Shareowner Rights in a Post-Financial Crisis World

CFA Institute has updated Shareowner Rights across the Markets: A Manual for Investors — a collection of individual reports 28 different markets — to make investors aware of important corporate governance developments around the globe.

A number of markets made regulatory and governance changes in the aftermath of the financial crisis, and the updated publication reflects those developments. Indeed, in response to regulators and investors pushing for better investor rights, we’ve seen new rules, corporate governance codes, and increased investor activism in a number of markets.

The Shareowner Rights Manual is structured to give readers easy access to information about their basic rights as shareowners as well as customary practices in markets in which they invest. By giving investors a better understanding of the legal, regulatory, and governance standards in certain markets, investors can make more informed investing decisions. To that end, the manual:

• Reviews the rights shareowners enjoy in 28 markets around the world, both developed and emerging
• Provides a table listing basic shareowner rights in each market
• Reviews current investor engagement practices and recent events
• Addresses the legal and regulatory environments in each market
• Provides a list of online resources dealing with shareowner rights in each market.

Report highlights include:

Australia

In 2011, the Corporations Amendment Bill strengthened the nonbinding vote on remuneration by giving shareholders the opportunity to remove directors if the company’s remuneration report received a “no” vote of 25% or more at two consecutive annual general meetings. In such instances, shareowners would vote on whether to “spill” all board members, and if at least 50% of eligible votes cast were in favor of spilling, a spill meeting to elect directors would be required within 90 days.

Brazil

In 2012, the Mergers and Acquisitions Committee (CAF), modeled on the U.K. Takeover Panel, was created by Bovespa, the Association of Financial and Capital Market Entities (Anbima), the Association of Capital Markets Investors, and the Brazilian Institute of Corporate Governance (IBGC). The CAF, which launched in October 2012, is finalizing a takeover code to protect minority shareowners.

China

In 2012, the China Association for Public Companies (CAPCO) was established by the China Securities Regulatory Commission (CSRC). It is charged with promoting good governance and director training. The CSRC has also created an investor protection bureau to draft laws for domestic investors and to help establish an education and service system for them.

Germany

The German Corporate Governance Code (GCGC) was amended in 2013. In addition to trimming down the size of the code itself, the Commission of the German Corporate Governance Code’s recent amendments addressed severance pay for management board members and the establishment of a supervisory board nomination committee. 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). The recommendations include an emphasis on board transparency and advocate greater disclosure about director nominees’ personal and business relations with the firm and large shareowners.

Russia

In 2012, the Moscow Exchange announced plans for a market for companies with high corporate governance standards. The market would be called Novy Rynok (New Market). One of the models for this market is the Brazilian market Novo Mercado, which has existed for more than a decade and serves as a safe haven for investors who understand that stronger corporate governance can mean higher and less volatile returns. The Novy Rynok is expected to launch in the second half of 2013.

Singapore

In 2012, the Monetary Authority of Singapore (MAS) issued the revised Code of Corporate Governance. The key changes to the code are in the areas of director independence, board composition, director training, multiple directorships, alternate directors, remuneration practices and disclosures, risk management, and shareholder rights. The revised code went into effect on 1 November 2012; however, a grace period was built into the code, and full compliance with the code is not required until 2016.

Turkey

Recent changes in the Turkish Commercial Code in 2012 that emphasize auditing improvements and transparency are likely to allow more shareowner activism in Turkey.

United Kingdom

In 2012, the U.K. government announced that it would enact legislation to give shareholders a binding vote on executive pay; votes are currently of an advisory nature. Such legislation is expected to be introduced in 2013. Votes will require an ordinary resolution to pass. The binding vote will be held annually unless companies choose to leave their remuneration policy unchanged. Once a policy is approved, companies will not be able to make payments outside its scope without re-approval. The government hopes this change will encourage companies to devise long-term pay policies.

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