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.

Australia: the ASX Corporate Governance Principles and Recommendations

Earlier this year the Australian Securities Exchange Corporate Governance Council published for consultation proposed changes to the second edition of its Corporate Governance Principles and Recommendations. The submissions have been published (here) along with the Council's response (here, pdf). The majority of submissions provided strong support for the Council's changes, which address, for example, board structure and diversity and the remuneration committee.

A copy of those Principles and Recommendations which have been amended is available here (pdf). A comparative table showing the Principles and Recommendations before and after the changes is available here (pdf). An overview of the changes is available here (pdf).

Australia: Government provides very strong support for Productivity Commission remuneration recommendations

The Productivity Commission published its report on executive remuneration last year (see here, pdf - 2.6MB). The report rejected the introduction of a cap on executive pay and a binding shareholder vote on remuneration. Instead it contained 17 recommendations designed to strengthen the corporate governance framework, including the requirement that where a company’s remuneration report receives a ‘no’ vote of 25 per cent or more of eligible votes cast at an AGM, the board should be required to explain in its subsequent report how shareholder concerns were addressed and, if they have not been, the reasons why; where the subsequent remuneration report receives a 'no' vote of 25 per cent or more of eligible votes cast at the next AGM, a resolution should be put that the elected directors who signed the directors’ report for that meeting stand for re-election at an extraordinary general meeting.

The Government's response to the Commission's report has been published - see here (pdf) - and it supports the vast majority of the Commission's recommendations.

For further information about the Productivity Commission's report see: overview (including key points) (pdf) | recommendations and findings (pdf) | Productivity Commission remuneration enquiry site | submissions | public hearing transcripts |

USA: Senator Dodd's Restoring American Financial Stability Act of 2010

Senator Chris Dodd, the chairman of the Senate Banking Committee, yesterday published the text of his proposed Restoring American Financial Stability Act of 2010. Mark-up by the Committee is scheduled for March 22. A copy of the Act is available here (pdf) and a summary is available here (pdf).

With regard to corporate governance, the Act contains several provisions including, for example, the introduction of a non-binding 'say on pay' vote for shareholders; the requirement that compensation/remuneration committees contain only independent directors and the requirement for public companies to establish policies for the clawing back of executive compensation if found to be based on inaccurate financial statements not complying with accounting standards.

UK: walker review of bank governance - PIRC response to consultation paper

Pensions Investment Research Consultants Ltd. (PIRC) has published its response to the consultation paper published by Sir David Walker as part of his review of the governance of banks and other financial institutions. 

PIRC finds the the review's recommendations, overall, to be "a useful contribution to the improvement of corporate governance in the financial sector" but adds that some recommendations would not, as they stand, change behaviour. PIRC's response reveals a preference for greater reliance on compulsory provisions as well universal principles. For example, with regard to recommendation 36 - the remuneration committee chair should stand for re-election a year after a company's remuneration report receives less than 75% of the votes cast - PIRC suggests that it would be simpler to adopt the principle of annual election for all directors. This would permit concerned shareholders to vote against the remuneration committee chair in the same year as opposing the remuneration report. 

PIRC also suggests that a limit should be set on the number of directorships that can be held: a non-executive director holding an executive directorship elsewhere should not be permitted to hold any further non-executive directorships; a non-executive director without executive responsibilities elsewhere should be permitted to hold a maximum of four non-executive directorships.

UK: ABI remuneration guidelines - letter to remuneration committees

The Association of British Insurers has written to remuneration committee chairmen highlighting aspects of its remuneration guidelines which are of particular relevance in the current economic climate: see here (Word). The ABI states, for example, that:

Remuneration structures that seek to increase tax efficiency should not result in additional costs to the company or an increase in its own tax bill. Remuneration Committees should be aware of the potential damage to the company’s and shareholders’ reputation from implementing such schemes".

Australia: Productivity Commission report on executive remuneration released

The Productivity Commission report on executive remuneration was released today: see here (pdf - 2.6MB). The report rejects the introduction of a cap on executive pay and a binding shareholder vote on remuneration. Instead it contains 17 recommendations designed to strengthen the corporate governance framework, including: 

• All ASX300 companies should have a remuneration committee, comprising solely of non-executive directors (the majority of whom should be independent).
• The remuneration report should contain a summary statement, in plain English, of the company's remuneration policies.
• Proxy holders should be required, except in exceptional circumstances, to cast all of their directed proxies on remuneration reports and any resolutions related to those reports.
• Institutional investors, particularly superannuation funds, should disclose, at least on an annual basis, how they have voted on remuneration reports and other remuneration-related issues.
• Where a company’s remuneration report receives a ‘no’ vote of 25 per cent or more of eligible votes cast at an AGM, the board should be required to explain in its subsequent report how shareholder concerns were addressed and, if they have not been, the reasons why; where the subsequent remuneration report receives a 'no' vote of 25 per cent or more of eligible votes cast at the next AGM, a resolution should be put that the elected directors who signed the directors’ report for that meeting stand for re-election at an extraordinary general meeting.

For further information see: media release| overview (including key points) | recommendations and findings | Productivity Commission remuneration enquiry site | submissions | public hearing transcripts | Government response to the report |