Mon 26 Feb 2018
News - Key Corporate Governance Developments January-February 2018
Key governance developments January-February 2018IntroductionCollapse of outsourcing giant highlights governance failures
The collapse of Carillion, a UK-based international construction and outsourcing group that had proclaimed the soundness of its liquidity and solvency position just months earlier, has prompted much soul-searching as to how seriously companies take corporate governance codes or adhere to financial reporting obligations. Meanwhile cases dating back to the era of the financial crisis are continuing to highlight failings at boardroom level – and even charities are having to re-examine their conduct and procedures. Key governance developments January-February 2018Investor calls for governance code strengthening after Carillion collapse
The collapse of building contractor and outsourcing provider Carillion demonstrates that the UK needs to strengthen the board accountability provisions of its corporate governance code, according to Sacha Sadan, director of corporate governance at Legal & General Investment Management. He says that without the threat of disqualification, a sanction applicable only to accountants, there is little deterrent against irresponsible behaviour; all too often, board effectiveness reviews currently lack consistency and transparency; and high fees for non-audit related work can make relationships between companies and their auditors too cosy.
Financial Times (subscription required)https://www.ft.com/content/1958fb80-0fe6-11e8-940e-08320fc2a277Accounting regulator warns Carillion competitors over reporting obligations
The UK’s Financial Reporting Council has warned Carillion’s competitors they must adhere strictly to financial reporting obligations. The council, which has opened an investigation into KPMG’s role in auditing the company prior to its collapse into bankruptcy, is examining cash flows. In some instances, banking facilities made it hard to tell whether the money had been paid by customers or to suppliers rather than being funded by lenders.
City A.M.http://www.cityam.com/279678/carillion-rivals-warned-accounting-regulator-not-fall-foulUK fraud office charges Barclays Bank over Qatar deal
The UK Serious Fraud Office has charged Barclays Bank, the entity holding the Barclays group's banking licence, with receiving unlawful financial assistance through its capital-raising deal with Qatar Holding at the height of the financial crisis. The body says a parallel £2.3bn loan by Barclays to Qatar Holding was used directly or indirectly to buy shares in the bank, and the bank also paid £332m to the Qatari entity for advisory services. Legal analysts say financing a third party’s investment raises issues about corporate governance and the directors’ fiduciary duties to the company.
BBC Newshttp://www.bbc.com/news/business-43029731ECB to investigate governance at ABN Amro after chairman quits
The European Central Bank is to launch an investigation into corporate governance at ABN Amro after Olga Zoutendijk indicated she would not seek a fresh mandate as chairman when her term ends in July. It is believed she lost the confidence of the Dutch government, which owns 56% of the bank, with ABN Amro admitting questions had been raised internally over Zoutendijk’s leadership style.
Reutershttps://www.reuters.com/article/abn-amro-group-chairwoman/leadership-style-played-role-in-abm-amro-chairwomans-departure-idUSL8N1PW27A French government ponders implications of Crédit Mutuel break-up
France's finance ministry has asked former Banque de France governor Christian Noyer to study the implications of a decision by the board of Crédit Mutuel Arkéa to break away from the Crédit Mutuel parent group. The entities that make up Arkéa oppose reforms that centralise governance and strategic decision-making as the co-operative group adapts to regulatory requirements, following Arkéa’s unsuccessful legal challenge to the European Central Bank’s power to regulate the entire Crédit Mutuel group as a single entity.
Reutershttps://www.reuters.com/article/credit-mutuel-arkea-banks/update-1-frances-credit-mutuel-arkea-to-study-break-up-from-parent-group-idUSL8N1PE2BCRegulator to sanction Banco Popular board over severance payments
Spanish securities regulator Comisión Nacional del Mercado de Valores is to sanction former board members of Banco Popular, which was rescued from collapse through acquisition by Santander, for disguising severance payments as pension contributions. The bank's former chairman, Ángel Ron, and other ex-board members are contesting the disciplinary proceedings.
El Mundo (in Spanish)http://www.elmundo.es/economia/macroeconomia/2018/02/12/5a806ff6468aebcc6c8b4601.htmlUK regulator releases RBS report to parliamentary committee
The Financial Conduct Authority has provided a copy of its report into the Global Restructuring Group business unit of Royal Bank of Scotland to the UK parliament’s Treasury Committee, but the regulator has not made the report public. The committee may use parliamentary privilege to release it, although much of the report has already been leaked online. The report reveals how the unit of RBS, which has been majority-owned by the British state since the financial crisis, increased financial pressure on indebted small business clients and in some cases forced them out of business before seizing their assets.
Financial Times (subscription required)https://www.ft.com/content/8514a70e-1336-11e8-940e-08320fc2a277Boardroom quotas seen failing to improve corporate gender balance
The imposition of mandatory quotas for the number of women on company boards does little to improve the prospects for women further down the corporate ladder, reports suggest. In Norway, which requires 40% of its board seats to be held by women, women represent only 7% of CEOs. In the UK, France, Germany and the Netherlands, men still hold between 80% and 90% of senior management jobs, although the proportion of female board members has increased fivefold over the past decade in Belgium, France and Germany.
The Economist (registration required)https://www.economist.com/news/leaders/21737026-they-distract-bigger-challenge-helping-women-rise-their-merits-why-board-quotas Oxfam scandal raises questions about charity governance
Revelations that Oxfam and other charities have failed to act fully on reports that staff had committed sex abuse have prompted questions about the charitable sector’s governance standards and regulatory oversight. The UK’s Charity Commission has launched an inquiry to examine Oxfam’s governance and management and review its policies and practices in relation to safeguarding, including the charity’s response to and handling of the allegations, and its disclosure to the regulator and other organisations of other serious incidents.
Third Sectorhttps://www.thirdsector.co.uk/oxfam-launches-action-plan-improve-safeguarding/management/article/1457340Legal challenge over governance implications of Murdoch’s Sky bid
A London judge has approved a legal challenge by Avaaz, the online citizens’ petitioning website, over the UK broadcasting regulator’s decision that Rupert Murdoch, his family and the Fox broadcasting network would constitute ‘fit and proper’ owners if they took full control of European satellite broadcaster Sky. Avaaz has accused Ofcom of clearing the Murdochs without a thorough investigation of Fox News content or corporate governance failures across the family’s empire.