Season's greetings and best wishes for the new year

Season's greetings to all blog visitors and those receiving the daily email updates. I hope that you have found the contents useful and interesting over the past year.

Year ends are often a time for looking back and for reflection. You may not know that the blog has its origins in a monthly newsletter on governance that I produced for work colleagues about ten years ago. It quickly moved online - at the suggestion of a colleague now working in Australia - and the facility for daily email updates was added. My aim was to create a resource that would be useful for me, my students and my colleagues: a notepad of interesting developments to which I could return; a starting point for further research and inquiry; a way of keeping up-to-date.

What I did not envisage when I began was that the blog would be used more widely by academics across the world, by practitioners and by policymakers. Something else that I did not predict was my broadening purview. The blog started with a UK focus, but I am now particularly keen to provide updates from across the world (especially jurisdictions that do not receive much attention elsewhere) because these help to demonstrate, amongst other things, why context matters and why the UK framework is different from that found elsewhere. It can also help to illustrate similarities and, increasingly, the extent to which developments in one jurisdiction influence (appropriately or inappropriately) developments elsewhere.

I have resisted requests for advertising space (call me old fashioned, but I think that the presence of advertising can raise questions about the independence of the choices that are made about content) and, more regrettably, I have declined offers of guest contributions because I lack the time to act as editor. I do, however, welcome updates on developments from across the world and will happily acknowledge the contributor if a public acknowledgment is sought.  Whilst it's only me working on the blog, it is far from being a lonely endeavour. In this regard, I thank everyone who has been in contact with me during 2016: it has been wonderful to hear from you. Any and all feedback is welcome.

The first blog post and email update for 2017 will appear on January 3. A major task for the new year - and this is probably something I said I would do last year - will be updating the collections of links.

With best wishes for 2017,
Robert.

Canada: update on governance reform legislation

A Bill that will, when enacted, make changes to the governance framework by amending the Canada Business Corporations Act, the Canada Cooperatives Act, and the Canada Not-for-profit Corporations Act, was introduced in the House of Commons earlier this year and received its first reading at the end of September. The Bill has now completed its second reading and has been referred to the Standing Committee on Industry, Science and Technology: see here. The second reading speeches can be read here.

The text of the Bill is available here and further information is available here and here. Among the changes proposed are those relating to the election of directors (including annual elections and votes for individual directors), the disclosure of information regarding board diversity and communications with shareholders.

Europe: EMSA adopts Inline XBRL as format for annual financial reporting

Article 4(7) of the Transparency Directive 2004/109/EC, as amended by Directive 2013/50/EU, provides that with effect from 1 January 2020 all annual financial reports of issuers listed on regulated markets should be prepared in a single electronic format, providing that a cost-benefit analysis has been undertaken by the European Securities and Markets Authority. The Article also requires ESMA to develop draft regulatory technical standards to specify the electronic reporting format. ESMA announced yesterday that it had chosen Inline XBRL as the required format: see here.

Australia: review of whistleblower protections

The Australian Government has published a consultation paper as part of a review of tax and corporate whistleblower protections: see here (pdf). The Government's consultation is intended to complement the work of a recently established Parliamentary inquiry examining whistleblower protection in the corporate, public and not-for-profit sectors.

UK: The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 were made a couple of days ago: see here or here (pdf). An explanatory memorandum is available here (pdf). The Regulations make amendments to Part 15 ("Accounts and Reports") of the Companies Act 2006 in order to implement article 1(1) and (3) of Directive 2014/95/EU on the disclosure of non-financial and diversity information by certain large undertakings and groups and article 23(1) of Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.

UK: Private Equity Reporting Group publishes ninth annual report

The Private Equity Reporting Group published its ninth annual report earlier this month: see here (pdf). The report provides a summary of conformity with the Guidelines for Disclosure and Transparency in Private Equity (often known as the "Walker Guidelines") following their introduction in November 2007. The quality of disclosures by portfolio companies covered by the Guidelines has fallen substantially: 57% of the sample (95% in 2015) were rated as good or higher. It's noted, however, that nearly half of the companies in this year's sample were new to the process.

UK: The Bank of England Act 1998 (Macro-prudential Measures) Order 2016

The Bank of England Act 1998 (Macro-prudential Measures) Order 2016 was made last week: see here (pdf). An explanatory memorandum is available here (pdf). The Order confers on the Financial Policy Committee the power to give directions to the Prudential Regulation Authority and Financial Conduct Authority to take action concerning loan-to-value ratios and interest coverage ratios for buy-to-let mortgages.

Japan: Council of Experts - opinion statement - recommendations for asset managers and asset owners

The Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code has published a third Opinion Statement: see here (pdf). The purpose of this third Statement is to provide recommendations for asset managers and asset owners concerning the efforts they are encouraged to make if governance reforms are to move towards substance and away from form.

UK: FRC draft plan and budget 2017/18

The Financial Reporting Council yesterday published for public comment its draft plan and budget for 2017/18: see here (pdf). The document states that improvements are needed in the operation and enforcement of the UK Corporate Governance Code (for which the FRC is responsible). The same is said about relevant law and regulation. Potentially significant changes to the Code may be required. The FRC also says that it will seek to involve a wider group of stakeholder in its work next year.  In this regard I have a suggestion: is it time for the FRC to review its own governance arrangements including the composition of its board?

Pakistan: Senate strikes down Companies Ordinance 2016

The Companies Bill 2016, drafts of which were published for consultation earlier this year, became law (as the Companies Ordinance 2016: see here, pdf) earlier this year when it was promulgated by the President in the exercise of a power provided by Article 89 of the Constitution. Ordinances so promulgated can be repealed under Article 89 by either the National Assembly or Senate. This has happened: in the Senate yesterday a motion was passed by 50 votes to 18 to disapprove the Ordinance: see here (pdf). The effect is that the Companies Ordinance 1984 is restored and it seems that the Companies Bill will now be debated in Parliament and will only become law if both Houses approve.

OECD report: the liability of legal persons for foreign bribery

The OECD has published a stocktaking report on the liability of legal persons for foreign bribery: see here (pdf). The report seeks to map the features of the liability mechanisms adopted by the 41 parties to the Anti-Bribery Convention (35 OECD countries; 6 non-OECD countries: Argentina, Brazil, Bulgaria, Colombia, Russia, and South Africa). The report is usefully read alongside data on the enforcement of the Convention published last month: see here.

Jersey: a register of directors and other proposals

Last month the Assistant Chief Minister, Senator Philip Ozouf, published a statement outlining Jersey's proposals for the creation of a new register of directors as well as changes to the information on beneficial ownership held on the central register: see here (pdf).

UK: England and Wales: LLPs and derivative claims

Last week, in Harris v Microfusion 2003-2 LLP [2016] EWCA Civ 1212, the Court of Appeal gave judgment in a case concerning a derivative claim brought by a member of a limited liability partnership. The judgment is noteworthy for a couple of reasons: (1) the discussion of the fourth exception ("fraud on the minority") to the rule in Foss v Harbottle (1843) 2 Hare 461; (2) the endorsement it provides of several first instance authorities in this field including Abouraya v Sigmund & Ors [2014] EWHC 277 (Ch). With regard to the fourth exception, Lord Justice McCombe observed (para. [33]):

.... people are free to join as members of corporate entities upon whatever terms they choose, formulated in articles of association, partnership deeds for LLPs or shareholders' agreements. They are bound by such arrangements and if majority rule is provided for, the minority is bound by the wishes of the majority. The majority can choose to excuse breaches of duty by directors, provided that the majority have not used their voting powers to confer benefits upon themselves in breach of duty and are not using the self-same powers to prevent the company from recovering the loss caused to it, in effect expropriating the minority in the process. The constraints imposed by equity make an exception to the rule in Foss v Harbottle in cases where the controlling members are precluded from ratifying the relevant breach by exercise of their majority votes. Thus, the "fraud on the minority" exception prevents directors from improperly benefitting themselves at the expense of the company".

UK: England and Wales: the status of articles of association

The ICLR has provided a summary of the recent High Court decision Gunewardena v Conran Holdings Ltd [2016] EWHC 2983 (Ch), an important and interesting case on the status of articles of association and the significance (or otherwise) of registration: see here. To quote from the summary:

There was nothing in the statutory scheme in the Companies Act 1985, as amended, which vested articles provided to the registrar with the special quality of being the real articles for all purposes. If members resolved, on an amendment by special resolution, the articles, as amended, would become the new contract and the new articles and would essentially take effect as such immediately. Their status as articles did not depend on registration ... the actual sending of the documents to the Registrar of Companies, and their appearance thereafter on the register of the company, did not have the magical effect of making the relevant form the articles of the company if that form of articles did not accurately record the proper effect of special resolutions that had been passed".

Europe: shareholder rights in EU companies - revising the Shareholder Rights Directive

The EU's committee of permanent representatives (COREPER) has today endorsed an agreement between the Slovak presidency and European Parliament representatives in respect of a new Directive to amend the existing Shareholder Rights Directive (2007/36/EC). Further information, including a summary of the proposed amendments, is available here and here.

One of the amendments will require institutional investors and asset managers to develop and disclose their policy on engagement (or explain why they have chosen not to do so); it will also require them to describe how engagement activities are integrated in their investors strategy as well as how conflicts of interest are managed. This will place onto a statutory footing what some countries already require through stewardship codes (see, e.g., the UK Stewardship Code) and is a further example of the juridification of governance norms.

Netherlands: new corporate governance code published

The Dutch Corporate Governance Code Monitoring Committee has today published a new edition of its corporate governance code. A copy of the code (in English) is available here (pdf). The Committee has published a document, in English, explaining the main changes made in the new edition of the code: see here (pdf). At the centre of the new code is long-term value creation and, whilst its focus is on companies with a two-tier board structure, chapter five is addressed to those companies (about 10%) that have chosen to have a single board.

UK: FRC seeks statutory oversight over directors through new code of conduct

The Financial Reporting Council today published a letter from its chief executive to the Parliamentary Business, Energy and Industrial Strategy Committee, explaining how its recommendations on governance reform - expressed to the Committee as part of its corporate governance inquiry - could be implemented: see here (pdf). In the letter the FRC states its view that a code of conduct for directors, sitting alongside the codified duties in the Companies Act 2006, should be developed and that this code should cover ethical standards. The FRC should have, it is argued in the letter, responsibility for this code and statutory oversight over directors subject to the code. Enforcement might, it is suggested, take place through existing legislation on the disqualification of directors.

If implemented these proposals would represent a major expansion of the remit and work of the FRC. Moreover, enforcement by legal process is very different from the underpinning ethos of the UK Corporate Governance Code which relies on market enforcement (i.e., shareholders) through the concept of comply or explain.

USA: PCAOB imposes its largest ever civil penalty

The Public Company Accounting Oversight Board has imposed its largest ever civil penalty ($8 million). The penalty was imposed on Deloitte Touch Tohmatsu Auditores Independentes, based in Brazil, in respect of charges for issuing materially false audit reports and attempting to cover up audit violations by altering documents. Further information is available here.

Ireland: the central register of beneficial ownership

The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 were commenced last month: see here (pdf). The Regulations implement the requirement in Article 30(1) of the Fourth Anti-Money Laundering Directive (Directive (EU) 2015/849) for corporate and other legal entities to hold adequate, accurate and current information on their beneficial ownership. Further information is available on the Companies Registration Office website.

UK: IFRS and UK company law

The chairman of the House of Lords Economic Affairs Committee, Lord Hollick, has written to the chief executive of the Financial Reporting Council seeking answers to four questions concerning (a) the potential conflict between International Financial Reporting Standards and UK company law; and (b) the concept of prudence: see here (pdf). The letter comes not long after Local Authority Pension Found Forum wrote to FTSE350 chairmen (here, pdf), reiterating its belief that the FRC's position (here, pdf) should be disregarded if directors were to discharge their duties lawfully in preparing accounts and making lawful distributions.

UK: CMA secures its first director disqualification for breach of competition law

The Competition and Markets Authority has secured its first disqualification of a company director for a competition law infringement: see here. The individual was managing director of a company that operated online and used automated repricing software to implement an illegal cartel.