Archive for April, 2010

PSE issues rules for ‘Maharlika Board’ listing subject to higher governance standards

by James Loyola, for Manilla Bulletin Publishing Corporation, April 30, 2010

The Philippine Stock Exchange (PSE) has released for public comments its draft listing rules for the proposed “Maharlika Board” which aims to distinguish listed companies which voluntarily subscribe to higher corporate governance standards.

“The draft rules on the Maharlika Board were approved on Wednesday by the Board for public comments. We encourage and welcome all stakeholders to comment on these proposed rules,” said PSE chairman Hans B. Sicat.

In a statement, the PSE said the public is given until May 28, 2010 to submit their comments to the PSE.

Sicat emphasized that this listing segment is purely voluntary and these proposed rules will not apply to existing listed companies unless they apply and are accepted for listing on the Maharlika Board.

“The proposed criteria for listing in this segment include a minimum float of 30 percent and an increased number of independent directors to three, as compared with the minimum of two independent directors as provided in the existing law,” Sicat said.

He added that “the proposed rules also provide for the active role of the independent directors in the Audit Committee and in approving related party transactions and anti-takeover measures.”…(continue reading)

UK Passes Strict New Bribery Act

Earlier this year, we noted that other countries, in addition to the United States, are increasing their efforts to combat international bribery and corruption. (See “Increasing International Cooperation and Other Key Trends in Anti-Corruption Investigations“). In a further reflection of this trend, on April 8, 2010, the United Kingdom passed the Bribery Act 2010 (read the act here). The Act is in many respects even broader in scope than the U.S. Foreign Corrupt Practices Act, including in its extraterritorial application. Thus, every company with ties to the U.K. should become familiar with the Bribery Act’s provisions.

The Bribery Act criminalizes several different types of domestic and foreign bribery including: (i) offering, promising or giving a bribe (section 1); (ii) requesting, agreeing to receive or accepting a bribe (section 2); and (iii) bribing a foreign public official (section 6).However, section 7, which sanctions any failure by commercial organizations to prevent bribery,may be the most significant provision. Under that section, a corporation will be liable when a person “associated” with that company (defined in section 8 as a person who “performs services for or on behalf” of the company) pays a bribe for the purpose of obtaining or retaining business or to obtain or retain a business advantage. The company can defend itself only if it can establish that it “had in place adequate procedures designed to prevent persons associated with [the company]from undertaking such conduct.” Thus, unlike in the U.S., where prosecutors apply their discretion in evaluating a company’s compliance policies and procedures in the context of weighing charging decisions and potential leniency, the statute establishes strict liability in the case of a bribe being paid for companies that failed to implement adequate compliance policies and procedures….(continue reading)

The rewards of virtue-Does good corporate governance pay? Studies give contradictory answers

from the Economist Online, April 26, 2010

ONCE again, corporate-governance reform is back on the legislative agenda, not least in the United States. In 2002, after the scandalous collapses of Enron and WorldCom, Congress voted in the Sarbanes-Oxley act, which was intended among other things to beef up corporate risk-management. Now, the financial reforms being considered in Washington include several proposals intended to correct flaws in the oversight of firms that were revealed in the aftermath of the financial crisis. The reforms likeliest to become law include an advisory “say on pay” vote for shareholders on the remuneration of top executives, and measures to make it easier for shareholders to nominate candidates for election to company boards.

As always, these efforts to improve corporate governance have plenty of opponents. They argue that, contrary to the claims of the reformers, the changes would harm corporate performance by wrapping managers up in red tape. In the case of Sarbanes-Oxley, which was rushed into law with too little discussion of the details, the critics of reform had a point. The case for the latest proposals seems more straightforward, however, and has been debated for many years….(continue reading)

West must harness ingenuity to bridge governance gap

By Tony Jackson, for the Financial Times, April 25 2010

Suppose you had been asked a decade ago whether the western model of corporate governance should be copied by the developing world. “Certainly,” you would have said. But not now. The state capitalism of the emerging economies may have the edge.

That arresting notion comes not from me, but from Sir David Walker, the UK’s elder statesman of corporate governance. At the heart of his disquiet is the widening gap between western boards and their owners.

A note of caution here. The extreme example of that gap lately has been the banks, where malfunctioning boards and negligent shareholders combined to produce disaster. It need not follow that all companies are similarly at risk.

Again, the China model is admired today for having sailed through the financial crisis. But that does not mean it cannot suffer crises of its own.

Still, let us pursue the argument. It seems clear that the gap – the so-called agency problem – has indeed been widening in the developed world in recent years….(continue reading)

New Corporate Form for Socially Minded Companies Gain Traction

by Annearf for CFO Zone, April 23, 2010

For-profit businesses with social and environmental goals, often called “triple-bottom-line” companies, because their environmental and social missions are as important as their financial goals, face a perennial problem when it comes to growth.  Call it the “Ben & Jerry’s” effect. When that socially minded company went public in 1984, it ended up being bought by much less socially minded Unilever 15 or so years later, thereby diluting its original socially minded mission. In other cases, similar businesses could sell controlling shares to investors with big pockets, only to find their non-financial objectives severely watered down by the new owners.

One solution is to pass a law creating a new corporate form requiring that companies take into consideration the interests of non-financial stakeholders and, in effect, ensure their missions can’t be touched.  Last week, Maryland became the first state to pass such a law, establishing a corporate form called a “benefit corporation.”  As such, these “B corporations” will legally be able to consider the interests of employees, the environment, and the larger community in their decision making–and directors can’t be sued if they take actions deemed to be damaging to shareholder financial interests. 

In addition, these companies would have to provide yearly reports about just how they’re contributing to whatever larger goal it is they’re focused on and they would be audited by a third party. 

The concept reflects a theory of corporate governance that says managers should not put shareholders’ interests ahead of those of other stakeholders’ interests even at C corporations. As Margaret Blair, a law professor at Vanderbilt University has written , the theory was once widely accepted but in recent decades has lost traction in US courts….(continue reading)

Corporate Governance: Not Yet Priced In

by Kimberly Gladman, for The Corporate Library Blog, April 22, 2010

Some in the responsible investment community have suggested that the relationship of corporate governance to equity returns is now broadly understood, so that security prices accurately reflect governance risk. Indeed, you’d think that if mainstream investors were ever going to realize that weak boards and bad compensation practices could cost them money, it should have happened in the last year and a half, since the crisis of 2008. However, a study we just commissioned from Quantitative Services Group (QSG), a highly regarded quant shop, suggests that the importance of governance is still an alpha-generating secret. QSG backtested a hypothetical portfolio that used our ratings to screen out companies with high governance risk. They found that our portfolio would have outperformed the Russell 1000 by 275 annualized basis points since 2003—and that  outperformance continued to be strong in  2009, when you’d think the rest of the world would have caught on. (For details, see the report we released today). Broad market understanding of good governance clearly still has a way to go; in the meantime, those of us who are paying attention may have an investment opportunity….(continue reading)

20 Steps to Better Corporate Governance (Australia)

by Risk Magazine, April 22, 2010

The Corporate Secretaries International Association recently released a research report recommending 20 practical steps for Boards to improve their companies’ corporate governance

Corporate governance is undergoing much questioning given the serious governance failings that contributed to and sustained the global financial crisis. As such, the Corporate Secretaries International Association, an international organisation whose members comprise national bodies of professionals at the frontline of governance, including Chartered Secretaries Australia, recently commissioned and released a report providing Board Directors with 20 practical steps for improving their companies’ governance.

“One of the biggest lessons to come out of the global financial crisis is that education and a zero tolerance of wrongdoing at Board level is far more effective than regulation in curbing corporate misconduct,” said Chartered Secretaries Australia chief executive Tim Sheehy.

The report, written by Professor Bob Tricker, a world- renowned corporate governance expert with professorships at three universities, listed the 20 practical steps for improving corporate governance as:…(continue reading)


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(in Portuguese) A weekly chronicle about shareholders' rights & duties, activism and capital markets regulation, by Renato Chaves.
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