Views on the integrity of global capital markets
04 February 2013

Corporate Governance Roundup: M&A Committee Launches in Brazil, Israel Joins “Say-on-Pay” Debate

From the Mergers and Acquisitions Committee in Brazil and updates to executive compensation principles in Canada to proposed corporate governance changes in India and “say-on-pay” developments in Switzerland, it’s time to span the corporate governance globe to review important developments from the month of January.


Maybe people are reading our Visionary Boards report? The Global Network of Director Institutes was launched in January by nine members. The group will share “corporate governance issues impacting the boardroom and its stakeholders.” Australian Institute of Company Directors CEO John Colvin chairs.


A mergers and acquisitions committee (Comitê de Fusões e Aquisições, CAF) was launched in January in Rio de Janeiro to protect minority shareowners in takeovers. The chairman is corporate governance advocate João Pinheiro Nogueira Batista.


The Canadian Coalition for Good Governance (CCGG) offered updated 2013 Executive Compensation Principles (first issued in 2009) to provide enhanced guidance to boards and to promote compensation decisions that are aligned with long-term company and shareholder success. CFA Institute, in partnership with the compensation discussion and analysis (CD&A) working group, similarly produced the Model CD&A in January 2011 to make compensation communications clearer and more relevant to investors.

Below is a summary outlining the six main principles put forth by the CCGG:

Principle 1: A significant component of executive compensation should be “at risk” and based on performance.

Principle 2: “Performance” should be based on key business metrics that are aligned with corporate strategy and the period during which risks are assumed.

Principle 3: Executives should build equity in the company to align their interests with those of shareholders.

Principle 4: A company may choose to offer pensions, benefits and severance, and change-of-control entitlements. When such perquisites are offered, the company should ensure that the benefit entitlements are not excessive.

Principle 5: Compensation structure should be simple and easily understood by management, the board, and shareholders.

Principle 6: Boards and shareholders should actively engage with each other and consider each other’s perspective on executive compensation matters.


Take a look at our earlier blog post about proposed corporate governance changes in India. The Companies Bill 2012, seeks to replace the 55-year-old Indian Companies Act and was passed in December 2012 by the lower house of the Parliament of India. (Before the bill replaces the existing Companies Act, it must pass the upper house of the Parliament of India and gain consent from the president of India.) Various new provisions are included in the bill, aimed at improving the governance of public companies. In the meantime, Securities and Exchange Board of India (SEBI) issued a concept paper in January to encourage a wider debate on governance requirements for listed companies and the adoption of better global practices, in accordance with Organisation for Economic Co-operation and Development (OECD) principles of governance.

SEBI is planning a hybrid approach to Clause 49 of its guidelines on corporate governance, meaning it will adopt a “principle-based” or “comply-or-explain” approach for some codes while other mandatory compliance may require a “rule-based” approach.

Among proposed governance changes, Indian issuers could be required to split board chair and CEO posts under governance reforms proposed by the SEBI.


Another country has joined the say-on-pay debate. Shareowners in Israel will have a say on pay due to a recently passed law. Israeli shareowners must vote on executive compensation — and CEO employment agreements — before such agreements become final. Israel’s law addresses compensation committee independence, clawbacks, and long-term performance-based compensation that takes risk into consideration.

The Netherlands

In November 2012, the upper house of the Dutch parliament passed the Corporate Governance Act. The Act is expected become law in July 2013 and will strengthen the corporate governance of listed companies by curbing shareholder activism and promoting dialogue between shareholders and the management board. The Act contains the following changes to the rules on corporate governance:

  • The threshold for the right of shareholders of both listed and unlisted public limited liability companies to have items placed on the agenda of the general meeting of shareholders will be raised: in the future only shareholders who have a holding of 3% or more will have this right. The current limit is 1%. Under the Act the present alternative requirement of a €50 million shareholding in the case of listed companies is also to be abolished.
  • A new lower minimum threshold of 3% is introduced for the disclosure of capital interests and/or voting rights in a listed company.
  • In the future, an investor in a listed company will be required to disclose not only his capital interests and/or voting rights but also his gross short positions.
  • An arrangement is introduced enabling listed companies to trace the identity of their “ultimate investors.” In addition to information on the investors’ identity, the company will also be able to obtain information about their individual positions. To safeguard the privacy of small investors, the company’s right to access information will be restricted to shareholders with an interest of at least 0.5%.


It seems like say-on-pay is popping up everywhere, just in slightly different flavors around the globe. The Swiss government opposes a proposal to curb executive compensation, scheduled for a March referendum, at a time when a majority of Swiss voters is set to approve the referendum giving shareholders power to curb executive rewards, according to an opinion poll conducted mid-January.

The Swiss government prefers to address concerns over executive pay including binding say-on-pay votes for Swiss directors, though companies would determine whether the vote is binding or advisory for executives. Figures to be approved would be in aggregate according to the government proposal. It would allow severance payments if in the “interest” of the company and if approved by two-thirds of shareholders.

By comparison, the “abusive salaries” proposal mandates a binding say-on-pay vote for both directors and executives and bans all forms of severance payments. Directors would also be required to stand for annual elections and pension funds would be required to disclose their votes.

United Kingdom

Executive pay in the FTSE 100 remains “overwhelmingly linked to short-term financial measures,” and the current “bonus culture” is holding business back, according to a report released in January by the High Pay Centre. The report also claims that pay packages should be linked to non-financial factors key to long-term firm sustainability, such as corporate social responsibility.

United States

A new report by Harvard professor Ben Heineman asks the question on a lot of minds in the past years: “Why is the financial sector so scandal plagued?” In many ways it gets down to culture. Heineman finds that the failure to maintain a culture of integrity is a common thread behind many of the financial scandals of previous years. It’s a sentiment echoed in our own Global Market Sentiment Survey, in which investment professional professionals said the ethical culture within financial firms needs to be addressed to solve systemic problems that led to the fiscal crisis.

On a separate note, Columbia Law School launched a new blog on 28 January. The CLS Blue Sky Blog offers analysis of noteworthy developments in the worlds of financial reform, securities regulation, and corporate governance.

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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