Views on improving the integrity of global capital markets
05 January 2012

Global Corporate Governance: What Happened in 2011 and What to Expect in 2012

We don’t wish to play favorites here, so we won’t look at any single corporate governance development as more important than another. So let’s review alphabetically, by country:

Australia: In 2011, the “two-strikes rule” (Corporations Amendment Bill 2011) was introduced in Australia. The rule strengthens the non-binding vote on remuneration by giving shareholders the opportunity to remove directors if the company’s remuneration report receives a “no” vote of 25 percent or more at two consecutive annual general meetings. In such an event, shareowners would vote whether to “spill” all board members. And if passed with 50 percent or more of eligible votes cast, would lead to a spill meeting within 90 days to elect directors.

By the end of 2011, 12 Australian companies had received “first-strike” votes, giving those companies a year to appease investors on the issue of compensation — or run the risk of losing board members.

What to look for in 2012: Will any of the companies that received a first strike earn a second — and, if so, what are the ramifications? For example: Some are concerned that it’s easy to engineer a spill of the board through this type of mechanism when the shareholding is not widely dispersed.  Understandably, there are also objections from issuers who fear a “less-than-majority” vote generating such a result.

Canada: In the waning days of 2011, the Supreme Court of Canada declared plans to create a single securities regulator in Canada unconstitutional, halting a long-germinating plan to streamline regulation and enforcement in that country. For the moment at least, Canada remains the only industrialized country in the world without a national securities regulator.

What to look for in 2012: Nothing in the short term, with the federal government in Ottawa going back to the drawing board to craft a rule that pleases the Supreme Court. (The ruling left room for a revised proposal that doesn’t impinge on the rights of provincial governments.) Meanwhile some argue that the current “passport” system, in which regulators’ decisions in one province are recognized in another, works just fine.

China: I’m sure Chinese regulators would rather we focus on recent efforts to put a stop to insider trading. Although these rules are a positive development, the real corporate governance story out of China this year was Sino-Forest.

In June, a research firm named Muddy Waters challenged the veracity of the information that the China-based, Toronto-listed company was providing to shareowners, including whether the company had grossly overestimated its assets, down to the trees it owned. Muddy Waters didn’t mince words, accusing Sino-Forest of “stratospheric” fraud.

It’s been all downhill from there. The company’s shares have been obliterated, its CEO has resigned, and Sino-Forest — which has launched an internal investigation into Muddy Waters’ claims — has become the target of an investor lawsuit. In recent months, Canadian regulators opened an investigation into the company’s finances, and Sino-Forest missed a $10 million interest payment, which led it to default on $1.8 billion worth of debt. Meanwhile U.S. and Canadian regulators have stepped up meetings with Chinese authorities in an effort to convince them to strengthen disclosure around “reverse merger” companies such as Sino-Forest, which buy up publicly traded “shells’ in other markets to bypass more stringent IPO disclosure rules.

What to look for in 2012: The U.S. SEC tightened rules around Chinese reverse merger companies in November 2011. With the controversy “quieting down,” the prospects of additional regulatory action are unlikely. But all bets are off if another reverse merger company — from China or elsewhere — causes problems for international investors.

Germany: Deutsche Bank AG abandoned plans to name CEO Josef Ackermann supervisory board chairman. Ackermann was tapped to replace Clemens Boersig as chairman in May. The plan drew criticism from corporate governance experts because it would have violated German corporate governance rules calling for a two-year grace period before a CEO can become chairman. Although a company can obtain an exemption if it is supported by 25 percent of shareowners, it appears that a lack of support for such an exemption helped to scupper Ackermann’s rise to chairman.

What to look for in 2012: This case sends a strong message to companies attempting to skirt Germany’s corporate governance regulations. In the future, companies will need to secure strong investor support before seeking exemptions from corporate governance rules.

Japan: How could the top governance story be anything other than Olympus, where a decade-long fraud finally came to light thanks to a CEO who asked tough questions and refused to be cowed by an uncooperative and combative board? For our original thoughts on the governance failures at Olympus, take a look here, and here.

What to look for in 2012: Corporate governance experts the world over hope that the Olympus saga will prompt a long-overdue examination of Japan’s corporate governance system. We’ll see. Color me skeptical.

Latin America: The Latin American Corporate Governance Roundtable was established in April 2000. It aims to improve corporate governance by providing a forum for senior policy makers, regulators, and market participants to share their experiences. Roundtable participants have come from Argentina, Bolivia, Brazil, Canada, Chile, Costa Rica, Colombia, the Dominican Republic, Ecuador, Mexico, Panama, Peru, Spain, Sweden, Turkey, Uruguay, the United Kingdom, the United States, and Venezuela.

In November 2011, the Roundtable met in Lima, Peru, where investors, issuers, regulators, and governance experts from 16 countries attended meetings to explore strategies for strengthening corporate governance policies and practices in Latin America.

The outcomes of the meetings range from discussing the role of institutional investors in Latin American corporate governance to applying corporate governance at state-owned enterprises. Anyone interested in understanding the state of corporate governance in Latin America would be hard pressed to find a better set of resources than those provided by the Roundtable.

What to look for in 2012: The Roundtable’s networks, task forces, and other associated groups will have an aggressive agenda in 2012 through meetings of the Companies Circle, State-Owned Enterprises Network, Related Party Transactions Task Force, Network of Latin American Corporate Governance Institutes, and potentially a Colombian task force on corporate governance and institutional investors.

United Kingdom: The UK has long been a standard-bearer in all things corporate governance, which now may include more revisions to the UK Corporate Governance Code (also known as the “combined code”), updated as recently as 2010. In October 2011, the Financial Reporting Council (FRC) announced its decision to amend the UK Corporate Governance Code. A report published by the FRC just last month is a good summary of many governance issues covered by the combined code.

What to look for in 2012: The changes to the combined code will be published in 2012, so expect a public consultation on proposed changes to other parts of the code in early 2012.

United States:

Say on Pay: This was the first year of global “say on pay” in the United States, and in the end, over 40 companies received “no” votes on executive pay. That may seem like a lot, but with thousands of public companies listed in the United States, the final tally is somewhere shy of 1 percent of all publicly listed companies. For a more detailed review of “say on pay” in the U.S. in 2011, check out this excellent review by Schulte Roth & Zabel.

What to look for in 2012: Pay attention to the companies that received “no” votes in 2011. Some have already taken steps to address shareowner concerns. Some have not. What are the ramifications of a second “no” vote? How many companies will receive their first “no” vote on pay in 2012?

Proxy Access: In July, we reported that proxy-access in the United States had reached an ignominious end.

What to look for in 2012: The SEC has shown no signs that it plans to return to the proxy-access issue anytime soon. However, shareowners are not waiting around for the SEC to revisit the rule. Indeed, an SEC rule not challenged in court allows “private ordering,” or the ability of shareowners to pursue proxy access on a company-by-company basis. At this time, 16 proxy-access proposals have been introduced at U.S. companies for the 2012 proxy season, including six by Norway’s pension fund. These proposals ask companies to change their bylaws to allow for shareowner nominations to the board. Tune in after proxy season to see how they fared.

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

4 thoughts on “Global Corporate Governance: What Happened in 2011 and What to Expect in 2012”

  1. Ayu Hanida Abdul Ghani says:

    How about Malaysia?

    1. Matt Orsagh says:

      Yes –

      The Securities Commission Malaysia’s five-year Corporate Governance Blueprint (Blueprint) which was launched on 8 July 2011. Here is a link

      Amended corporate governance codes in Singapore and Hong Kong as well

  2. BD says:

    Do you know if more changes are being planned or being focused in Asia based countries like India, China given the recent headlines/issues

  3. Matt Orsagh says:

    China has been active recently, establishing an investor protection authority ( and strengthening insider trading rules

    In India, the companies bill that passed in late 2011 should bring about a number of reforms.

    Singapore, Hong Kong and Malaysia have all revamped corporate governance code in the past year and the Philippines expects to open Maharlika Board ( ) this year for companies with higher corporate governance standards.

    I would expect more corporate governance activity in many of these markets, as well as Japan after Olympus scandal – as investors around the world know that higher corporate governance standards add a layer of safety in investment, and these markets can attract capital by improving corporate governance standards.

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