Views on improving the integrity of global capital markets
03 June 2013

Corporate Governance Roundup: Pay Caps in Germany, Pension Reform in the U.K., JPMorgan Controversy in the U.S.

From revisions to the corporate governance code in Germany and recommendations for corporate governance improvements in Japan to the controversy surrounding the JPMorgan shareowner meeting in the U.S., it’s time to span the corporate governance globe to review important developments from the month of May.


In Canada at least, activist investing will be trickling down to small and mid-size companies (whether they like it or not). That’s because Smoothwater Capital Corporation was launched in May to invest in small to mid-cap Canadian companies that currently have poor corporate governance. Smoothwater will also work with other investors to effect change in targeted companies, particularly with institutional investors who hold material positions but do not possess the resources to actively pursue change.

The new fund will be managed by Canadian governance expert Stephen Griggs, who has been brought in to serve as Smoothwater’s CEO. Mr. Griggs was previously CEO of OPTrust, a C$15 billion Ontario public pension plan, which he joined in 2011 after leading the influential Canadian Coalition for Good Governance.


Pay caps are becoming more and more popular in Europe. According to proposed revisions to the latest German Corporate Governance Code, issuers will be required to cap total executive remuneration as well as individual components or explain why they are not doing so.

The code also clarifies the management board and supervisory board’s obligations. A dual board system is prescribed by law for German stock corporations


The American Chamber of Commerce in Japan recently issued a viewpoint urging Prime Minister Shinzo Abe’s Liberal Democratic Party of Japan to follow through with campaign promises to improve corporate governance in Japan. Some of the recommendations include:

  • Amending the company law to include a definition of “independent outside director” that is consistent with global best practices
  • Amending the company law to require that at least one-third of a listed company’s board of directors be independent outside directors
  • Amending the company law to permit a board of directors to formally delegate decision-making authority on specific matters to a “special board” comprised entirely of independent outside directors


The Organisation for Economic Co-operation and Development held a technical seminar in Moscow on 15 May to discuss and comment on the first draft of the revised Russian Corporate Governance Code.

A paper was presented at the seminar representing the view of a large number of foreign and international institutional investors with respect to the first draft of the updated Russian Code of Corporate Governance.

The Russian Corporate Governance Code is to serve as a template for companies to be listed on the Russian Novy Rynok (new market), a section of the Moscow exchange set aside for companies with higher corporate governance standards.

United Kingdom

Pension reform in the United Kingdom has led to the creation of the U.K. National Employment Savings Trust (NEST) — a defined contribution retirement scheme that individuals and companies of any size can utilize. If it’s proxy voting guidelines are any indication, the corporate governance staff of NEST plan to be pretty busy. According to the guidelines, “We vote FOR decisions we believe are right for our members over the long term. We vote AGAINST decisions we believe aren’t right for our members over the long term. We rarely sit on the fence on a vote and ABSTAIN.”

Plan to hear more from NEST next proxy season.

United States

May’s top corporate governance story in the United States was of course the drama around the JPMorgan Chase shareowner meeting in which a number of shareowners called for splitting the roles of chairman and CEO — positions currently held by Jamie Dimon. In the end, only about one-third of shareowners (32%) voted to separate the positions (the vote was 40% in 2012). A number of JPMorgan board members may be on the way out, as three members of the board received less than 60% support to continue on as board members.

Historically proxy processor Broadridge has offered running vote tallies to U.S. investors as well as issuers. Early totals can prove crucial in close fights by allowing each side to see whether more resources are needed to swing votes. In the weeks leading up to the JPMorgan vote, the Securities Industry and Financial Markets Association (possibly at JPMorgan’s request) called on Broadridge to stop providing data to investors.

The Council of Institutional Investors (CII) is urging the U.S. SEC to take action in response to reports that Broadridge will discontinue its practice of providing voting tallies to proponents of shareholder proposals. The CII letter urges the SEC to immediately end the “patently unfair and arbitrary change in practice” as well as to determine whether regulatory reform is necessary. The letter indicates that Broadridge’s decision, the timing in particular, “raises deeply troubling questions about the fairness and impartiality of the proxy system.”

Photo credit: iStockphoto/YinYang

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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