UK: the first Stewardship Code published

The Financial Reporting Council has today published the UK Stewardship Code: see here (pdf). Operating on the 'comply or explain' basis, the code contains seven principles and accompanying guidance. For example, Principle 1 provides that "Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities". The Stewardship Code accompanies the revised corporate governance code published earlier this year.

The purpose of the code, as explained in its preface, is "to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities". Further information concerning the Code and its implementation is available here (pdf). This document also explains:

... there were a number of significant issues raised by the consultation which are not addressed in the Code and which merit further consideration. These include, for example, whether institutional investors should disclose their policies on stock lending, arrangements for voting pooled funds, and the nature of the information to be disclosed on voting records. The FRC will carry out further work on these issues in advance of the monitoring exercise planned for the second half of 2011".

New Zealand: a new Securities Act - discussion document published

As part of its review of securities law, the Government has published a discussion document in which it proposes the introduction of a new Securities Act: see here (pdf). To quote from the document's executive summary:

The Ministry proposes that a new Act will replace the Securities Act 1978 and the Securities Markets Act 1988, and amend a range of other legislation. The new Act will set out what offers of financial products are to be regulated, how they will be regulated, and how this regulation will be enforced. While the Ministry proposes maintaining many of the existing principles in the current regime (e.g. that it remain based on mandatory standards of disclosure and governance), changes are proposed to increase the effectiveness of the regime.

The discussion paper picks up many of the recommendations of the Capital Market Development Taskforce (the Taskforce) and will support many of the other changes that have been made or are in the process of being implemented, such as the Financial Advisers Act 2008, the Financial Service Providers (Registration and Dispute Resolution) Act, the Securities Trustees and Statutory Supervisors Bill, and recent Government decisions to consolidate the market conduct regulators into a new Financial Markets Authority, and changes to improve the regulation of retail KiwiSaver schemes".

UK: Photo-Me International plc fined for DTR and Listing Principle breach

The Financial Services Authority today announced the imposition of the largest fine it has imposed in respect of the failure by a listed company to disclose inside information to the market in accordance with Disclosure Rules and Transparency Rules 2.2.1R and Listing Principle 4: see here.

The fine was £ 500,000 and it was imposed on Photo-Me International plc in respect of its failure to disclose that it was no longer engaged in exclusive negotiations for a contract when the contract was re-tendered and the company was in competition with others. Photo-Me issued a statement today - see here - in which it stated that it would not be challenging the FSA's decision and reaffirmed its position that "the FSA has underestimated the real-time difficulties faced by the Company in updating the market on the possible outcome of the relevant complex contractual negotiations".

Bahrain: corporate governance code published

The Kingdom of Bahrain's Ministry of Industry and Commerce has published a corporate governance code: see here (pdf). The code contains nine principles with supporting directives and recommendations. For example, principle 5 provides that the company "shall remunerate directors and officers fairly and responsibly". This principle is supported by the directive that the board should establish a remuneration committee. A recommendation provides that all plans for performance-based incentives should be approved by the shareholders.

The code will initially apply to public companies but it is intended that it should, in due course, apply to all operating joint stock companies incorporated under the Bahrain Commercial Companies Law. The subject of enforcement is explained in the code's introduction. Whilst the code is based on the comply or explain approach, the introduction notes that market based monitoring alone is not sufficient and identifies other bodies and mechanisms which should perform this function including the Central Bank of Bahrain and shareholder litigation.

UK: AIM Rules amendments - remuneration disclosure and electronic communication

The London Stock Exchange has published AIM Notice 35, in which amendments to the AIM Rules are proposed. It is proposed to amend AIM Rule 19 to require AIM companies to provide disclosure of directors’ remuneration in their annual audited accounts (coming into force for financial years ending on and after 31 March 2010). It is also proposed to amend the guidance notes to AIM Rules 14 and 19 to provide all AIM companies with the option to use electronic communications to send accounts and admission documents to shareholders. 

USA: SEC adopts enhanced disclosure rules

The Securities and Exchange Commission yesterday approved amendments which will require public companies to make greater disclosure regarding: remuneration policies and practices that present material risks to the company; stock and option awards of executives and directors; director and nominee qualifications; board structure; the board’s role in risk oversight; and potential conflicts of interest of remuneration consultants advising companies and their boards.

The amendments will apply to proxy and information statements, annual reports and registration statements under the Securities Exchange Act (1934) and registration statements under the Securities Act (1933) as well as the Investment Company Act (1940). The new rules will be effective from 28 February 2010. See here for a more detailed overview of the new rules.

UK: Walker Guidelines Monitoring Group publishes second report

The Guidelines Monitoring Group has published its second report concerning compliance with the Walker Guidelines on transparency within the private equity industry: see here (pdf). The Group found the following (to quote directly from the report):

There continues to be a high level of commitment to the Guidelines from the private equity industry. In particular, the disclosures made by the private equity firms themselves have improved significantly and all private equity firms covered by the Guidelines met all the requirements without exception. A substantial majority of the portfolio companies reviewed this year made good or acceptable disclosures with only a limited number of exceptions. Overall, the quality of the disclosures made by the sample of portfolio companies reviewed this year is similar to the quality of disclosure found in last year’s review. Similar to last year, the quality of the disclosures varies significantly within the sample with some firms going much further than the requirements".

UK: the Financial Services Bill - second reading

The Financial Services Bill received its second reading on Monday and now proceeds to Committee stage: read the debate here. In the course of debate, the Chancellor referred to the recommendations within Sir David Walker's report on bank governance concerning the disclosure of pay within banks and stated (Hansard, 30 Nov, col 883):

Sir David made a number of recommendations, but I think that we go further than he suggested. We want to consult on regulations for narrower disclosure bands than he proposed, starting with salary packages below the £1 million floor that he suggested. We will consult on that idea, but most people are convinced that far more disclosure is important, because they will then be able to see precise remuneration practices".

UK: the disclosure of directors' loans in company accounts

Earlier this year the Department for Business, Innovation and Skills published a consultation paper concerning the scope of the requirement for disclosure of directors' loans in company accounts under Section 413 of the Companies Act (2006). The paper outlined various proposals for amending Section 413 as part of the Government's review of the adequacy of information provided to shareholders and other users of accounts in respect of directors' loans.

Responses to the consultation have now been published (see here - .zip file) along with the Government's response (see here - pdf). The Government proposes, in the short-term, amending the 2006 Act in order to clarify the disclosure required by banks in respect of directors loans, credits and guarantees.

Hong Kong: the HKEx Listing Committee report

The Hong Kong Stock Exchange Listing Committee has recently published its 2009 report: see here (pdf). The report notes (pp. 5-6):

The Listing Committee has formed a sub-committee to consider whether issuers should set up a corporate governance committee and how the role of the company secretary may be further enhanced. The sub-committee is also taking the opportunity to review other issues relating to the Code on Corporate Governance Practices (“CG Code”) as well as items pertaining to corporate governance that have arisen in the course of our administration of the Listing Rules in recent years. The objective is to make possible enhancements to the CG Code that is benchmarked against international standards. Topics covered include disclosure of information on directors, shareholders meetings and matters relating to directors, in particular, independent non-executive directors".

The report states that the enhancement of listed issuers' corporate governance standards is a priority for 2010. Specifically, the following are amongst the issues to be considered: the development of a corporate social responsibility code for listed companies; a review of the role of company secretaries; contributing to the Companies Ordinance rewrite; and the continuation of the Corporate Governance review (noted above).

Basel Committee consultation on principles for enhancing corporate governance

The Basel Committee on Banking Supervision yesterday published Principles for enhancing corporate governance - a consultation paper: see here (pdf). The paper provides 14 principles, divided into 6 broad categories: (1) board practices, (2) senior management, (3) risk management and internal controls, (4) compensation, (5) complex or opaque corporate structures and (6) disclosure and transparency.

Ireland: the Combined Code - compliance and disclosure

Grant Thornton Ireland has published its 2010 Corporate Governance Review: see here (pdf). The report examines compliance with the UK Combined Code on Corporate Governance by companies having their ordinary shares listed on the main market of the Irish Stock Exchange. Such companies are required under the Exchange's Listing Rules (chapter 6) to state whether they have complied with the Code and, if not, to explain why.

The report notes a decline in the proportion of companies claiming full compliance with the Code (down from 51% to 36%) but notes an improvement in the quality of disclosure provided by companies in respect of non-compliance. This said, the report identifies many areas where improvements in disclosure are needed. A summary of the report is available here.

The 2009 report is available here (pdf).

UK: the Companies’ Remuneration Reports Bill

The Companies’ Remuneration Reports Bill, which was introduced by Lord Gavron in the House of Lords last December, has received its first reading in the House of Commons. The Bill's second reading is scheduled for this coming Friday, 6 November, but it seems likely that the House will not sit on this day. 

The Parliamentary timetable is such that the Bill will not become law. Prorogation takes place on 12 November and a new session of Parliament begins on 18 November with the State Opening of Parliament and the Queen's Speech. The Bill cannot be carried forward and would have to be reintroduced in the new session. 

UK: financial reporting by banks and other credit institutions

The Financial Services Authority has published a consultation paper titled "Enhancing financial reporting disclosures by UK credit institutions". It has also announced that major UK headquartered banks have agreed to implement what it describes as a "tough" new code for financial reporting disclosure. According to the FSA:

The code forms part of proposals, designed to enhance investors’ confidence in financial reporting and to aid their ability to compare and contrast banks’ performance. It is based on an overarching principle that UK banks are 'committed to providing high quality, meaningful and decision-useful disclosures to users to help them understand the financial position, performance and changes in the financial position of their businesses'. The FSA is inviting views on the application of this code to banks and other credit institutions. In the meantime, the major banks, at the FSA’s request, have agreed to implement the code in their 2009 year end annual reports".

Japan: FSA proposes greater governance disclosures by listed companies

Japan's Financial Services Agency has published for consultation rules which will increase the disclosure obligations of listed companies with regard to their adopted governance structure, directors' remuneration, cross-shareholdings and voting results. It is proposed that the new rules will come into force on 31 March. Further information is available here (pdf).

UK: Grant Thornton's FTSE350 Corporate Governance Review

Grant Thornton has published its FTSE350 Corporate Governance Review 2009: see here (pdf).

The Review examines companies' compliance with the Combined Code and disclosure in this regard. It notes that 47% of companies reported that they were fully compliant with the Code. The quality of disclosure remains, nevertheless, an issue according to the Review, with only 29% of those companies claiming full compliance providing the disclosures needed to support their claim. Amongst the other finding reported are:

• The average FTSE 350 board has 5.2 non-executive directors compared to 3.3 executive directors, although 80 companies did not have at least half the board made up of independent non-executive directors for the entire year.
• 31 companies, including eight in the FTSE 100, did not disclose who on the audit committee had recent and relevant financial experience.
• Three FTSE 100 and 13 Mid 250 companies changed their auditors during the year.

Note: For earlier reviews see (in pdf): 2008 | 2007 | 2006 | 2005 |

Jersey: JFSC consultation on audit and financial reporting Orders

Jersey's Financial Services Commission has published a consultation paper - see here (pdf) - in which two draft Orders are published. The first will establish a registration and oversight regime for auditors of market traded companies. The second will require that market traded companies prepare their accounts using IFRS or GAAP in the UK, Japan, Canada or USA.

UK: ICAS Working Group rejects ban on auditors providing non-audit services to their listed company audit clients

The Working Group established by the Institute of Chartered Accountants of Scotland to consider the issues raised by audit firms providing non-audit services to their listed company audit clients, following the publication of the Auditing Practices Board's consultation paper, has published its final report: see here (pdf).

The Working Group concluded that no benefits would be gained by banning auditors from providing non-audit services to their listed clients. The Group instead recommended greater disclosure and transparency with regard to the policy and procedures in place where the auditor provides non-audit services. The Group also proposed changes to the way in which auditor remuneration is disclosed because, in its view, the current regime has not resulted in useful information being provided.

India: ACGA issues white paper on corporate governance

The Asian Corporate Governance Association has published a white paper making recommendations for the improvement of corporate governance in India: see here (pdf). The recommendations fall within five headings: shareholder meetings and voting, related party transactions, preferential warrants, disclosure and the auditing profession.

Portugal: new corporate governance recommendations + other developments

The Portuguese Securities Commission (Comissão do Mercado de Valores Mobiliários) has announced that its Executive Board has approved new recommendations on corporate governance with regard to the criteria for determining directors' remuneration, the control of internal risk and the independence of external auditors: see here for further information.

The Commission has also announced - see here - its approval of a Regulation which will require listed companies to publish details of the remuneration policy for directors and supervisory board members.

Finally, the Commission has formed a panel to assess the quality of corporate governance in Portugal: see here for further information.