Corporate Governance Roundup: Aussie Bosses Give Back, Turkey’s New Code, MANU a Bad Investment, Director Defenestration in U.S.

From Australian CEOs giving back their bonuses to Manchester United’s controversial IPO, it’s time to span the corporate governance globe to review important developments from the month of August.

Australia

Maybe it is a fear of the upcoming proxy season in Australia, where the two-strikes rule will be tested, but Australian CEOs have been in a giving mood this year — as in giving back bonuses. This month Quantas joined the ranks of Australian companies whose CEOs have forgone bonuses.

Stated Quantas CEO Alan Joyce in an interview with the Australian Financial Review, “It’s absolutely appropriate that when company returns go down executive pay should go down as well. It has been an extremely tough year for Qantas shareholders and what we want to show is that my pay has to have a huge correlation with the profitability of the company.”

Can’t argue with that.

So far this year, the heads of global mining companies BHP Billiton and Rio Tinto, Marius Kloppers and Tom Albanese respectively, have also turned down bonuses.

Turkey

After a number of years of legislative wrangling, Turkey has finally adopted a new commercial code (technically this happened in July, but it didn’t come across my desk until August, so please forgive me on my tardiness).

The law, aimed at improving auditing standards and transparency, requires companies to have independent auditors and that all joint stock and limited liability companies operate under International Financial Reporting Standards (IFRS). Small and medium-sized enterprises (SMEs) are required to follow a simplified version of IFRS. The new code requires companies to have websites and has provisions for e-commerce, online general meetings, and board meetings.

Under the new code minority shareowners will have inspection rights for major transactions, such as mergers. They also will have the right to ask the general assembly to appoint a special independent auditor. Experts believe it will take some time for interpretation of the new law to become clear, as it will take courtroom precedents to set in stone some of the more general precepts of the law. All information relevant to investors, such as the company’s audit, documents related to the general assembly, mergers, and other significant corporate actions must now be published on a company’s website.

PWC has done a good job of highlighting some of the important changes to the commercial code here.

United Kingdom

For those who weren’t paying attention to the IPO market in the past month, good for you. For the rest of us, we remember Manchester United, or MANU to the fans and stock-ticker followers.

For a detailed analysis of what to expect — and not to expect from MANU as a stock — check out the excellent blog post on the MANU IPO by our own David Larrabee, CFA.

Am I the only one that finds it odd that the London Stock Exchange passed on this one? So did stock exchanges in Hong Kong and Singapore. It was the NYSE that ended up taking MANU public. Well, maybe it’s not so odd when you consider that MANU went public under the recently passed U.S. JOBS Act, which offers relaxed reporting and auditing requirements for so-called emerging growth companies.

As of this writing the IPO is trading below the IPO price.

For MANU fans and investors, let’s hope they do better than my beloved Cleveland Indians over a decade ago.

But I wouldn’t hold my breath.

United States

When board members don’t get a majority vote, they don’t necessarily step down.

According to a recent study by Governance Metrics International (GMI), only five percent of corporate directors receiving majority withhold votes are removed from boards. This is mostly because many smaller and midsized companies do not have a majority voting standard in director elections, making it easier for boards to ignore the wishes of shareowners. About 50 percent of board members at companies with such a majority voting standard are thrown off boards if they fail to earn majority support from shareowners. The study shows shareholder opposition to 175 director nominees between 1 July 2009 and 30 June 2012.

Some of the study’s key findings:

• The vast majority of directors who do not receive majority support continue to serve. Only 5 percent of the majority withholds votes led directly to director removal.
• Majority withhold votes are often part of a larger pattern of shareholder dissatisfaction. Nearly one-fifth (18 percent) of majority withhold votes occurred at companies where there was evidence of shareholder dissatisfaction not only with the director in question but with the board or company as a whole.
• Majority withhold votes are more common at smaller-cap companies. Over 80 percent of majority withhold votes occurred at Russell 2000 companies, which made up two-thirds of the study sample.
• Most majority withhold votes occur at companies without majority election standards. Ninety-one percent of majority withhold votes occurred at companies with plurality standards for director voting. This is at least partially a reflection of the fact that smaller U.S. companies are less likely than their larger-cap peers to have adopted either majority, or plurality plus resignation, election standards.
• Majority, or plurality plus resignation, election standards improve disclosure on companies’ processes for evaluating and responding to majority withhold votes. Almost nine out of ten (87 percent) of companies receiving majority withhold votes made no disclosure regarding their boards’ processes for responding to them. However, all companies with majority, or plurality plus resignation, election standards made some disclosure about their response to the votes.