Belgium: corporate governance code - proposed changes

Belgium's Corporate Governance Committee has proposed several changes to the Belgian Corporate Governance Code. A consultation paper is available here (in Word format) and a draft of the new code is available here (also in Word format). The proposed changes address a wide range of areas including corporate social responsibility, the gender diversity of boards, board evaluation, directors' remuneration and the remuneration report. 

New Zealand: corporate governance reporting - Securities Commission review

The New Zealand Securities Commission has published its latest review of corporate governance reporting: see here. The review considered disclosure by 68 companies and found that many needed to improve disclosure concerning ethical standards, directors' remuneration, risk management, and shareholder and stakeholder relations. The overall findings are available here.

USA: financial regulation reform

The Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act after Senator Dodd and Congressman Frank and not, as posted earlier, the Restoring American Financial Stability Act) was yesterday signed by the President: see here.

The Act will bring about the most significant financial regulatory reform since the 1930s and also includes corporate governance measures. For example, Section 951 provides for a shareholder vote on compensation disclosure and Section 952 sets out requirements for compensation committee independence. For a more comprehensive summary of the Act see here and here.

UK: bank remuneration and the role of Government

The Financial Secretary to HM Treasury, Mark Hoban MP, delivered a speech last night at the British Banker's Association annual industry dinner. With regard to remuneration, the Financial Secretary stated:

The fate of banks in terms of public trust and respect rests also in your hands. A key way of regaining public trust will be by reforming the system of remuneration. We have the opportunity to send a clear message to the public that the banking system now operates in a way that is fair and stable and no longer rewards employees based on short-term performance whilst leaving investors and taxpayers exposed to the long-term risks. It is better for the industry to lead these changes.

But there is a role for the Government too. We will explore the costs and benefits of a Financial Activities Tax on profits and remuneration, and we will ask the FSA to examine further options in the forthcoming review of its remuneration code. And we will be encouraging all G20 members to implement the FSB principles on remuneration rigorously".

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.

Switzerland: executive remuneration survey published

Ethos, the Swiss Foundation for Sustainable Development, has published its 2009 survey of executive remuneration at the 49 largest Swiss listed companies: see here. The survey found:

In 2009, the aggregate remuneration of the members of the board of directors and of the executive management of the 49 companies included in Ethos' study increased by 21% to CHF 1.27 billion. While the increase was 73% in the financial sector, it was just 2% in the other sectors. On average, each member of the executive management received CHF 3 million in 2009. The Chairmen of the board were paid CHF 1.9 million on average while the other non executive directors CHF 300'000".

UK: the Manifest and MM&K executive remuneration survey

Today's Guardian newspaper reports - see here - the results of the latest remuneration survey conducted by MM&K and Manifest. According to the Guardian's report:

Chief executives of FTSE 100 companies have seen their remuneration rise by 5% to an average of £3.1m since 2008, while earnings per share fell by 1% over the same period ... Over the past 10 years chief executive remuneration has quadrupled while share prices have declined, suggesting little or no link between rewards, performance and shareholder value, according to MM&K and Manifest".

The full survey results are not available free of charge although MM&K have published a short overview, including a useful graph showing the composition of CEO pay over the past 10 years, here (pdf).

UK: the Tesco plc AGM

Tesco plc held its annual general meeting last Friday. Whilst the advisory vote on the remuneration report was passed a little under half of the shareholders failed to support it. 52.9% of votes were cast in support of the report, 31.9% against and the remainder were withheld. A significant rebuke. The votes results are available here.

Japan: remuneration disclosure

Earlier this year, Japan's Financial Services Agency adopted new rules increasing the disclosure obligations of listed companies with regard to governance structure, directors' remuneration, cross-shareholdings and voting results: see here (pdf). The BBC News website reports - see here - on the disclosures which are beginning to be made with with regard to remuneration.

UK: the bank levy and bank remuneration

In today's budget the Government announced the introduction of a bank levy. The levy will apply to: the consolidated balance sheet of UK banking groups and building societies; the aggregated subsidiary and branch balance sheets of foreign banks and banking groups operating in the UK; and the balance sheets of UK banks in non-banking groups. Further information is available here (pdf). The budget report is available here.

The budget report also states, in a short paragraph titled "Bank remuneration" at para. 2.79:

The Government will explore the costs and benefits of a Financial Activities Tax. The Government has asked the FSA to consider a number of factors in its forthcoming review of its Remuneration Code. Alongside this the Government will consult on a remuneration disclosure regime".

USA: Guidance on Sound Incentive Compensation Policies

The Federal Reserve and several other agencies have adopted final guidance on incentive compensation policies in banking organisations: see here (pdf).

USA: 'say on pay' votes lost at KeyCorp and Occidental Petroleum

Two more American companies, in addition to Motorola, have lost 'say on pay' votes this year: KeyCorp and Occidental Petroleum. See the results here and here.

Germany: corporate governance developments

A the end of June, at the 7th German Corporate Governance Code Conference, Dr. Gerhard Cromme delivered his final speech as chairman of the Government Commission on the German Corporate Governance Code. In his speech, Dr Cromme discussed the development of the Code - widely known as the Cromme Code - and reflected on the German two-tier board model and issues associated with the transparency of business decisions and executive pay.  Regarding the latter, Dr Cromme observed:

In connection with cases of excessive severance payments, there were calls to shorten the term of management board contracts from five years to, say, three years. This would have limited the amount of potential several payments without introducing a severance payment cap. However, we came to the conclusion that the five-year term of office is the greater good - for reasons of planning and reliability alone, but also in the interest of a long-term corporate strategy. Only first time appointments should generally be made for a shorter term. Instead of shortening management board contracts, we introduced suggestions on the severance payment cap in 2007. At the start of this month we took this a logical stage further and upgraded the suggestions to recommendations. This means that non-compliance with this rule has to be disclosed in the annual declaration of conformity. This is transparency which will bear fruit in the long-term and change patterns of behaviour".

Further information about the recommendation on severance pay is available here and a video of the conference is available here. Interestingly, the UK's Financial Times newspaper has reported, in a piece titled "Berlin plans to curb excessive executive pay" (online edition, July 10):

Berlin is poised to crack down on what it considers 'excessive' executive pay in a move that could curtail the use of stock options in Germany. The Christian Democratic Union of Chancellor Angela Merkel has set up a working group that will start work in September on concrete proposals. These are likely to include a tightening of corporate governance rules and corporate taxation possibly as soon as the end of this year. The proposals, to be finalised in the autumn, are likely to make it into law since the CDU has the support of its coalition partner the Social Democratic party. The CDU initiative is intended to target DAX-listed companies, but would also affect executives of foreign companies who live in Germany".

NB:

[1] In the UK, under Section 188 of the Companies Act (2006), directors' service contracts exceeding 2 years (or those with any fixed or rolling notice period exceeding 2 years) require shareholder approval. This provision applies to all companies.

[2] The UK Combined Code on Corporate Governance (June 2008) provides:

B.1.6 Notice or contract periods should be set at one year or less. If it is necessary to offer longer notice or contract periods to new directors recruited from outside, such periods should reduce to one year or less after the initial period.

Poland: WSE Code of Best Practice for Listed Companies - new edition published

The Warsaw Stock Exchange has published a revised edition of its Code of Best Practice for Listed Companies: see here (pdf). The revised Code comes into force on 1 July 2010. A summary of the revisions is available here (pdf) and further background information is available here. The amendments to the code concern, amongst other things, gender diversity at board level, remuneration policy and electronic communication.

Europe: Recommendations on remuneration - Commission reports

The European Commission has published reports on Member States' implementation of the Commission's recent Recommendations on remuneration (2009/384/EC and 2009/385/EC): see, respectively, here (pdf) and here (pdf). The reports are accompanied by two staff working documents which describe the measures taken by Member States: see here (pdf) and here (pdf). For further information see here.

Europe: the governance of financial institutions - Commission publishes green paper

The European Commission has published a green paper titled Corporate governance in financial institutions and remuneration policies: see here (pdf). The paper contains a large number of questions for consultation and sets out possible ways to:

• improve the functioning and composition of boards of financial institutions in order to enhance their supervision of senior management;
• establish a risk culture at all levels of a financial institution in order to ensure that long-term interests of the business are taken into account;
• enhance the involvement of shareholders, financial supervisors and external auditors in corporate governance matters;
• change remuneration policies in companies in order to discourage excessive risk taking.

Amongst the questions on which views are sought are:

• Should the number of boards on which a director may sit be limited?
• Should combining the functions of chairman of the board of directors and chief executive officer be prohibited in financial institutions?
• Should a specific duty be established for the board of directors to take into account the interests of depositors and other stakeholders during the decision-making procedure?
• Should cooperation between external auditors and supervisory authorities be deepened?
• Should supervisory authorities be given the power and duty to check the correct functioning of the board of directors and the risk management function?
• What could be the content and form, binding or non binding, of possible additional measures at EU level on remuneration for directors of listed companies?
• Should disclosure of institutional investors' voting practices and policies be compulsory? How often?

The paper makes clear (at p. 11) the Commission's view that there is a role for financial regulators to play:

The main challenge in seeking to improve existing corporate governance practices will be to ensure real change in the behaviour of the relevant actors. This cannot be achieved through new regulatory and non-regulatory requirements alone. It must also be backed up by effective financial supervision".

Interestingly, whilst the paper is concerned with financial institutions, it is noted (at p. 3):

... the Commission will soon launch a broader review on corporate governance within listed companies in general and, in particular, on the place and role of shareholders, the distribution of duties between shareholders and boards of directors with regard to supervising senior management teams, the composition of boards of directors, and corporate social responsibility".

For further information see: press release | press conference video | faqs | Commission consultation page | Commission staff working document: lessons from the financial crisis | other proposals announced: credit rating agencies : remuneration : financial services regulation |

Australia: shareholder engagement and participation

On June 23, Australia's Parliamentary Joint Committee on Corporations and Financial Services published a report titled Better shareholders – Better company: Shareholder engagement and participation in Australia. The Committee considered several issues including the barriers to effective engagement by shareholders in the governance of companies, the engagement of institutional shareholders and the selection of directors. The report makes many recommendations including:

• ASIC should establish best practice guidelines for company annual general meetings and for clear and concise company reporting.
• The government should investigate an alternative regulatory framework for small incorporated companies and not-for-profit organisations.
• The government should investigate the most appropriate regulatory framework for ensuring that stock lenders retain the voting rights attached to the lent shares.
• The government should amend the Corporations Act to exclude shareholder directors from voting on their own remuneration packages either directly or by directing proxies

The Australian Government has welcomed the report: see here.

USA: 'say on pay' vote at the Motorola general meeting

Motorola Inc., incorporated in Delaware, held its annual stockholder meeting earlier this month. The voting results are available here. Stockholders were given a non-binding vote on the company's remuneration policy. Although more votes were cast in support of the policy (887,793,923) than against (855,021,547) it was defeated when the number of abstentions (201,440,789) were taken into account. This would appear to be the first time that an American company has lost a 'say on pay' vote (although there is currently no legal or regulatory obligation to provide such a vote).

The abstentions were included in determining whether the resolution was passed because the company's bylaws (Section 4, page 5; available here, pdf) provided that "the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, except as otherwise required by Delaware law, the Certificate of Incorporation, or these Bylaws".

In the absence of such a provision a default rule is provided by Section 216(2) of the Delaware General Corporations Law as follows: "[in] all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders". For judicial discussion of Section 216, see Licht v. Storage Technology Corp., et al. (C.A. No. 524-N, 2005): here (pdf).

UK: Executive Pay Report 2010 published by Sunday Telegraph

The Sunday Telegraph newspaper published its Executive Pay Report 2010 yesterday - see here (methodology here) - and this reports:

FTSE100 chief executives saw their salaries fall an average 1pc in 2009, while cash bonuses and benefits were 28pc lower. However, share based incentives rose a mouth-watering 31pc, leaving total compensation 6pc higher at an average of £3.76m".

Belgium: new governance laws

A summary of some recent changes to Belgian law concerning the governance of listed companies has been published by Clifford Chance LLP and Freshfields Bruckhaus Deringer LLP: see, respectively, here (pdf) and here (pdf).