Governance pressure cranking up on Asian PE

by Oliver Jones for Asian Investor

Asian private equity funds are being forced to adopt higher standards of governance because of pressure from European investors, according to an industry association.

Environmental, social and governance (ESG) policies have been driven up the corporate agenda in the West in recent years, but in Asia the concept is still nascent.

Nevertheless, Jessica Robinson, CEO of the Association for Sustainable & Responsible Investment in Asia (ASrIA), said that ESG change was likely to be rapid in Asia in the coming years. The key driver for Asian PE funds to adopt ESG guidelines was to attract investors from Europe, she noted.

“I think that change is going to be very rapid over the next couple of years ”said Robinson. “I think the biggest growth area [for growth in sustainable investing in Asia] is private equity.”

She observed that stock exchanges around the region were spending a lot of time and energy on ESG related issues, citing mandatory ESG disclosure rules announced by Singapore’s stock exchange last year. A greater focus on governance has been highlighted as a key issue for 2015. Read more here.

 

Tokyo exchange orders firms to appoint at least two outside directors

Reuters

Companies listed on the Tokyo Stock Exchange must have at least two outside board members from June, the bourse’s operator said, under new rules aimed at improving corporate governance and attracting foreign investors.

Japan Exchange Group Inc Chief Executive Atsushi Saito called the move a “cultural turning point” in a country where companies are widely criticised for prioritising employee welfare and business relationships over shareholder returns.

The announcement comes as the government of Prime Minister Shinzo Abe seeks to change corporate culture to attract double the amount of foreign direct investment by 2020. It also comes days after U.S. investor Daniel Loeb criticised the allocation of capital at robot maker Fanuc Corp.

Efforts to increase the number of outside directors have met opposition over the years. The Keidanren business lobby has long argued that appointing people who may not understand a company’s business would not necessarily boost profitability. Read more.

Corporate Governance 2.0

by Guhan Subramaniam for Harvard Business Review

Alhough corporate governance is a hot topic in boardrooms today, it is a relatively new field of study. Its roots can be traced back to the seminal work of Adolf Berle and Gardiner Means in the 1930s, but the field as we now know it emerged only in the 1970s. Achieving best practices has been hindered by a patchwork system of regulation, a mix of public and private policy makers, and the lack of an accepted metric for determining what constitutes successful corporate governance. The nature of the debate does not help either: shrill voices, a seemingly unbridgeable divide between shareholder activists and managers, rampant conflicts of interest, and previously staked-out positions that crowd out thoughtful discussion. The result is a system that no one would have designed from scratch, with unintended consequences that occasionally subvert both common sense and public policy.

Consider the following:

  • In 2010 the hedge fund titans Steve Roth and Bill Ackman bought 27% of J.C. Penney before having to disclose their position; Penney’s CEO, Mike Ullman, discovered the raid only when Roth telephoned him about it.
  • The proxy advisory firm Glass Lewis has announced that it will recommend a vote against the chairperson of the nominating and governance committee at any company that imposes procedural limits on litigation against the company, notwithstanding the consensus view among academics and practitioners that shareholder litigation has gotten out of control in the United States.
  • In 2012 JPMorgan Chase had no directors with risk expertise on the board’s risk committee—a deficiency that was corrected only after Bruno Iksil, the “London Whale,” caused $6 billion in trading losses through what JPM’s CEO, Jamie Dimon, called a “Risk 101 mistake.”
  • Allergan, a health care company, recently sought to impose onerous information requirements on efforts to call a special meeting of shareholders, and then promptly waived those requirements just before they would have been invalidated by the Delaware Chancery Court.
  • The corporate governance watchdog Institutional Shareholder Services (ISS) issued a report claiming that shareholders do better, on average, by voting for the insurgent slate in proxy contests; within hours, the law firm Wachtell, Lipton, Rosen & Katz issued a memorandum to clients claiming that the study was flawed.
  • The same ISS issues a “QuickScore” for every major U.S. public company, yet it won’t tell you how it calculates your company’s score or how you can improve it—unless you pay for this “advice.”

We can do better. And with trillions of dollars of wealth governed by these rules of the game, we must do better. In this article I propose Corporate Governance 2.0: not quite a clean-sheet redesign of the current system, but a back-to-basics reconceptualization of what sound corporate governance means. It is based on three core principles—principles that reasonable people on all sides of the debate should be able to agree on once they have untethered from vested interests and staked-out positions. I apply these principles to develop a package solution to some of the current hot-button issues in corporate governance. Read more here.

 

Sustainability: From the Back Room to the Board Room

by N. Craig Smith for INSEAD Knowledge

Creating a sustainable future takes more than good intentions. Boards of directors have an obligation to help drive a strategic approach to corporate sustainability.

While environmental, social and governance (ESG) issues are becoming mainstream for corporations and the wider public, much more has still to be achieved. It is fairly well accepted that promoting sustainable practices can affect the long-term economic performance of a company. Organisations are beginning to understand that addressing sustainability is about managing risks and opportunities for growth, and developing solutions that respond to the future demands of customers, other stakeholders, and the needs of the planet.

What is not so well-recognised is that ESG issues need to be considered at all levels of decision-making, and that, as the highest decision-making corporate bodies, boards have an essential role to play in driving, overseeing and incentivising corporate sustainability across the organisation. It is up to directors not only to initiate sustainable practices, where absent, but also to ‘join the dots’ for employees, investors, customers and other stakeholders to demonstrate how a company’s actions today can have a real impact on its profitability in the future, if not its survival. This can be done in relation to many board agenda items, not just where sustainability is explicitly up for discussion.

Board members, of larger organisations at least, will most obviously discuss sustainability in the context of the company’s sustainability report. However, this is far from the end of the story.  They need to realise that sustainability issues are interlinked with nearly every decision they make as a director. Read more.

Activist investors actually protect the status quo

by Eleanor Bloxham for Fortune

Shareholder activism can lull us into a false sense of security and make us forget that there are bigger corporate governance fish to fry.

The annual corporate shareholder-voting season is primarily a rite of spring. Although Apple, Disney, Deere, and Hewlett-Packard have already produced their voting materials, over 70% of Fortune 100 public companies that file these documents with the SEC send out their ballot notifications in March or April.

Although most votes by shareholders are not binding, the vociferous hyperbole around shareholder activism relies on war and sports analogies—lots of “them” and “us”—which sells newspapers and belies the very notion of “investor relations.”

But does this springtime ritual have any substance, as it does in the animal kingdom when males (or females,depending on the species) put on displays of strength, mark their territory, and secure dominance over their resources? And does the process really reform wayward companies and improve public trust in business and capitalism?

Robert A.G. Monks, co-author of the book Corporate Valuation and founder of Lens Governance Advisors, told me that there is a mythology around corporate governance and that the right questions don’t seem to be addressed amid the spectacle of proxy season. Consider the issues around corporate domicile or the responsibility of firms for the costs they impose on society, he says. Read more here.

‘We need good corporate governance’

by Mike Mugala for Zambia Daily Mail

MINISTER of Commerce, Trade and Industry Margaret Mwanakatwe says corporate governance has the potential to attract investment in many sectors of the economy.

Mrs Mwanakatwe said  Government  will always  champion  the cause  of  good  corporate  governance  for Zambia to attract significant investment that  should in turn lead to  industrialisation  and  employment creation  for citizens.

“We as government support sound corporate governance principles and ethics as they are key in ensuring proper management, control and accountability for the affairs of private and public enterprises in Zambia,” she said in Lusaka yesterday at an Institute of Directors of Zambia (IoDZ) workshop. Read more here.

SEC to Institute Corporate Governance Scorecard for Quoted Companies

by James Emejo for THISDAY LIVE

The acting Director General of the Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo on Tuesday said a corporate governance scorecard would soon be launched to strengthen the performance of companies operating in the nation’s capital market.

He said among other things, the commission believes there will be better returns and service delivery if adherence to the tenets of corporate governance is taken seriously by publicly quoted companies.

Speaking when he received members of the Institute of Directors Centre for Corporate Governance in Abuja, Gwarzo said the proposed launch of the scorecard which would probably be the first by an institution in the financial system in the country, underscored the importance the Commission attaches to corporate governance.

He added that SEC’s immediate ambition would be to see that every operator in the capital market complies with corporate governance in no distant time.
Gwarzo said the commission was currently consulting on the scorecard “to ensure that before we launch the Corporate Governance Scorecard in the next couple of weeks, we would have consulted widely with the relevant bodies.”

He said:”Corporate governance is very close to our heart and we believe that collaboration with you will further propagate the advocacy in terms of its importance. I can assure you that we are ready to collaborate with you.” Read more here.


Blog coordinator

Cefeidas Group

Archives

cgl-med-linked-in

cgl-med-linked-in
free counters

Follow

Get every new post delivered to your Inbox.

Join 25 other followers