Mon 13 Nov 2017
News - Key Governance Developments September - November 2017
Key Governance Developments September - November 2017IntroductionDirectors see persistent obstacles to better corporate governance
A new survey of directors at companies throughout Europe finds that many boards fail to give adequate attention to corporate culture and ways in which that culture may diverge from the organisation’s strategy. European financial regulators see greater diversity as a means to improve governance, but structural obstacles persist: for instance, unwillingness in France to separate CEO and chairman roles, or the shallow talent pool for directors of listed Irish companies. (See full article below)Key governance developments September-November 2017EU financial regulators highlight diversity in corporate governance guidelines
Diversity in gender, as well as education, age, profession and geography, should be among the factors considered during recruitment by large financial institutions, according to draft corporate governance guidelines issued jointly by the European Banking Authority and the European Securities and Markets Authority and applicable starting June 2018. The proposals say members of the management body of institutions must be able to commit sufficient time to perform their duties and that the number of outside directorships held by executives should be regulated.
Financial Times /subscription required)https://www.ft.com/content/cb115c00-6d52-33da-af5f-8d7f34050d39Energy firms outperform in UK good governance table
A report for the Institute of Directors suggests that UK-listed energy firms tend to perform better than the average company in terms of good governance, while IT companies tend to underperform. Drinks firm Diageo and insurer Aviva top the Good Governance Index, which is compiled by combining a list of measurable factors drawn from public sources and a survey of stakeholder perceptions of corporate governance. The organisation says it aims to reignite Britain’s governance debate by leading it away from the compliance approach prevalent in recent years.
Institute of Directorshttps://www.iod.com/news-campaigns/news/articles/The-2017-Good-Governance-ReportProblem of ‘interlocked’ boards persists at Irish companies
More than half of 51 companies listed on the Irish Stock Exchange have ‘interlocked’ boards, with one or more board members holding seats on other listed companies; five of the 12 directors at Ryanair hold board seats elsewhere. The issue raises concerns that board members cannot commit sufficient time to their duties, while analysts argue that the practice contributed to the ‘groupthink’ that helped precipitate the collapse of Ireland’s property market and its banking industry a decade ago.
Irish Timeshttps://www.irishtimes.com/business/work/fishing-from-a-small-gene-pool-irish-boards-and-interlocking-directorships-1.3276580Investors criticise Royal Bank of Scotland over failure to address governance issues
ShareSoc, a group of private investors, has criticised Britain’s Royal Bank of Scotland for refusing to set up a shareholder committee to help improve governance and oversight by investors. The group accuses the bank of adopting delaying tactics during the Financial Conduct Authority’s investigation of its restructuring arm, which is reported to have forced hundreds of viable corporate borrowers into bankruptcy to boost the bank’s profits.
City A.M.http://www.cityam.com/274595/investor-group-chastises-rbs-toothless-approach-corporateFrench firms continue to merge chairman and CEO roles
The number of French firms merging their chairman and chief executive officer roles has increased over the past 15 years. Almost three-quarters of French listed companies now have or had a single person holding both positions, compared with just 20% in the UK, Germany and Japan. Globally, more companies are splitting the roles, in accordance with good practice stipulated by the Group of 20.
Reutershttps://www.reuters.com/article/us-france-business-governance/corporate-france-swims-against-tide-on-chairman-independence-idUSKBN1CZ1QN?il=0UK regulator may backtrack on Saudi Aramco listing rule change
The Financial Conduct Authority could back down from a scheme that would allow Saudi Aramco to list in London by floating just 5% of its shares. That level of free float would be in breach of the regulator’s current rules, prompting concern amongst institutional investors. The FCA has proposed creating a new category of listing for companies controlled by a sovereign country.
The Times (subscription required)https://www.thetimes.co.uk/article/fresh-row-looms-over-saudi-aramco-listing-on-lse-qsfcw8nkvIncrease in shareholder votes against executive pay
Advisory firm ISS has reported an increase in the average level of voting against executive pay proposals, from 8.3% to 8.6%, at 834 shareholders’ meetings held by 786 European companies so far this year. Credit Suisse, AstraZeneca and Pearson Group are among those companies where shareholders voted in numbers over pay deals. The increase was driven by shareholders in Germany and Switzerland, but investor rebellions declined in the UK.
Financial News (subscription required)https://www.fnlondon.com/articles/european-companies-face-shareholder-anger-at-pay-rises-20171004European institutions confident about value of ESG investments
Almost 50% of institutional investors plan to increase their allocations to environmental, social and governance strategies, according to a report by RBC Global Asset Management. Most European investors also believe these strategies will perform as well as or better than non-ESG strategies, although institutions are less convinced in Canada and especially the US.
Professional Pensions (subscription required)https://www.professionalpensions.com/professional-pensions/news/3020071/half-of-european-investors-plan-to-boost-esg-allocation-next-yearKobe Steel scandal points to limitations of Japanese governance reforms
The admission by Kobe Steel that staff falsified data about the quality of its steel has dented Japan’s reputation for quality and raised questions about the effectiveness of reforms designed to improve governance and oversight. Toshiaki Oguchi, director of Governance for Owners, a shareholder pressure group established by institutional investors, says that cheating can easily go undetected because Japanese companies tend to discourage thorough examination or criticism from employees or independent outsiders.
New York Times (registration required)https://www.nytimes.com/2017/10/10/business/kobe-steel-japan.htmlMany boards still failing to focus on corporate culture: survey
Almost two-thirds of European company directors are members of boards that give corporate culture inadequate attention or fail to include culture in formal risk management frameworks, according to a survey of directors across Europe. The study suggests that boards have not responded to political and regulatory pressure about the importance of a sound corporate culture, and many of them do not give it proper consideration during meetings. Often directors see a gap between corporate strategy and culture, or feel they have insufficient access to data on corporate culture.