annual report including a description of the search and nominations process.
  • Investors play a critical role in engaging with company boards. Therefore investors should pay close attention to recommendations 1-5 when considering company reporting and appointments to the board.
  • We encourage companies periodically to advertise non-executive board positions to encourage greater diversity in applications.
  • Executive search firms should draw up a Voluntary Code of Conduct addressing gender diversity and best practice which covers the relevant search criteria and processes relating to FTSE 350 board level appointments.
  • In order to achieve these recommendations, recognition and development of two different populations of women who are well-qualified to be appointed to UK boards needs to be considered: [a] executives from within the corporate sector, for whom there are many different training and mentoring opportunities; and [2] women from outside the corporate mainstream, including entrepreneurs, academics, civil servants and senior women with professional service backgrounds, for whom there are many fewer opportunities to take up corporate board positions. A combination of entrepreneurs, existing providers and individuals needs to come together to consolidate and improve the provision of training and development for potential board members.
  • A steering board will meet every six months to consider progress against these measures and will report annually with an assessment of whether sufficient progress is being made.
The Financial Reporting Council has announced that it will consult on those recommendations addressed to it: see here.

Wednesday 23 February 2011

USA: engagement between shareholders and corporations

Institutional Shareholder Services and the Investor Responsibility Research Center Institute have published the results of research surveying engagement between shareholders and corporations: see here (pdf). To quote from the executive summary:

The study reveals both consensus and dissonance. There is broad consensus that engagement between issuers and investors is common and increasing both in terms of frequency and subject areas; that engagement is expanding beyond financial and strategic issues and "traditional" governance topics to include more environmental and social issues; that issues related to executive compensation remain atop the agenda; and that engagement is evolving as increasingly sophisticated investors demand more detailed information on all of these topics. Yet engagement also means different things to different people: while some use the term to refer to a campaign to persuade a company to change its behavior, others (particularly issuers themselves) classify routine conversations with investors about financial results as engagement as well. The study also reveals some distinct differences between investors and issuers in terms of the time frame of engagements and the definition of a successful engagement".

Tuesday 22 February 2011

UK: Scotland: employee owed fiduciary duty

An employee does not owe the employer fiduciary duties by virtue of being an employee (see, e.g., Nottingham University v Fishel [2000] EWHC 221 (QB), [2000] ICR 1462). However, it has been recognised that the circumstances of the relationship may be such to give rise to a fiduciary relationship. In an opinion given last week - Samsung Semiconductor Europe Ltd. v Docherty [2011] CSOH 32 - Lord Glennie found that such circumstances were present in the case before him.

Australia: strengthening 'say on pay' - 'two strikes and re-election'

In December last year the Australian Treasury published for consultation a draft of the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011: see here (pdf) and, for an explanatory memorandum, here (pdf). One of the aims of the Bill is to strengthen the current advisory vote regarding remuneration by introducing a 'two strikes and re-election' process, described in the memorandum thus (paragraphs 1.8 and 1.9):
The ‘first strike’ occurs where a company’s remuneration report receives a ‘no’ vote of 25 per cent or more. Where this occurs, the company’s subsequent remuneration report must explain whether shareholders’ concerns have been taken into account, and either how they have been taken into account or why they have not been taken into account. The ‘second strike’ occurs where the company’s subsequent remuneration report receives a ‘no’ vote of 25 per cent or more. Where this occurs, shareholders will vote at the same AGM to determine whether the directors will need to stand for re-election within 90 days. If this resolution passes with 50 per cent or more of eligible votes cast, then the ‘spill meeting’ will take place within 90 days".

The consultation period ended last month.  Consultation responses were published today: see here.

Monday 21 February 2011

UK: Scotland: the scope of the unfair prejudice remedy

In a short opinion published last week - Burke v Bayne Services (Edinburgh) Ltd. [2011] CSIH 14 - the Court of Session (Inner House) held that it had no power, under Section 994 of the Companies Act 2006, to disturb a valuation where the parties had chosen to resolve their dispute by way of an expert valuation of the petitioner's shares. The court rejected the view that, whatever the effect of the parties' agreement, it should exercise its equitable powers to allow the valuation to be re-opened.

UK: gender diversity on listed company boards - Lord Davies' report due this week

Several of yesterday's and today's newspapers report on the publication later this week of Lord Davies' recommendations to promote increased participation by women on the boards of listed companies: see here (Observer), here (Independent on Sunday), here (Telegraph) and here (Financial Times). According to the Financial Times report, Lord Davies will recommend that at least 20% of FTSE350 company directors should be women in two years' time. The Telegraph reports that the Association of British Insurer's Institutional Voting Information Service will begin monitoring boards' approach to diversity this year.

Lord Davies is quoted in the Observer's report:

Chairmen have got to be more creative in looking for talented women ... Shareholders have not put enough pressure on boards and on chairmen on this issue. Institutional investors should be asking more questions about this at annual general meetings". 

In the Telegraph he is quoted thus:

The reason I am not in favour of quotas is when you talk to the vast majority of women they are against it. Only 11pc of the submissions that we had were in favour of quotas. So I think the vast majority of women are vehemently opposed. I think there is a danger of it smacking of tokenism and board appointments should be based on merit. The best way is collective responsibility to tackle a serious problem. We want to see real execution of change in the next year or so. That will be a better achievement. However if we don't do it then the Government has the threat of quotas and that should be enough".

Italy: board diversity of Italian listed companies

Reuters reports that "A draft bill aimed at boosting low female representation on Italian company boards is under threat from a barrage of amendments, and opposition from big business and banking lobbies". See here for further information.

Friday 18 February 2011

Sweden: Governance Board position paper on EU corporate governance reform

The Swedish Corporate Governance Board has published a position paper in respect of the European Commission's forthcoming corporate governance green paper: see here (pdf). The Board makes clear its view that "a combination of legislation and self-regulation, in the form of a code based on the principles of comply or explain, is the most effective system for regulating corporate governance".

Thursday 17 February 2011

UK: reform of the financial regulatory framework - further consultation paper published

HM Treasury today published a further consultation paper setting out its proposals for reform of the financial regulatory system. The paper, titled, A new approach to financial regulation: building a stronger system, is available here (pdf).

Europe: the EU corporate governance framework - Commission green paper due in April

The European Commission's Internal Market consultation timetable - available here (pdf) - states that on 5 April this year the Commission will publish a green paper on the EU corporate governance framework and that this will focus on three areas: boards of directors, shareholders' engagement and the 'comply or explain' approach. It's noted that about 25 questions will be asked, covering issues such as board diversity, executive remuneration, risk management, shareholder cooperation, proxy advisors, minority shareholder protection and the functioning of the corporate governance system.

UK: consultation published - reforms to the regulation of insolvency practitioners

The Insolvency Service has published a consultation paper on reforms to the regulation of insolvency practitioners: see here (pdf).

Switzerland: the role of the auditor in banking regulation

Research comparing the role of the auditor in banking regulation in the UK with that in Switzerland has been published by the Institute of Chartered Accountants of Scotland: see here (pdf). The research report make for very interesting reading, not least because of the debate across Europe about the role of the auditor in the corporate governance and financial regulation frameworks.

Wednesday 16 February 2011

UK: first company convicted of new offence of corporate manslaughter

A company - Cotswold Geotechnical Holdings Ltd. - has become the first to be convicted of the new offence of corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act (2007). For further information about the case see here (a press release form the Crown Prosecution Service). Background information about the Act is available here.

Egypt: new private sector governance code published

The Egyptian Institute of Directors has this month published a revised edition of its corporate governance code for the private sector: see here (in Arabic, pdf).

UK: the Code of Governance for Credit Unions

A copy of the Code of Corporate Governance for Credit Unions, published last year by the Association of British Credit Unions, is available here (pdf) and has been added to the list of UK codes and rules available on the right hand side of the blog page.

Tuesday 15 February 2011

UK: England and Wales: partnership can be a defendant under Protection from Harassment Act (1997)

The Court of Appeal has today delivered an important decision - Iqbal v Dean Manson Solicitors [2011] EWCA Civ 123 - on the operation of the Protection from Harassment Act (1997). Of particular note is the court's finding that a partnership may be made a defendant to a claim under the Act for the statutory tort of harassment, whatever the financial consequences might be for individual partners (the trial judge had held, in obiter dicta, that a partnership could not be a defendant). Rix LJ observed (at para. [62]):

It would ... drive a coach and horses through the Act if unincorporated bodies, including partnerships, could not be at least civilly liable for harassment. It would be particularly surprising if protesters, who associate themselves into groups of unincorporated bodies, could evade liability by the device of making partners of one another".

Europe: Court of Justice on employee claims in insolvency

Earlier this month the Court of Justice of the European Union gave its opinion in Andersson v Staten genom Kronofogdemyndigheten i Jönköping, Tillsynsmynidigheten (C-30/10). A summary of the opinion has been published here by the ICLR, as part of its WLR Daily Service, and it is from this summary that the following headnote is taken:

A provision of national law which excluded an employee from entitlement under the guarantee of payment of employees’ outstanding claims in the event of their employer’s insolvency, on the ground that the employee within the six months preceding the application for a declaration of insolvency had been the owner of an essential part of the undertaking or business concerned and had had a considerable influence on it activities, was compatible with Parliament and Council Directive 2008/94/EC relating to the protection of employees in the event of the insolvency of their employer".

UK: FRC chief executive on the future of auditing

The chief executive of the Financial Reporting Council, Stephen Haddrill, delivered a speech last week on the future of auditing at a conference organised by the European Commission: see here (pdf). Mr Haddrill set out his views on what is required from the auditing profession: a profession that is "... not afraid to challenge management. One that is sceptical of assertions made without apparent good foundation – that does not see its role as confirming management’s view, but identifying the truth".

Monday 14 February 2011

UK: gender diversity on listed company boards

There are reports in a couple of today's newspapers - see here (Financial Times) and here (The Guardian) - suggesting that Lord Davies, in his review of how to increase the proportion of women on listed company boards, will recommend the adoption of voluntary targets by companies. The newspapers also report, and this is unlikely to surprise many, that Lord Davies will not be advocating the introduction of statutory quotas of the kind introduced elsewhere. Lord Davies is due to publish his recommendations later this month. In due course it will be interesting to see what is advocated at European level by the Internal Market Commissioner, Michel Barnier, and Justice Commissioner, Viviane Reding.

Nigeria: new Code published by SEC

The Securities and Exchange Commission of Nigeria has published a new edition of its corporate governance code for public companies: see here (pdf). All public companies whose securities are listed on a recognised securities exchange are required to comply with the code's principles and provisions. Whilst compliance with the code is primarily a matter for the company's board and shareholders, the SEC is able to direct companies to take action where they do not comply.

Friday 11 February 2011

Europe: Commission progress report - regulating financial services for sustainable growth

The European Internal Market Commissioner, Michel Barnier, has published a progress report titled Regulating Financial Services for Sustainable Growth to mark the first anniversary of his holding office: see here (pdf). This contains a useful timetable of forthcoming developments which includes, for June 2011, the publication of legislation on corporate governance in financial institutions designed to "improve risk control and oversight as well as enhance supervisory review of risk governance in financial institutions".

Europe: draft auditing Directive due in November

The Internal Market Commissioner, Michel Barnier, delivered a speech yesterday (at a conference on financial reporting and auditing organised by the Commission) in which he stated his intention to publish a draft auditing Directive in November this year: see here (in french, pdf). A selection of quotes from the speech has been published in English: see here (pdf). For further information on the Commission's work in this area see here.

Thursday 10 February 2011

UK: auditors and supervisors - FSA/Bank of England draft code published

The Financial Services Authority and Bank of England have today published a draft code of practice regarding the relationship between the external auditor and supervisor: see here (pdf). The purpose of the code is to enhance the dialogue between auditors and supervisors. The code outlines the principles that establish, with regard to firms authorised by the FSA, the nature of the relationship between the supervisor and firm's auditor, the form and frequency that communication between the auditor and supervisor should take, and the responsibilities and scope for sharing information.

UK: remuneration disclosure by banks

The Government made various announcements yesterday regarding the agreement by four UK banks in respect of their 2010 bonus pool and disclosure of the remuneration received by the five highest paid 'executive officers' (in addition to directors' remuneration, which is already disclosed): see here. The Government also announced its intention to consult on the introduction of mandatory disclosure by large banks, from 2012, in respect of the remuneration of the 8 highest paid 'senior executive officers'.

UK: financial regulation - detailed proposals next week

The Chancellor of the Exchequer yesterday announced in Parliament that, as part of the Government's intention to reform the financial regulatory system, "detailed proposals to give the Bank of England responsibility for prudential regulation, and to create a new Consumer Protection and Markets Authority" will be published next week: see here.

Europe: short selling measures in Member States - ESMA update

The European Securities and Markets Authority has published an updated list of the measures taken by Member States with regard to the short selling of securities: see here (pdf).

Wednesday 9 February 2011

Deloitte report published - Women in the Boardroom: a Global Perspective

Deloitte has published a report titled Women in the Boardroom - a Global Perspective, available here (pdf). The report provides a summary of measures that have been taken (or which are being taken) with regard to the gender diversity of boards in Australia, Belgium, Canada, France, Germany, Italy, the Netherlands, New Zealand, Norway, Spain, the United Kingdom and the United States of America.

The report provides a useful starting point for further research although it contains omissions. For example, with regard to the UK, there is no mention of the work being done by Lord Davies (recommendations are expected this month) and, in respect of Belgium, there is no mention of the recent proposals put forward by the Belgium Corporate Governance Committee with regard to board diversity. It is also worth noting, with regard to Canada, that a Board of Directors Gender Parity Bill (S-206) is currently before Parliament. However, the Senate Committee on Banking, Trade and Commerce recommended that the Bill should not proceed further in the Senate: see here. The Committee's report was received in Senate on 3 February and was due to be considered yesterday (the record of debate, Hansard, will in due course be available here).

Chile: OECD review of corporate governance

The Organisation for Economic Co-operation and Development had published a review of the corporate governance framework in Chile: see here (pdf).

Tuesday 8 February 2011

UK: financial regulation reform - update from the FSA chief executive on transition to the new regime

The chief executive of the Financial Services Authority, Hector Sants, has published a letter providing an update on the actions being taken by the FSA in preparation for the implementation of the new financial regulatory framework proposed by the Government: see here (pdf). The letter explains, amongst other things, that on 4 April the FSA's current Supervision and Risk business units will be replaced with a Prudential Business Unit and a Consumer and Markets Business Unit; an updated organisation chart is available here (pdf). The letter also states, with regard to the need for legislation to transfer the FSA's power to the new regulators, that the Government will begin a further consultation later this month.

UK: Scotland: Court of Session considers Re Duomatic principle and directors' entitlement to remuneration

The Court of Session, Inner House, delivered its opinion in Tayplan Ltd v Smith [2011] CSIH 8 last week. The court was required to consider the legal principles regarding directors' entitlement to remuneration and the operation of the so-called Re Duomatic principle. With regard to the latter, Lord Brodie, delivering the opinion of the court, observed (para. [28]):

... if in fact all of the shareholders agree to a particular proposal which is honest and within the powers of the company it should be regarded as having been agreed to, even although assent is not signified by a formal vote in general meeting and even if assent is given by different parties at different times. But there must have been a proposal of which all parties were aware and it must have been agreed to".

Monday 7 February 2011

Europe: the Commission's audit policy green paper - responses published

The European Commission has published the responses received in respect of the audit policy green paper it published last October. A total of 688 responses were received and those authorised for publication are available to view here. A summary of the responses has been published here (pdf). A copy of the green paper is available here (pdf).

Friday 4 February 2011

UK: England and Wales: valuing shares and the most recent accounts

In Franbar Holdings Ltd v Casualty Plus Ltd [2010] EWHC 1164 (Ch) an agreement provided that shares should be valued with reference to the company's last set of accounts. However, the trial judge held that the preceding year's accounts should be used, observing, amongst other things, that she did not accept that it was "certain or fair to use ... accounts which were never agreed by the shareholders or the board of the Company and which were disclaimed by the Company's auditors" (para. [44]). This decision was upheld by the Court of Appeal (Maurice Kay, Thomas and Etherton LJJ) on January 25 in a decision that has not yet been added to BAILII.

Update (14 February 2011): a copy of the Court of Appeal decision has now been published on BAILII: see here.

Thursday 3 February 2011

UK: Commons Treasury Committee publishes financial regulation report

The House of Commons Treasury Committee has today published its preliminary consideration of the Government's proposals for reform of the UK financial regulation framework: see here (html) or here (pdf). The evidence - oral and written - accompanying the report has been published in two separate volumes: see here (pdf) and here (pdf).

The Committee notes, amongst other things, that the Government's timetable is ambitious and that the legislation creating the new structure should be subject to pre-legislative scrutiny over a reasonable timescale. The Committee welcomes the creation of the Independent Commission on Banking and suggests that the Government wait until the Commission has reported later this year before reaching conclusions on financial regulation.

Bermuda: Monetary Authority to develop governance code for banks

The Bermuda Monetary Authority reports, in its 2011 business plan, that it proposes developing a corporate governance code for Bermuda banks: see here (pdf).

Wednesday 2 February 2011

UK: governance of retail firms - FSA guidance and consultation

The Financial Services Authority has published for consultation guidance concerning governance in retail firms: see here (pdf). The guidance takes the form of a letter addressed to board chairmen and chief executives and sets out the key points discussed by the FSA in a series of seminars in the autumn last year. The letter focuses on board effectiveness, the role of non-executive directors and risk.

UK: the composition of remuneration committees

Lord Sassoon, the Commercial Secretary to the Treasury, was yesterday asked in Parliament whether he was content with the composition of remuneration committees and whether he believed there was a case for a greater diversity of membership. Lord Sassoon offered no opinion but responded thus (Hansard, 1 Feb 2011, Column 1304):

... the Financial Reporting Council continues actively to consider a range of ideas for improving corporate governance, and of course in recent months there has been the UK Stewardship Code and a revision of the UK Corporate Governance Code. I think that the Financial Reporting Council listens to all good ideas for improving corporate governance and is actively on the case".

Australia: directors' duties, corporate opportunities and laches

The Supreme Court of Western Australia (Court of Appeal) gave its judgment in Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17 last month: see here. This is in an interesting case which contains much discussion of the cases concerning directors' personal exploitation of so-called 'corporate opportunities' and the operation of the equitable doctrine of laches.

Tuesday 1 February 2011

UK: company reporting of risk and uncertainties - FRRP expresses concern

In a press release published earlier today, the Financial Reporting Review Panel (FRRP) has expressed concern with the way in which companies are reporting the principal risks and uncertainties facing their business within the business review (as required by Section 417 of the Companies Act (2006)): see here. In its press release the FRRP sets out some questions for boards to consider in respect of their disclosure of the principal risks and uncertainties facing the business.

UK: England and Wales: court grants FSA's application for winding-up of three companies

Judgment was given yesterday in Re Digital Satellite Warranty Cover Ltd. [2011] EWHC 122 (Ch). The trial judge held that three companies should be wound-up where they carried on business in contravention of the general prohibition found in Section 19 of the Financial Services and Markets Act (2000). In doing so the judge was required to consider whether the business of the companies - offering extended warranty contracts - should be regarded as contracts of insurance.

Update (1 Feb 2011): a summary of the decision has been provided by the ICLR as part of its WLR Daily service: see here.