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.

Canada: governance at financial institutions

Ted Price, an assistant superintendent at the Office of the Superintendent of Financial Institutions (OSFI), delivered a speech earlier this week titled "Defining the New Agenda for Governance at Financial Institutions": see here (pdf).

The speech provides some useful insights into governance in Canada as well as the actions being taken by the OSFI with regard to governance, including the assessment of board directors and the functions of the board with regard to risk, about which Mr Price observed:

At OSFI, we believe that defining financial risk appetite is as important in an institution’s strategic planning as other production inputs, like budgets. It has been long accepted that major expenditures and budgets should be reviewed by the board, but when it comes to setting risk appetite, some boards have, incorrectly, abdicated that responsibility to management. We believe that boards have an essential oversight role in setting and limiting risk appetite in financial institutions".

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: 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.
  

Singapore: MAS consultation on corporate governance framework

The Monetary Authority of Singapore has published a consultation paper containing proposed changes to the corporate governance framework for financial institutions: see here (pdf). The changes focus on directors' skills, commitment and independence as well as board committees, remuneration and risk management.

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.

Europe: corporate governance in financial institutions

Earlier this month the European Commission held a one day seminar on corporate governance in financial institutions. The seminar was split into three panel sessions, video recordings of which are now available (in wmv format):

• Panel 1: The board of directors - role and competences [wmv | 244 MB]
• Panel 2: Internal control and risk management - governance issues [wmv | 190 MB]
• Panel 3: Shareholder control, supervision and external audit [wmv | 267 MB]

USA: Federal Reserve publishes proposed guidance on sound incentive compensation policies

Yesterday the Federal Reserve Board (FRB) published for comment proposed guidance on sound incentive compensation policies for banks. This guidance is based on the following three principles, which provide that incentive compensation arrangements at banks should (to quote directly from the proposed guidance):

• Provide employees incentives that do not encourage excessive risk-taking beyond the organization’s ability to effectively identify and manage risk;
• Be compatible with effective controls and risk management; and
• Be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. 

The FRB also announced that it is to begin two supervisory initiatives, as follows (to quote from its press release): 

One, applicable to 28 large, complex banking organizations, will review each firm's policies and practices to determine their consistency with the principles for risk-appropriate incentive compensation set forth in the proposal. These firm-specific policies will be assessed by supervisors in a special 'horizontal review,' a coordinated examination of practices at the 28 firms. The policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance.

Second, supervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization".

For comment see here (Financial Times), here (Wall Street Journal) and here (New York Times).