Views on improving the integrity of global capital markets
04 January 2013

Corporate Governance Roundup: EU “Action Plan,” Italy’s Stewardship Code, Japan Seeks Middle Ground

From the recently published corporate governance “Action Plan” in the EU and arguments for a hybrid system to improve corporate governance in Japan to the search for a way to align executive pay and shareowners’ interests in the U.S., it’s time to span the corporate governance globe to review important developments from the month of December.

European Union

As noted, in a summary blog post by my colleague Claire Fargeot, the European Commission recently published its corporate governance “Action Plan” outlining future initiatives in the areas of company law and corporate governance. Read Claire’s post for the salient details and view the report if you are a governance junkie.


While the world waits with bated breath to see whether Silvio Berlusconi throws his hat into the ring again to lead Italy in 2013 elections, the Borsa Italiana is developing a stewardship code meant to apply to asset managers and owners. The Borsa Italiana Corporate Governance Committee also issued a report summarizing similar efforts in other European markets.


A new paper has been added to the debate about how to improve corporate governance in board monitoring and management. The Olympus Scandal and Corporate Governance Reform: Can Japan Find a Middle Ground between the Board Monitoring Model and Management Model? argues that a hybrid system or middle ground may be the best answer.

The paper focuses on three main areas:

  • First, a “back to basics” re-examination of the fundamental goals of corporate governance and functioning of the board of directors is needed. The goals should include consideration of conflicts of interests and risk management rather than focusing primarily on improving business performance.
  • Second, the debate in Japan should also focus on improving the operating environment for independent monitors to make any potential monitor of management more effective. In the U.S. system, this includes good information disclosure, strong enforcement (particularly through private litigation), and an active role for gatekeepers such as external audit firms.
  • Third, pay closer attention to the ongoing experimentation at a number of leading Japanese companies to develop a mixed governance system that seeks a “middle ground” between Japan’s traditional management board model and the monitoring model; consider means to spread this mixed model more broadly among Japanese companies.

United Kingdom

In the mood for a good 2012 corporate governance review? Who isn’t? Well, you are in luck. The Financial Reporting Council in the U.K. had you in mind when they put together their report: The Impact and Implementation of the U.K. Corporate Governance and Stewardship Codes. The report focuses on developments in corporate governance in the U.K. over the past year. It  also touches on the implementation of the 2010 editions of the U.K. corporate governance and stewardship codes and covers what to expect in 2013.

United States

The search for the perfect way to align executive pay and the interests of shareowners continues — likely forever. The Conference Board has entered the fray with a new report claiming to have cracked the pay-for-performance nut — optimistically coining the phrase “perfect pay for performance.” The report aims to offer a simplified way to link pay to performance and uses General Electric as an example to walk the reader through the plan’s main concepts. In the words of the Conference Board: “This report discusses the three dimensions of pay for performance, demonstrates how to measure them using historical pay data, and presents a simple pay plan that achieves perfect pay for performance (PP4P) using annual grants of performance shares. It also highlights pay practices that weaken pay for performance and offers recommendations for directors to deepen their understanding of pay-for-performance issues.”

Photo credit: ©

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

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

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