Views on improving the integrity of global capital markets
03 August 2012

Corporate Governance Roundup: Germany Gets New Code, Impregilo Not Impregnable, Japan Delays, U.K. Reads Kay, U.S. Blunders

From a proxy fight in Italy and blunders by Duke Energy and Best Buy in the U.S., to the highly anticipated Kay Review in the U.K., it’s time to span the corporate governance globe to review important developments from the month of July.

Germany

The latest German Corporate Governance Code was adopted in May by the Commission of the German Corporate Governance Code, but has now been translated into English. Companies can choose to deviate from the recommendations of the Code, but are then obliged to disclose annually and justify any deviations (the “comply-or-explain” model). Among the recommendations are an emphasis on board transparency, suggesting greater disclosure about director nominees’ personal and business relations with the firm and large shareowners.

Italy

One of Italy’s first and only proxy fights came to a head at the July annual general meeting (AGM) of Italian construction giant Impregilo. The Salini and Gavio families each owned just under 30 percent of Impregilo going into the meeting. Salini Construction ultimately prevailed, removing the Gavio-backed board and installing a board nominated by privately held Salini, including CEO Pietro Salini.

The Salini plan included a special dividend, getting rid of the old board, selling some assets, and merging the two firms. Unfortunately for shareowners — but fortunately for Italian business reporters — the fight will go on, as the Salini family won with just over 50 percent of the vote,  but now needs two-thirds’ support to achieve its goal of merging the two firms

There are rarely such intense proxy scuffles in Italy, due mostly to concentrated ownership in the few listed companies.

Japan

Due to fierce opposition from the business community, the Japanese Ministry of Justice plans to abandon a proposal that would have made it mandatory for companies to appoint outside directors. Instead, the system may be introduced gradually by incorporating the requirement into the Tokyo Stock Exchange’s listing rules.

In January, CFA Institute and the CFA Society of Japan commented on a proposal from the Ministry of Justice to amend the Companies Act of Japan that examined, among other things, corporate board accountability.

United Kingdom

Many in corporate London were waiting for something other than the Olympics this July — the recently published Kay Review, which investigates the problem of short-termism in the equity markets. The paper concludes short-termism is indeed a real problem in the English market, primarily caused by misaligned incentives within the investment chain and a displaced trust in adviser relationships when it comes to transactions and trading.

The recommendations of the Kay Review overlap in some instances with those made in our own Visionary Board report, though the Kay Review is intended, first and foremost, for a U.K. audience.

You can see the response to the initial Kay Review draft from the UK CFA Society here. You may have also seen our recent commentary on this blog.

United States

In the spirit of the Olympic Games, two U.S. companies are competing for worst corporate governance blunder of the month. We will leave it up to you, the judges, to decide which company wins the gold:

  • The sloppily handled succession planning at Duke Energy (the new CEO was forced out after only a day or two on the job).
  • The guaranteed bonus fiasco at Best Buy (the compensation consultant quit in protest).

Vote quickly — recent  reports state that Best Buy’s founder and largest shareowner, Richard Schulze, is thinking of taking his ball and going home by taking Best Buy private.

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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