Germany: Commission consults on amendments to the German Corporate Governance Code

The Corporate Governance Code Commission has published for public comment the amendments it proposes to make to the German Corporate Governance Code: see here. A copy of the Code, incorporating the proposed amendments, is available in English: see here (pdf).

Acknowledgements

I am grateful to Alan MacDougall and Francesco Navarrini of PIRC Ltd for bringing me news of the Commission's consultation.

UK: PIRC recommends opposition to all new long-term incentive plans

PIRC has published the latest edition of its share owner voting guidelines: see here. Opposition to all new long-term incentive plans is recommended because, in PIRC's view, they are not long-term and do not incentivise. PIRC is also calling for greater scrutiny of remuneration consultants and companies' use of International Financial Reporting Standards.

UK: some voting trend research from PIRC

PIRC has published a short summary of voting trends, based on 287 UK annual general meetings held in the first half of 2011: see here. PIRC notes that, in 2008, 82.6% of remuneration reports were passed with a vote against of less than 5%; in the first half of 2011 this figure was 66%.

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: remuneration votes to watch this week

Today's Guardian newspaper reports on four FTSE100 company annual general meetings being held this week where PIRC has recommended votes against the remuneration reports: see here.

UK: PIRC's principles of best practice for proxy voting and corporate governance advisers

Pensions Investment Research Consultants Ltd. - PIRC - has published a set of best practice principles intended to provide a framework for responsible behaviour by voting advisory services: see here (pdf). In doing so, PIRC hopes to start a debate about what is expected of proxy voting advisors with regard to disclosure and accountability. PIRC's principles are:

• Clear voting policy guidelines should be made available to clients, the companies whom the adviser is monitoring and to the market.
• A clear audit trail and explanation of the process for assessing companies and making voting recommendations should be available to clients and the companies monitored.
• Possible conflicts of interest should be disclosed to clients and to companies monitored and, where necessary, to market regulators (ie paid consulting with companies).
• Companies monitored should be given reasonable opportunity to comment on voting recommendations made and the basis of such recommendations.
• Voting agencies should routinely report to clients on actions taken on their behalf.
• All voting recommendations made by a voting adviser should be publicly disclosed post-meeting.

UK: should auditors undertake non-audit work for their audit clients?

Yesterday's Sunday Times newspaper reported that Pensions Investment Research Consultants (PIRC) is calling for a ban on auditors performing non-audit work for their audit clients. The report cites "fears that it compromises auditors' independence and discourages them from confronting directors on difficult issues" as reasons for PIRC's position. Research by proxy voting agency Manifest is also cited:

The FRC said the level of fees paid to auditors in the FTSE 100 for non-audit work dropped from 191% of audit fees in 2002 — almost double their traditional income — to 71% last year. However, research by Manifest, the voting advisory service, for The Sunday Times shows a significant number of blue-chip companies last year shelled out more in non-audit fees to their auditors than for the cost of core audit work. The firms included Pennon, Experian and SAB Miller. PIRC research found that many smaller companies in the FTSE All-Share paid hefty multiples of auditors’ fees for their non-audit work. The biggest spenders in the 2008-9 financial year included Salamander Energy, Ashmore Group, Berkeley Group, William Hill and Premier Foods, as well as Land Securities, the FTSE 100 property company".

We've been here before: the Cadbury Committee considered whether auditors should be prohibited from providing non-audit services to clients and concluded in its 1992 report (at para. 5.11):

Such a prohibition would limit the freedom of companies to choose their sources of advice and could increase their costs. The Committee was not persuaded that any potential gains in objectivity would outweigh these disadvantages. It does, however, strongly support full disclosure of fees paid to audit firms for non-audit work".

These arguments will be considered again very soon: the report notes that in a few weeks' time the  Auditing Practices Board will begin a consultation on the issue of non-audit work performed by auditors.

UK: PIRC's manifesto for corporate governance reform

Pensions Investment Research Consultants Ltd - better known as PIRC - has published "Beyond the crisis: PIRC’s manifesto for corporate governance and capital market reform". The recommendations are wide-ranging. PIRC suggests that a greater role for employees should be considered within the UK governance framework and calls on BERR to consult on this issue. PIRC also proposes, inter alia, that directors of listed companies should be elected annually; that shareholders should have a binding vote on company audit committee reports; and that legislation should be introduced to make explicit "new responsibilities of stewardship and engagement for institutional investors". 

UK: PIRC makes public its shareholder voting recommendations

PIRC - the governance advisory service - has begun disclosing publicly its shareholder voting recommendations: see here. Recommendations are only published after the relevant company meeting although some get reported beforehand in the media.

PIRC makes recommendations in connection with approximately 1,000 companies and appears to be the first governance advisory service to disclose publicly this information.  It takes the position that "all organizations that have responsibility for decisions on shareholder voting should be transparent, as there is a clear public interest in the exercise of ownership rights".