Views on improving the integrity of global capital markets
01 March 2012

Corporate Governance Update: Apple and Olympus Make News

Updating the Olympus scandal, surprising news from Apple, and tough new regulations in Australia: A look at corporate governance news from around the globe.

Australia

If you think regulations on executive pay are tough where you are, look at Australia. The federal government in Australia stated that it plans to introduce a law asking companies to explain their pay clawback policies in the case of a misstatement of profits. The government is seeking an “explain” model rather than a prescriptive rule, but there is a catch for Australian business. Lurking in the background is Australia’s “two-strikes” rule, which allows shareowners to spill the corporate board if a company’s pay is voted down two years in a row.  

China

Earlier this month the Chinese Securities and Regulatory Commission (CSRC) launched the China Association of Listed Companies. At its inception the association contained 228 of China’s largest companies and, among other goals, aims for better corporate governance and director training. In January, the CSRC created an investor protection bureau aimed at educating and protecting domestic investors. We will have to wait with everyone else to see what fruit these efforts bear in the future.

Japan

Updating the Olympus fraud scandal: seven individuals, including three former Olympus executives — ex-Chairman Tsuyoshi Kikukawa among them — were arrested for suspected violation of the Financial Instruments and Exchange Act. The prosecution statement in the case noted that the former executives are accused of concealing losses, booking overstated goodwill, and falsifying financial statements.

Netherlands

We assume that they celebrate Valentine’s Day in the Netherlands, but we can’t think of a worse way to celebrate a holiday dedicated to love than by passing audit-related legislation. Yet on February 14, the Dutch Parliament approved a bill that could set auditor terms for companies based in the Netherlands. The bill follows a parliamentary review investigating the causes of the financial crisis in the Netherlands.

The bill sets two main restrictions:

  • The auditor may not provide non-audit services to the company for which the auditor provides the statutory audit of the financial statements. Up until two years after the effective date of the bill, non-audit services may be provided as part of contractual obligations.
  • It will be mandatory that the auditor is changed every eight years. There will be a cooling-off period of two years, after which the previous auditor may be hired again.

Switzerland and United Kingdom

Speaking of clawbacks, they are not just theoretical anymore. In February, UBS, Lloyds Banking Group, and HSBC said that they would claw back some portion of bonuses. Early in the month, the UBS board decided to take back 50 percent of share-based bonuses awarded last year to investment bankers whose bonuses exceeded two million Swiss francs, or $2 million. UBS’s pay rules state that employees whose “total bonus exceeds CHF/USD 2 million will only vest in full if the business division to which the employee belongs is profitable.”  2011, the UBS investment bank lost money, allowing the board to exercise the maximum clawback at its discretion.

Later in February, Lloyds stated that the bank would claw back a portion of bonuses awarded to management in 2010 following an insurance mis-selling scandal. Lloyds cut the bonus of a former CEO by about $855,227 as a result. Not to be outdone, HSBC decided to claw back thousands of pounds of bonuses from executives after the mis-selling of nearly 300 million pounds ($475.72 million) of bonds to elderly customers for which the bank was fined nearly 11 million pounds.

United States

One surprise late in the month was the decision by Apple to move to majority voting in the election of its board. A shareowner resolution asking Apple to adopt majority voting in 2011 received over 70 percent support, and high support was expected again in 2012.

Currently about 80 percent of S&P 500 companies have adopted a majority voting standard. The move to majority voting has not spilled over to mid-cap and small-cap companies in the U.S., as only about one-third of mid-cap companies and only about 15 percent of small companies have a majority-voting standard for director elections.

Finally, in other Apple news, the company stayed mum on what exactly it plans to do with the approximately $100 million it has on its balance sheet. Although Apple may be an exception to the rule, a recent survey of CFA Institute members showed that in the U.S., investors want that money back from public companies.

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.

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