Global Developments
Relevant Topics
1. Modernization of Company Law for Global Competitiveness.
2. Recent Corporate Governance Developments in United Kingdom.
3. Legislative Developments of Corporate Governance in USA.
4. Recent Corporate Governance Developments in Australia.
15.1 - Modernization of Company Law for Global Competitiveness
In the today’s world including UK, Hong Kong, Singapore, Australia and Canada are at various stages of the process of modernizing their company law.
for the performance of any economy and the society. To achieve competitiveness, it is essential that while the law must balance the interests of different and the customers.
that would facilitate faster economic growth.
Modernization of company law has in fact become a part of the drive to facilitate enterprise, enhance the attractiveness of the country as a preferred destination for domestic as well as Foreign Direct Investment to do business, and foster business competitiveness. The ultimate objective is to have a simple, consolidated and accessible company law. with changing environment.
15.2 - Recent Corporate Governance Developments in United Kingdom Application of the UK Corporate Governance Code have applied the principles of the Code in a manner that would enable shareholders to evaluate how these have been applied. All provisions should be complied with or an explanation should be given. With the
than a description of their application of the principles.
shareholders why the board has implemented certain structures, policies and practices and how these aspects meet the relevant Code principle.
15.1
CHAPTER
Five Sections of New UK 2018 Code
with a premium listing whether incorporated in the UK or elsewhere. They should company board to discharge its governance responsibilities under the 2018 Code effectively and this includes communicating the parent company’s purpose, values and strategies.
Note: The new Code is applicable to all companies with a premium listing of equity shares for periods commencing on or after 1 January 2019.
1. Board leadership and company purpose.
2. Division of responsibilities.
3. Composition, succession and evaluation.
5. Remuneration.
Aim and Objective of UK 2018 Code
Designed to set higher standards of corporate governance in the UK so as to promote transparency and integrity in business and at the same time attract investment in the
the importance of positive relationships between companies, shareholders and
UK Stewardship Code 2020
The UK Stewardship Code 2020 is a substantial and ambitious revision to the 2012
These are supported by reporting expectations which indicate the information that should be publicly reported in order to become a signatory.
annual Stewardship Report explaining how they have applied the Code in the previous 12 months.
The new Code sets high expectations of those investing money on behalf of UK savers and pensioners. and society.
There is a strong focus on the activities and outcomes of stewardship not just policy statements. There are new expectations about how investment and stewardship is classes.
Example 1: For listed equity, fixed income, private equity, infrastructure investments and in investments outside the UK.
15.2
Revised Guidance on Board
Effectiveness committees notably the remuneration committee.
Overview of new requirements: 12 principles/reporting requirements for asset owners
Principle 1
purpose, investment beliefs, strategy, and culture enable stewardship that creates long term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society
Principle 2
governance, resources and incentives support stewardship
outline of its culture, values, business model and strategy as well as their investment beliefs, i.e. what factors they consider important for desired investment outcomes and why.
investment beliefs, strategy and culture enable effective stewardship.
an assessment of how effective they have been in serving the best interests of clients and beneficiaries.
their governance structures and processes have enabled oversight and accountability for effective stewardship within their organisation and the rationale for their chosen approach; and
their investment in systems, processes, research and analysis; the extent to which service providers were used and the services they provided; and
Principle 3 manage conflicts of interest to put the best interests of clients and beneficiaries first
Disclosure should include examples of how they have addressed actual or potential conflicts.
Principle 4 identify and respond to appropriate;
15.3
to promote a well functioning financial system
Principle 5 review their policies, assure their processes and assess the effectiveness of their activities
Principle 6 account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them
Principle 7 systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities
Principle 8
monitor and hold to account managers and/or service providers
the role they played in any relevant industry initiatives in which they have participated, the extent of their contribution and an assessment of their effectiveness, with examples; and how they have aligned their investments accordingly.
Disclosure should include an assessment of their effectiveness in identifying and responding
how they have reviewed their policies to ensure they enable effective stewardship; what internal or external assurance they have received in relation to stewardship
and
how they have ensured their stewardship reporting is fair, balanced and understandable.
to the continuous improvement of stewardship policies and processes.
how they have evaluated the effectiveness of their chosen methods to understand the
Where they have not managed assets in alignment with their clients’ stewardship and investment policies, and the reason for this.
their behalf, and with reference to how they have best served clients and/or beneficiaries.
service providers have not been met.
15.4
Principle 9
engage with issuers to maintain or enhance the value of assets
Principle 10
where necessary, participate in collaborative engagement to influence issuers directly or by others on their behalf
Principle 11
where necessary, escalate stewardship activities to influence issuers
Principle 12 actively exercise their rights and responsibilities
Signatories should describe the outcomes of engagement that is ongoing or has concluded in engagement have informed escalation.
and
and any changes in engagement approach.
they have voted on over the past 12 months.
15.3 - Legislative Developments of Corporate Governance in USA Sarbanes-Oxley Act, 2002
Four Principle Areas
Primary Objectives of SOX Act, 2002
Corporate Responsibility.
Accounting Regulation.
Fairness to Shareholders: protect shareholder rights and allow shareholders to exercise those rights through governance procedures such as shareholder meetings.
Fairness to Stakeholders:
community.
Heightened Director and Board Responsibilities:
15.5
a b
c
Four Principal NYSE Corporate Governance Rules
Example 2: SOX requires boards appoint an audit committee where all members are independent of corporate operations (not officers of the corporation) with at least one financial expert as a member of the committee.
NYSE Corporate Governance Standards on Independent Directors
Example 3: SOX prohibits the corporation from making personal loans to corporate executives or their families.
Disclosure and Accountability: transparency in corporate governance practices. This includes implementing procedures for ensuring accurate accounting practices and public disclosure mechanisms.
Accounting and Disclosure Procedures
Public Company Accounting Oversight Board (PCAOB) to regulate auditors charged with reviewing the accounting procedures and disclosure statements of public companies.
External Auditing Firms
at least every 5 years. There are also restrictions on the ability of company executives
Securities Regulations:
Example 4: SOX established a criminal charge for conspiring to commit securities fraud. It also increased the criminal and civil penalties for committing securities fraud. SOX provides additional protections against discrimination for those reporting conduct that violates the securities laws (“whistleblower protection”).
NYSE Corporate Governance Rules
As a foreign private issuer, we must comply with four principal NYSE corporate governance rules: listing standards.
The majority of the members on the Boards of Directors of U.S. companies must be independent.
15.6
In particular, a Director may not be deemed independent if he or she or an immediate
NYSE Corporate Governance Standards on Meetings of non-executive Directors
NYSE Corporate Governance Standards on Audit Committee
NYSE Corporate Governance Standards on Nominating / Corporate Governance Committee
NYSE Corporate Governance Standards on Remuneration Committee
Note: A Director cannot be considered independent in the three-year “cooling-off” period following the termination of any relationship that compromised a director’s independence.
includes Directors who are not independent, independent Directors should meet separately at least once a year.
Meeting as well as developing and recommending corporate governance guidelines to the
U.S. listed companies must have a Remuneration Committee composed entirely of independent Remuneration Committee must have a written charter that addresses the Committee’s purpose and responsibilities within the limit set forth by the listing rules. The Remuneration Committee may in its sole discretion retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser and shall be directly responsible for the appointment, counsel or other adviser retained by it.
Note: These provisions are not binding for non-U.S. private issuers.
QUESTIONS FOR PRACTICE
Ques. 1: List four principles areas of Sarbanes-Oxley Act, 2002?
Answer 1: Corporate Responsibility.
Accounting Regulation.
Ques. 2: As a foreign private issuer one must comply with four principal NYSE corporate governance rules. Discuss four principles of NYSE corporate governance rules?
Answer 2: As a foreign private issuer, we must comply with four principal NYSE corporate governance rules:
15.7
corporate governance rules. .
15.4 - Recent Corporate Governance Developments in Australia Key Takeaways
subtle wording changes.
Additional commentary has been added to various principles and recommendations. The 8 Principles
[On 27 February 2019, the ASX Corporate Governance Council issued its Fourth Edition of its Corporate Governance Principles and Recommendations.]
Lay solid foundations for management and oversight delineate the respective roles and responsibilities of its board and management and regularly review their performance.
Structure the board to be effective and add value
of the entity and the industry in which it operates, to enable it to discharge its duties effectively and to add value.
Instill a culture of acting lawfully, ethically and responsibly instil and continually reinforce a culture across the organization of acting lawfully, ethically and responsibly.
Safeguard the integrity of corporate reports processes to verify the integrity of its corporate reports.
Make timely and balanced disclosure disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. Respect the rights of security holders holders with appropriate information and facilities to allow them to exercise their rights as security holders effectively.
Recognize and manage risk
Remunerate fairly and responsibly
align their interests with the creation of value for security holders and with the entity’s
15.8
