France: recent developments

Freshfields Bruckhaus Deringer LLP has published a short newsletter highlighting developments in law, practice and the AFEP/MEDEF corporate governance code, with regard to female directors and board composition: see here (pdf). The newsletter notes an interesting development:

An increasing number of CAC40 companies that had previously adopted a system of management with a separate chairman and chief executive officer are now choosing to combine these roles under the authority of a single individual, while counterbalancing this concentration of power with the appointment of a 'senior independent director' (sometimes also referred to as a 'vice chairman' or 'reference director')".

Ireland: proposed corporate governance standards for banks and insurers

The Financial Regulator has published for consultation minimum corporate governance standards for banks and insurance companies: see here (pdf).

Amongst the proposals are the following (to quote directly from para. 1.5 of the consultation paper):

• Impose requirements in terms of the minimum number of directors on the Board.
• Limit the number of directorships which directors may hold so as to ensure they can comply with the expected demands of Board membership of an institution.
• Require that Board membership is reviewed at a minimum every 3 years.
• Require clear separation of the roles of Chairman and CEO and preclude an individual who has been CEO, director or senior manager during the previous five years from becoming Chairman of that institution.
• Set out clearly the role of the independent non-executive directors.
• Require the Board to set the risk appetite for the institution and to monitor adherence to this on an ongoing basis.
• Set out the minimum requirements for Board committees.
• Require annual confirmation of compliance to the Financial Regulator.

UK: FRC consultation on changes to the Combined Code

The Financial Reporting Council has today published a final report following its review of the Combined Code on Corporate Governance. A consultation paper has also been published setting out proposed changes to the structure and content of the Combined Code, including the recommendation that it should be renamed the UK Corporate Governance Code. 

A copy of the proposed new Code is included in the consultation paper. It contains new sections on leadership and accountability and a greater emphasis is given to the long-term success of the company. For example, the recast preamble/introductory section begins:

The purpose of corporate governance, supported by the Code, is to facilitate efficient, effective and entrepreneurial management that can deliver growth in shareholder value over the longer term".

Amongst the FRC's other proposals are:

• the annual re-election of the chairman or the entire board
• new principles concerning leadership by the chairman and the role, skills and independence of the non-executive directors (including their time commitment)
• board evaluation reviews should be externally facilitated at least every three years
• the chairman should hold regular development reviews with each director
• new principles on the board's responsibility for managing risk.
  

UK: the Walker Review of bank governance - final recommendations published

Sir David Walker has this morning published his final recommendations following his review of the governance of banks and other financial institutions. An overview is available in the accompanying press release. Amongst Sir David's 38 recommendations are the following:

• Institutional shareholders to sign up to a Stewardship Code, sponsored by the Financial Reporting Council with compliance monitored by the Financial Services Authority (the Code on the Responsibilities of Institutional Investors prepared by the Institutional Shareholders’ Committee will become the Stewardship Code)
• Annual re-election for the chairman of the board
• The chairman of a major bank should be expected to commit a substantial proportion of his or her time, probably around two-thirds, to the business
• An expanded role for the remuneration committee with regard to firm wide remuneration policy and "high end" employees
• Disclosure, within remuneration bands, of the number of "high end" employees (including executive directors)
• Deferral of incentive payments should provide the primary risk adjustment mechanism to align rewards with sustainable performance for executive board members and “high end” employees
• If the remuneration report receives less than 75% of the votes cast the remuneration committee chair should stand for re-election in the following year
• Greater expectations placed on non-executive directors regarding time commitment and tougher scrutiny by the Financial Services Authority
• Banks should have a board level risk committee chaired by a non-executive director
• The chief risk officer should have a reporting line to the risk committee and his or her removal should require board approval

Sir David proposes that most of his recommendations should be enforced through inclusion in the Combined Code on Corporate Governance or a separate Stewardship Code for institutional investors, both of which operate on a 'comply or explain' basis. The recommendations on pay disclosure will be included in the Financial Services Bill currently before Parliament.

Related video and audio resources: Sir David discussed his recommendations on the Radio 4 Today programme this morning: listen here. The BBC News website has a short video of Sir David discussing remuneration here. A video of Sir David's appearance before the Treasury Committee, where he was questioned on his review, appears here. 

Other materials: FSA statement | FRC statement | Government statement | 

UK: executive pay - NAPF principles

The chief executive (Joanne Segars) and head of corporate governance (David Paterson) of the National Association of Pension Funds have written to FTSE350 chairmen setting out several principles for the alignment of executive pay with shareholders' interests. The letter, published today, also states the NAPF's view that "a review of accepted best practice, which serves neither shareholders nor management well, is warranted and we have made these views clear to Government and in the FRC consultation on the Combined Code".

UK: ICSA review of the Higgs Guidance - consultation paper published

The Financial Reporting Council, as part of its recent review of the Combined Code on Corporate Governance, commissioned the Institute of Chartered Secretaries and Administrators to review the Higgs guidance and to consider whether additional guidance was required. As part of its review, ICSA this week published a consultation paper titled Improving Board Effectiveness: see here (pdf).

The paper sets out a suggested framework for new guidance around five areas: [1] roles and responsibilities of the board and its members; [2] skill levels in the boardroom; [3] board decision-making; [4] the individual on the board; and [5] accountability. Responses should be submitted by 16 April. In June, ICSA will publish a further consultation paper with the aim of submitting completed guidance to the FRC in October.

France: AFG revises its corporate governance recommendations

The Association Française de la Gestion Financière (the French Asset Management Association) has published a revised edition of its corporate governance recommendations: see here. A summary of the amendments made in the new edition is available in the accompanying press release: see here. Amongst the changes is the addition of a recommendation that a lead director should be appointed to monitor conflicts of interest where the chief executive is also the chairman.

Ireland: Combined Code principles to be placed on statutory footing

A Renewed Programme for Government has been agreed by the Government partners (Fianna Fáil and the Green Party). It contains measures concerning corporate governance, most notably the following objective (at p. 13):

We will put the principles of the 'Combined Code' of [sic] Corporate Governance on a legislative footing for all banks, public companies and state-sponsored bodies to deal with the following key areas of governance of institutions: board composition and independence; segregation of CEO and Chair; clear definition of executive and non executive responsibilities; audit committee composition, independence, role and function; responsibilities and composition of board committees; segregation of committee chairs; risk management; selection of non-executive directors; and sanctions for non-compliance".

UK: FSA clarifies SIF approval and supervision approach

The Financial Services Authority has published a Dear CEO letter in which it clarifies its approach regarding the approval and supervision of persons performing significant influence functions (SIFs). Executive and non-executive directors fall into this category. The letter makes clear, inter alia, the FSA's expectation that firms subject to close and continuous monitoring should engage with the FSA at the short listing stage when recruiting for the roles of chair, chief executive and senior independent director.

In the press release accompanying publication of the letter, the FSA states: 

The enhanced SIF regime is one of the FSA’s responses to the financial crisis, which exposed governance and risk management shortcomings across numerous firms in roles such as chair, CEO, and finance or risk director. In the 12 months since October 2008 the FSA has conducted 172 SIF interviews, resulting in 18 candidates withdrawing their applications which shows there is considerable scope for some firms to be more robust in their own recruitment processes".

UK: ICSA responds to FRC Combined Code and Walker reviews

The Institute of Chartered Secretaries and Administrators has published its response to the FRC's review of the effectiveness of the Combined Code and Sir David Walker's review of bank governance. Whilst welcoming in broad terms the work of the FRC and Sir David, ICSA makes clear that some of Sir David's recommendations should not be applied to all listed companies. For example, Sir David's seventh recommendation - the chairman should be expected to commit a substantial proportion of his or her time, probably not less than two-thirds, to the business - is described by ICSA as "too prescriptive" to apply to all listed companies.

Note: Sir David will be publishing final recommendations on November 26th. 

Germany: the Infineon AG annual general meeting

The annual general meeting of Infineon took place yesterday (a video recording is available here). Hermes and several other shareholders failed to supplant the company's chairman-designate with their preferred candidate. The Financial Times newspaper reports:

Infineon’s rebellious shareholders received a crushing and unexpected defeat on Thursday in their attempt to oust the chairman-designate, as some investors on the losing side alleged that there might have been flaws in the voting procedures. A majority of 72.62 per cent of the shareholders voted against Willi Berchtold, the finance director of a large German car parts maker who had been proposed as chairman by a group of investors".

UK: some reflections from the former chairman of Mitchells and Butlers plc

Simon Laffin was last month removed, in somewhat acrimonious circumstances, as the chairman of Mitchells and Butlers plc at the company's annual general meeting (for background information see here and here). In today's Daily Telegraph newspaper he reflects on some of the governance issues raised by his removal and the circumstances in which a shareholder should be permitted to have board level representation.

Germany: Infineon chairman-designate offers to serve for one year if elected

More on the dispute concerning the chairmanship of Infineon. The Financial Times newspaper reports: "Infineon offered a partial climbdown to hostile investors on Wednesday when the German chipmaker’s chairman-designate said he would only serve one year of his five-year term if elected".

Germany: battle over supervisory board chair at Infineon

The Financial Times newspaper reports that Germany "is braced for its first proxy fight at blue-chip company". The company is Infineon and one of it shareholders - UK based Hermes - has submitted a proposal that would, if supported at the company's forthcoming annual general meeting, see Hermes' preferred candidate elected to the chairmanship of Infineon's supervisory board.