Archive for May, 2010

Governance Gets Personal Under New U.K. Code

by Neil Baker, for Compliance Week, May 31, 2010

The directors of the top 350 U.K.-listed companies will face re-election every year, instead of holding the typical three-year tenure, under a revised version of the country’s influential corporate governance code.

The new code released today says performance-related pay should be aligned to the long-term interests of the company and its risk policy. And it includes new principles on how directors should be selected and what makes for a well-balanced boardroom.

The changes on board composition are aimed at avoiding “group think” and encouraging diversity, according to the Financial Reporting Council, the governance regulator responsible for the code.

The code says the board chairman should hold a regular “development review” with each director, and companies should bring in outsiders to organize board effectiveness reviews at least every three years.

It calls on companies to publish an explanation of their business model, and it includes an explicit statement that the company’s board is responsible for determining the nature and extent of the significant risks it is willing to take.

Tim Copnell, an associate partner at KPMG, said a focus on boardroom behavior in the new code meant that “governance will necessarily become more personal.”…(continue reading)

The Continued Federalization of Corporate Law

by Robert J Brown Jr., for the RacetotheBottom.org, May 28, 2010

Larry Ribstein has been posting on the corporate governance provisions in the financial reform legislation and has lamented the continued creeping federalization of corporate law.  Steve Bainbridge laments that the evolution of the law is increasingly a “struggle to keep the federal government from steadily encroaching on corporate governance to the point that we might as well adopt a federal corporations law.”  JW Verrett is breathing a sigh of relief that, notwithstanding the other provisions in the legislation, it did not include a ban on staggered boards.

We will have a number of posts on the governance provisions, including the sections that preempt not only state law but the authority of the stock exchange.  The legislation (at least on the Senate side) essentially gives the SEC authority over the voting of uninstructed shares by broker-dealers and the definition of independent director, at least in the context of compensation committees.

We note however, Larry’s comment that while none of the provisions “is individually earth-shaking, they cumulatively touch many major aspects of corporate governance formerly left to contract and state law.”  He is correct on that point but a couple of points need to be interjected into the debate….(continue reading)

The Corporate Governance Journey Continues

By Gillian Lees, for her blog at Chartered Institute of Management Accountants, May 25, 2010

Another milestone will be passed this week on the epic journey of corporate governance when the UK Financial Reporting Council (FRC) issues its revised corporate governance code for UK listed companies.  This follows a year-long review and reflects governance thinking in the light of the global financial crisis.  For another example of a post-crisis code, take a look at the King III report from South Africa which I looked at in a previouspost.

Back to the UK.  The first bit of good news is that for those of you who have been wondering why on earth it was called The Combined Code on corporate governance, the mystery will be laid to rest.  The code is to be renamed the UK Corporate Governance Code.

The main changes will be focused on emphasising key messages and behaviours rather than adding a long list of new requirements, but there is one particular new provision that is worth thinking about – in essence, companies are going to have to include in their annual reports an explanation of the basis on which they generate revenues and make a profit from their operations (the business model) and their overall financial strategy.  It looks deceptively simple, but it could provide a real challenge for companies to articulate their business models clearly.  Nevertheless, this could be one of those new requirements that provide something of real value as the very process of mapping out the business model could expose some useful learnings along the lines of ‘this model makes no sense whatsoever’ and could help to shed some light on how the model might be developed, for example, into new products or markets….(continue reading)

Nigeria Capital Market- Government to Enforce Code of Corporate Governance

by Clement Nwoji, for AllAfrica.com on May 26, 2010

Abuja — Given growing abuse of the Capital Market operations, the Federal Government has constituted a Committee to design Code of Corporate Governance in a bid to ensure transparency and maintain high ethical standards in line with international best practice.

Also, it has set up a Committee to review the Investments and Securities Act of 2007 so as to enable it meet the emerging challenges from the growth of the nation’s Capital Market. The two Committees would be inaugurated by the Minister of state for Finance, Mr. Remi Babalola on thursday May 27.

Saying that the design of code of corporate governance for capital market operators would strengthen the regulators, Babalola said “Part of the factors that led to the recent capital market collapse was weak and ineffective supervision on the part of regulators” just as “the ISA Review Committee seeks to align the Act with current realities and international best practices.”…(continue reading)

Inside the Corporate Governance Complex

by Suzanne Stevens, for Harvard Law School Forum on Corporate Governance and Financial Regulation, May 20, 2010

In an article titled What Berle and Means have wrought in the May 17 issue of The Deal magazine and available on thedeal.com, my colleague Michael Rudnick and I map the well-funded, sprawling and interlocking set of institutions that have grown up around corporate governance over the past 30 years or so. This governance complex, with major outposts across the country at research universities, law firms, the federal government, institutions, activist hedge funds and even blogs like this one, generates considerable intellectual and financial firepower. We lay out some of its fissures, schism and alliances, and talk to movers and shakers including legal icons Ira Millstein and Martin Lipton, Harvard’s Lucian Bebchuk, Stanford’s Joe Grundfest, Relational Investors’ Ralph Whitworth, Calpers’ Anne Simpson and The Corporate Library’s Nell Minow.

Why now? The financial crisis has propelled the issue of the role of boards and balance sheet transparency high onto regulatory and legislative agendas. Congress is threatening to reach deep into corporate boardrooms on executive pay, and the Obama-era SEC is taking a more activist approach to governance than at any time since the Enron Corp. and WorldCom Inc. scandals of the early 2000s…(continue reading)

Directors face annual election under new corporate governance rules

By Helia Ebrahimi, for Telegraph UK, May 20, 2010

British business faces one of its biggest ever corporate governance shake-ups next week when new rules are published that could impose external reviews on board performance, force directors to face annual election and spell out the responsibilities of non-executive directors and chairmen.

The Financial Reporting Council (FRC) will publish the first part of an overhauled Combined Code in the wake of Sir David Walker’s review into the banking crisis last year which called for a changes in boardroom accountability.

The UK Code of Corporate Governance, due to be published next Friday, will deal exclusively with corporate governance for boardroom directors and companies. It is set to be made active by the Financial Services Authority on June 30 on a “comply or explain” basis.

The second part of the new code, which deals with the responsibilities of investors – to be called the Stewardship Code – will be published one month later at the end of June…(continue reading)

Ketchum Creates Advisory Board to Offer Best-in-Class Client Counsel on Corporate Governance Issues

By Ketchum for PR Newswire, May 19, 2010

Significant changes to corporate governance in the U.S. – touching areas such as SEC reporting rules, New York Stock Exchange broker discretionary voting and proxy access – and the promise of new regulations in the coming year, frame the backdrop for the launch of the Ketchum Corporate Governance Advisory Board. The board is composed of a diverse group of experienced industry experts.

With the formation of this board with leaders from securities law, academia, and shareholder and investor relations, Ketchum will be uniquely positioned to provide valuable counsel and strategic approaches to its clients on emerging regulatory issues surrounding the profound changes impacting investor communications.

“The changes to corporate governance laws require companies to make a number of changes to their business practices, including the way they communicate and share information,” said Raymond L. Kotcher, senior partner and CEO, Ketchum. “By partnering with this extraordinary group of experts, Ketchum will be even better positioned to counsel its corporate clients on new regulations and the importance of transparent communications. The members of the newly formed Ketchum Corporate Governance Advisory Board represent some of the industry’s leading voices in the rapidly changing shareholder rights landscape, and we are thrilled at the possibilities and client benefits that this partnership creates.”…(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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