Views on improving the integrity of global capital markets
02 May 2012

Corporate Governance Update: Complaints Against Deutsche, Olympus; H-P Embraces Proxy Access

Updating the Olympus scandal and Canada’s national securities regulation issue, minority shareholder rights trouble in Brazil, and Hewlett-Packard’s planned vote on proxy access. It’s time to span the corporate governance globe to review important developments from the month of April.

Brazil – Minority Shareowner Rights in Trouble

Minority shareowner rights suffered a blow at the 19 March annual meeting of Petrobras, Brazil’s national oil company and the country’s largest publicly traded company. At the meeting, the government pushed the election of Josué Christiano Gomes da Silva, son of a former Brazilian vice president, and Jorge Gerdau Johannpeter, adviser to current Brazilian President Dilma Rousseff. The problem is that both individuals were elected to seats that, by law, are supposed to be reserved for minority shareowners.

To get around such a rule, the government designated the state-owned development banks BNDES and BNDESPar and state-controlled pension funds Previ, Petrus, and Funcef as minority investors. Not surprisingly, some international investors with impressive corporate governance credentials (APG, Florida SBA, and Ontario Teachers) criticized the move.

Expect a public campaign promoting minority shareowner rights at state-controlled firms by Brazil’s Association of Capital Markets Investors (AMEC), which coordinated critical responses to the Petrobras moves.

Canada – Back at the Drawing Board for National Securities Regulation Issue

The Canadian government has not given up on efforts to join all other developed markets in establishing a national securities regulator. The Supreme Court of Canada vetoed such a plan in December. Since that time, the government has begun consulting with Canadian provinces and territories, a number of which have stated their interest in “working on a cooperative basis towards a common securities regulator.” Any such agreement would be slow in coming, however — if it ever comes at all.

Germany – Investors Wag Their Finger at Deutsche Bank Supervisory Board

A number of investors, including the U.K.’s Hermes and German shareowner association VIP have filed a no-confidence motion against the Deutsche Bank Supervisory Board. Investor complaints include dissatisfaction over the board’s succession planning for CEO Josef Ackermann as well as misaligned executive pay and a poor sustainability strategy (read VIP’s argument). Then follow the results of the Deutsche Bank annual meeting on 31 May (if you can take time out from studying for the CFA exam, of course).

On an unrelated, but rather timely note, the new Association of German Directors (VARD) will develop professional standards for corporate board members after its launch at a 31 May – 1 June conference in Düsseldorf.

Japan – Olympus Does Not Bode Well for Future of Japanese Corporate Governance

In early April, former Olympus President and CEO Michael Woodford addressed the corporate governance scandal embroiling his former employer at the annual Council of Institutional Investor (CII) conference in Washington, D.C.  In summary, Woodford’ offered this advice: “If you’re looking to invest in Japan, my advice is don’t.”

In the speech, Mr. Woodford described the events leading to his discovery of massive fraud at the Japanese equipment maker, followed by his subsequent dismissal. Woodford’s account of the Olympus saga included the story being broken by a small Japanese magazine as well as alleged ties between Olympus and organized crime. He described a corporate culture where his attempts to get to the bottom of the financial improprieties were met with stonewalling and denial. A book detailing Mr. Woodford’s account is already out in Japanese and is expected to be published in English in October.

Later in April, the disappointing corporate governance news continued, with Japanese funds electing a board chair and president at Olympus with cozy ties to the regime that brought about the scandal in the first place. A large number of foreign investors voted against the chair and president, as recommended by proxy advisers ISS and Glass Lewis, with “no” votes of 34 percent against Chair Yasuyuki Kimoto and 28 percent against President Hiroyuki Sasa.

U.S. – the Ugly, the Bad, and the Good

The corporate governance lowlight of the month was undoubtedly the “no” vote on executive pay we saw at Citigroup. While the Wal-Mart bribery scandal and the loans Chesapeake Energy’s  CEO has leveraged backed by company assets will likely earn more scrutiny in the coming month, it was heartening to see a CEO looking out for shareowner rights in April. Hewlett-Packard CEO Meg Whitman explained at the company’s annual meeting why HP became one of the first U.S. issuers to agree to a shareowner vote on allowing investors to nominate directors on the corporate ballot (also known as “proxy access”):  “My view is, let shareholders vote. They own the company, let them vote.”


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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