Wed 24 May 2017
News - Key Governance Developments April - May 2017
Digital risks now in the governance frame
As companies consider the implications of the recent ransomware attack on companies and organisations worldwide, executives and board members must accept that effective cyber-security is now integral to good governance. In the future, they might face liability for failing to take adequate precautions to protect corporate data and systems from attack or theft – or indeed for failing to take out cyber-insurance.Cyber-security looms larger as governance issue after ransomware attack
The WannaCry ransomware attack affecting as many of 200,000 companies and organisations in 150 countries has highlighted the importance of cyber-security as a governance responsibility and the risk that corporate officers may face regulatory penalties as well as shareholder action. New York’s Department of Financial Services now requires financial services firms to designate a senior executive to certify compliance with cyber-security rules, and other states are expected to follow. US regulators and legislators say companies should consider whether to protect themselves with cyber-insurance, raising the prospect of future lawsuits against executives or directors if companies fail to purchase insurance and then suffer an attack.
CFO:http://ww2.cfo.com/applications/2017/05/wannacry-spotlights-need-cyber-liabilty-coverage/Financial Stability Board highlights risk of unclear governance responsibilities
A thematic peer review by the Financial Stability Board, whose membership comprises central banks, financial regulators and finance ministries, has found that while member jurisdictions have comprehensive corporate governance frameworks, their effectiveness can be adversely impacted if the division of responsibility for oversight and enforcement is unclear. The review offers 12 recommendations to member jurisdictions, standard-setting bodies and financial institutions, among them enhancing disclosure requirements, implementing codes of ethics or conduct for company boards, shareholder voting rights on remuneration policies and improving whistleblowing programmes.
Financial Stability Board:http://www.fsb.org/2017/04/thematic-review-on-corporate-governance/Governance policy head fears for EU standards after UK exit
The UK’s withdrawal from the EU could lead to a weakening of corporate governance frameworks throughout the continent, according to George Dallas, policy director at the International Corporate Governance Network. He argues that Britain has exerted a significant influence on the formulation of EU governance rules, with an emphasis on shareholder primacy, transparency and disclosure rather than prescriptive requirements. Dallas says that in the future, EU regulators may move away from the UK’s voluntary ‘comply or explain’ approach toward a more codified set of rules, which he fears may place less emphasis on minority shareholder rights and more on the interests of controlling owners and stakeholders.
Financial Times (subscription required): https://www.ft.com/content/1f59c54a-25d7-11e7-8691-d5f7e0cd0a16 Spanish court calls for prosecution of Bankia executives and advisers
Spain’s high court has named 32 senior managers and advisers that it says should face prosecution over the near-collapse of Bankia over problem real estate loans in 2012, when it was rescued by a €20 billion state bailout. The criminal case focuses on the role of the 32 individuals, false accounting and approval of the business’s accounts prior to the bank’s ill-fated initial public offering in 2011. Rodrigo Rato, former government minister, head of the International Monetary Fund and chairman of Bankia until May 2012, is among those facing prosecution. Rato was sentenced to four-and-a-half years’ imprisonment in February over the misuse of corporate credit cards at Bankia.
Financial Times (subscription required): https://www.ft.com/content/48439bea-3633-11e7-99bd-13beb0903fa3
La Vanguardia (in Spanish): http://www.lavanguardia.com/economia/20170511/422494916606/rato-acebes-bolsa-bankia.htmlBarclays head apologises for whistleblowing scandal
Barclays CEO Jes Staley has apologised to shareholders for attempting to identify a whistleblower who had filed a complaint about the suitability of a senior appointee at the bank. Shareholders criticised his behaviour during the bank’s annual general meeting, with 13.8% abstaining on his reappointment as chief executive.
City A.M.: http://www.cityam.com/264429/barclays-agm-boss-jes-staley-apologises-shareholdersVW shareholders demand more transparency on diesel emissions scandal
Angry shareholders have told Volkswagen executives and board members at the carmaker’s annual general meeting that they are unhappy with the lack of transparency the group is demonstrating in response to revelations of wide-ranging falsification of diesel emission tests. VW chairman Hans Dieter Pötsch has said the company will not release an internal report it commissioned investigating why engineers and executives colluded to lower substantially the results of emissions tests through an electronic ‘defeat device’. CEO Matthias Müller is under investigation for allegedly failing to disclose details of the scandal to investors in a timely manner.
Forbes: https://www.forbes.com/sites/davidkiley5/2017/05/11/vw-shareholders-demand-transparency-that-is-not-coming/#145a602065c4Shareholder groups call for Deutsche audit
Shareholder advisory groups ISS and Glass Lewis are supporting a call for a special audit of Deutsche Bank to determine what roles the bank’s management and supervisory boards may have played in the Russian money-laundering and Libor manipulation cases. The proposal was initially put forward by shareholder Marita Lampatz ahead of Deutsche’s annual general meeting on May 18.
Reuters: http://www.reuters.com/article/deutsche-bank-audit-iss-idUSL8N1I53EA UniCredit restructures corporate governance following capital-raising
UniCredit has used its €13 billion capital-raising exercise as an opportunity to revise its corporate governance structures. The bank has reduced the number of board members from 17 to 15 and increased the number of independent directors. Plans to offer greater protection to minority shareholders are also being drawn up.
Il Sole 24 Ore (in Italian): http://www.ilsole24ore.com/art/finanza-e-mercati/2017-04-17/unicredit-nuova-governance-una-public-company-europea-232718.shtml?uuid=AEyUcq6&refresh_ce=1Bombardier chairman surrenders executive role after pension fund rebellion
Pierre Beaudoin, executive chairman of Canadian aircraft and train manufacturer Bombardier has agreed to shed his management role after a revolt by pension funds and other public institutions over a “lapse of governance” in proposing a 50% executive pay hike while the company is receiving regional government support and conducting a redundancy programme. The Canada Pension Plan Investment Board, the country's largest pension fund manager, joined the Ontario Teachers Pension Plan and pension schemes from Quebec and British Columbia in threatening to vote against the re-election of Beaudoin at the company’s AGM on May 11. The Bombardier-Beaudoin family controls the company through a dual-class share structure giving it 53% of voting rights despite owning just 13% of the shares, and has five members on the board.
Globe and Mail: http://www.theglobeandmail.com/report-on-business/pierre-beaudoin-stepping-down-as-bombardier-chairman/article34953784/Gulf businesses face governance and succession challenges
Family-led businesses in the Gulf countries face serious challenges in areas including corporate governance and succession in a highly competitive modern-day business environment, according to a report by Orient Planet Research. The study highlights factors such as increasing numbers of family members in each generation and lack of preparedness for succession issues at a time when businesses are grappling with their growth in size and complexity and the impact of globalisation. Orient says that while family business owners generally recognise the value of sound corporate governance as good business practice, few have fully adopted modern global corporate culture.
Arabian Business: http://www.arabianbusiness.com/governance-succession-issues-still-hound-gcc-family-firms--671120.html