Corp Gov Roundup: National Securities Regulator, Listing Standards, Binding “Say-on-Pay” Vote

From the potential for a single national securities regulator in Canada and the refusal to change listing standards in Hong Kong to plans to launch a Middle East and North Africa investor council, it’s time to span the corporate governance globe to review important developments from the month of September.

Canada

Congratulations to Canada, who this month took a large step in joining every other Organisation for Economic Co-operation and Development (OECD) country on the planet by agreeing to a framework that may in the end create a single national securities regulator in Canada.

Previous attempts to create one securities regulator in Canada — equivalent to the SEC in the United States — have always been frustrated by provinces that did not want to give up the oversight of businesses under their jurisdiction. Such a system with multiple regulators was far from efficient, leaving investors and issuers sorting out a myriad of different rules for companies within the same country, but with different regulatory obligations.

At this point only two provinces (British Columbia and Ontario) have signed on, but they are two of the biggest in terms of economic activity in Canada. The hope is that other smaller securities agencies will join the system in the end.

For now, the new agency will be called the Cooperative Capital Markets Regulator. It will be based in Toronto and oversee common national rules.

Hong Kong

The Hong Kong stock exchange refused to change its listing standards in order to accommodate the much anticipated IPO of Alibaba, China’s leading e-commerce company. Alibaba executives appear to want to emulate the governance structure of other technology companies such as Google, where dual classes of shares allow founders to control the company by owning a second class of shares with enhanced voting rights.

The Hong Kong stock exchange does not allow dual class shares. Its loss appears to be the gain of the New York Stock Exchange, which does allow dual class shares and is said to be the front-runner to list Alibaba.

A more in-depth analysis of the story can be found on the Hong Kong Webb-site, and pages 28–29 of The Corporate Governance of Listed Companies: A Manual for Investors discuss the problems and sources of dual-class shares.

Japan

Corporate governance reform in Japan has been long promised with little delivered over the years, but a recent announcement by competing stock exchanges offers a new hope. The owners of the Tokyo Stock Exchange are said to be in talks with publishing group NIKKEI to create an index of Japanese companies with higher corporate governance standards.

If this all sounds familiar, it should. The Moscow Stock Exchange has been working on a similar idea of a separate listing section for companies with higher corporate governance standards in the creation of its Novy Rynok, or “new market.” Although we have not heard of the Novy Rynok launch, the idea is to emulate the new market, or “Novo Mercado,” in Brazil that set up a separate listing for companies with higher governance standards over a decade ago and has enjoyed great success by attracting foreign investors.

Middle East, North Africa

The OECD has announced that it plans to launch a Middle East and North Africa investor council at a November meeting in Istanbul to give global investors a platform for input on corporate governance issues in the Middle East and North Africa. The plan is to engage with regulators, exchanges, and investors to build more transparent markets with higher governance standards in the Middle East and North Africa.

United Kingdom

A binding say-on-pay vote is coming to the U.K. What exactly does that mean? The U.K. Association of General Council (GC100) and the Corporate Governance Forum have teamed up to provide guidance for both issuers and investors. The guidance aims to balance the discretion compensation committees want to keep with the detail and hard performance targets investors wish to see.

A number of other markets with only advisory say-on-pay votes are watching the first year of “binding” say on pay in the U.K. to see if such a system would work for them.

United States

In late September, the SEC proposed rules for pay disclosure ratios at companies that list with the SEC. The plan, as proposed, does not allow companies to exclude part-time workers or employees based in foreign countries from the calculation. The proposal would require companies to disclose their CEOs’ total compensation as a multiple of median total worker pay. Total compensation would have to include salary, bonus, stock-and-option awards, long-term incentive pay, and change in pension value.

Defenders of the rule claim it will give investors a powerful tool in better understanding executive pay. The rule’s detractors claim it is mainly a political tool meant to shame companies.

You can find more detail about the rule in our previous blog post.

Comments are due to the SEC by 2 December 2013.

Photo credit: iStockphoto/YinYang