Australia: financial services regulation - major changes proposed

The Australian Government has published a green paper titled Financial Services and Credit Reform: Improving, Simplifying and Standardising Financial Services and Credit Regulation. This sets out important and wide-ranging changes to the regulatory structure governing financial services. Changes are also proposed concerning the regulation of debentures and trustee corporations.

USA: proposed Bills - beneficial ownership and executive pay

As the Democratic candidates' race for the presidency draws to a close, it's worth noting a couple of corporate governance related Bills introduced to Senate earlier this year by Hillary Clinton and Barack Obama.

Senator Obama - along with Senators Levin and Coleman - introduced the Incorporation Transparency and Law Enforcement Assistance Act (S. 2956).  The purpose of the Act, to quote directly from it, is "[to] reduce the vulnerability of the United States to wrongdoing by United States corporations and limited liability companies with unknown owners". The Act will require corporations and limited liability companies formed within the States to provide the State of incorporation with the identity of the corporation/ company's beneficial owner(s). A "beneficial owner" is defined as "an individual who has a level of control over, or entitlement to, the funds or assets of a corporation or limited liability company that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the corporation or limited liability company".

Senator Clinton introduced the Corporate Executive Compensation Accountability and Transparency Act (S. 2866).  Section 4 provides shareholders with a mandatory "say on pay" vote at the company's annual meeting.  In Section 5 the Bill contains measures designed to deal with the potential conflicts faced by remuneration consultants.  

Netherlands: changes proposed to the Tabaksblat Code

The Dutch Corporate Governance Monitoring Commission has proposed changes to the Dutch Corporate Governance Code (a.k.a. the "Tabaksblat Code"). A summary in English is available in a Word document here. This document also contains the results of a survey of Dutch institutional investors' perceptions of corporate governance in Dutch companies. Many of the changes concern remuneration. The proposed additions to the Code include the following rules:

If a variable remuneration component (shares, options or a bonus) conditionally awarded in a previous financial year would, in the opinion of the supervisory board, produce an unfair result on account of incorrect financial data or special circumstances in the period in which the predetermined performance criteria have been or should have been achieved, the supervisory board may adjust the value downwards or upwards. This power of the supervisory board shall in any event be included in new remuneration contracts with management board members.

If the remuneration committee uses the services of a remuneration consultant, that consultant should not provide advice to any management board member.

The supervisory board should aim to have a diverse composition in terms of age and gender.

For further information see this press release (in Word format).

Update (15 September 2008): The ICGN has published a letter in which it comments on the proposed changes. 

Japan: activist shareholder secures board's removal

The Economist and Financial Times have reported what is said to be a first for activist shareholders in Japan.  According to the FT's report (online, May 29):

Shareholders led by Warren Lichtenstein’s Steel Partners on Thursday ousted the president and board members of Aderans, a Japanese wigmaker, the first time activist investors have successfully expelled management in a country often criticised for ignoring their wishes. The event is something of a coup for US-based Steel Partners, which owns 26.7 per cent of Aderans. The wigmaker is just one of nearly 30 Japanese companies the private equity group has been pushing to improve investor returns and corporate governance"

The Economist report is available here and the Financial Times report can be found here.  In this earlier post, proposals for the reform of corporate governance in Japan were noted. 

England and Wales: the auditor's role and financial assistance

Section 151 of the Companies Act (1985) makes it is unlawful for a company to provide financial assistance for the purchase of its own shares.  Private companies can, however, provide financial assistance by complying with the so-called "whitewash" procedure.  This requires directors to make a solvency declaration (or statement) in accordance with Section 156. Atttached to this must be a report by the company's auditors stating that they have enquired into the company's affairs and that they are not aware of anything to indicate that the directors' opinion is unreasonable in all the circumstances.

The nature of the auditor's role in respect of this report has recently been considered in M&S Tarpaulins Ltd. v Green (Ch.D., Manchester, 2 May) (not yet available on BAILII). The trial judge: (a) held an auditor negligent in the preparation of the report (the auditor had failed, inter alia, to analyse the company's cash flow position) and (b) rejected the claim that the questions to be asked and the techniques to be used in preparing the report would vary depending on the size of the transaction.

The decision is, however, of wider interest because of the endorsement given to the Auditor's Code within the ICAEW's Audit Quality document and the way in which the Code was used by the trial judge to consider the auditor's role and responsibilities. The trial judge cited several Code provisions including:

Rigour

Auditors approach their work with thoroughness and with an attitude of professional scepticism. They assess critically the information and explanations obtained in the course of their work and such additional evidence as they consider necessary for the purposes of their audit

NB: Change is afoot: Part 18 of the Companies Act (2006) introduces a new regime, effective from 1 October 2008, under which it will no longer be unlawful for private companies to provide financial assistance. For further information, see here.