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

Corp Gov Roundup: Proxy Advisers, EU Code of Conduct, JPX-Nikkei Index


From scrutiny of the role and influence of proxy advisers in Europe and in the U.S. to Japan’s planned launch of a stock exchange dedicated to higher corporate governance standards, it’s time to span the corporate governance globe to review important developments from the month of November.

European Union

The European Securities and Markets Authority (ESMA) recently published a report on the role of the proxy advisory industry. The report contains an analysis of the responses received to its March 2012 consultation and sets out the next steps for ESMA and the industry. ESMA is recommending that the proxy advising industry should develop a code of conduct that focuses on:

  • Identifying, disclosing, and managing conflicts of interest
  • Fostering transparency to ensure the accuracy and reliability of the advice

ESMA has had initial discussions with several participants from the industry who support development of a code of conduct, including Glass Lewis, Institutional Shareholder Services (ISS), iVOX, Manifest, Nordic Investor Services, PIRC and Proxinvest. These proxy advisers and governance research providers have put forth a draft code for consultation. Comments are due by 20 December. Although the code project was initiated by ESMA, any final document will likely be global in nature, as the proxy advisers and governance research providers operated in markets around the world and the issues covered in the consultation are universal.

Other jurisdictions are also looking at the proxy advisory industry with a critical eye, particularly Canada and the United States. Canada’s efforts are likely to fall somewhere in the area of a voluntary set of best practices, while business groups in the U.S. have pushed for stricter oversight of proxy advisers.

The Autorité des Marchés Financiers (AMF) has published its 2013 report on corporate governance and executive compensation in listed companies.

The report has been published yearly since enactment of the Financial Security Act of 2003. The 2013 edition of the AMF report highlights improved company practices assessed on the basis of the 2012 AFEP-MEDEF Code (the code that was in force when the reference documents of the featured companies were published). The new AFEP-MEDEF Code will serve as a reference for the 2014 edition of the AMF Report.

Some of the highlights of the 2013 report include:

  • A sharp increase in the number of companies that have appointed a lead director (18.4%)
  • Greater boardroom diversity (25% women and 25% from outside France)
  • Fewer multiple directorships held by executive officers (48% hold only one directorship)
  • A larger proportion of audit committees chaired by independent directors (93% vs. 88% in 2011)
  • All termination payments made to directors in 2012 complied with the AFEP-MEDEF Code.

The AMF also makes new recommendations, most notably with regard to directors representing employees, measurement of the actual contribution of each director to the work of the board, and disclosure of service agreements signed between the company and one of its directors.


The Asian Corporate Governance Association (ACGA) recently published a paper, The Roles and Functions of Kansayaku Boards Compared to Audit Committees, which compares the Kansayaku (statutory auditor) board in Japan with the audit committee in other developed markets. The report explains the historical background and legal foundation of both systems, outlines expected roles and best practices, and then looks at how they actually function in practice.

ACGA’s core argument is that a genuinely independent and well-run audit committee system has the potential to strengthen board governance and management oversight more effectively than the Kansayaku system. The report draws some conclusions about how Japanese companies and the government could strengthen their corporate governance and audit functions.

Also in Japan, the JPX-Nikkei Index 400 is set to launch in January 2014. The index will feature Japanese companies with higher corporate governance standards. Indeed, the joint venture of the Tokyo Stock Exchange and rival Nikkei will require more stringent corporate governance criteria than the broader market, including at least two independent directors, use of International Financial Reporting Standards, and earnings disclosure in English. The index will only include profitable companies; any company whose average return on equity over three years is negative will be excluded from the index.


Long-awaited revisions to Russia’s 2002 Corporate Governance Code will be delayed until February following discussions of the Organisation for Economic Co-operation and Development (OECD) Russia Corporate Governance Roundtable. The 2013 Roundtable meeting focused on issues related to implementation, monitoring, and enforcement of the new Russian Corporate Governance Code. Discussions covered:

  • Challenges in compliance, monitoring, and enforcement of codes (international experience)
  • Recommendations for effective implementation and enforcement of the new Russian code
  • Interaction between the new code and the new listing requirements

Still no word on the Moscow Exchange’s plans to launch a new listing segment featuring companies with higher listing standards — the Novy Rynok — that was slated for launch in the second half of 2013, following finalization of the new governance standards.

United Kingdom

It was a busy month for corporate governance practitioners in the United Kingdom.

A survey on governance issues and executive pay published by executive search firm Hedley May highlights a large difference of opinion among directors, executives, and institutional investors in the U.K.

The survey polled 700 large company board members and executives, as well as 15 of U.K.’s top 25 institutions and Britain’s Trade Union Congress, on such issues as succession planning, shareowner engagement, and executive compensation. The survey did find some agreement; however; a broad majority of respondents think that the government’s efforts to restrain executive pay are “unworkable.”

The survey shows that 70% of executives and nonexecutive directors agree that the caliber of a CEO is critical to a company’s performance, while only 30% of shareholders echo that sentiment.

On the topic of engagement, about 50% of directors felt they do not need to do more to engage effectively with shareholders on pay policy, while 85% of investor respondents held the opposite view. Many executives feel that shareholders are not well equipped for the new level of engagement called for by a binding “say on pay.”

The U.K. Financial Conduct Authority (FCA) has revamped listing rules for publicly traded companies to protect minority shareowners. The updated rules give shareowners in premium-listed companies additional voting rights and greater influence on some decisions. The changes are the culmination of a consultation that responded to concerns from the investment community over the governance of premium-listed companies with a controlling shareholder as well as the rights of minority shareholders. The FCA’s enhancements to the premium-listed regime include:

  • Ensuring listed companies are run independently of their controlling shareholders, including measures that give independent shareholders a veto over transactions between listed companies and a controlling shareholder when this independence is threatened
  • Requiring separate approval of independent directors by independent shareholders, in addition to gaining approval from shareholders as a whole
  • Requiring greater transparency for listed companies to ensure shareholders have the information they need to exercise their voting rights.

The National Association of Pension Funds (NAPF) in the U.K. published changes to its latest Corporate Governance Policy and Voting Guidelines. The report includes new remuneration principles and more robust expectations for corporate accountability. The report also calls on boards to use long-term equity grants to align executive and shareowner interests. Directors also should scrap complex multiple award schemes for clear and understandable ones that ensure pay isn’t a windfall “lottery.” The NAPF guidance also puts greater emphasis on corporate reporting of extra-financial (ESG) factors.

According to the NAPF, the updated policies include a new set of remuneration principles against which investors can judge a company’s pay policy and its appropriateness for that firm. When a company’s pay policy falls short of these principles, investors might decide to vote against it — and potentially the chairman and members of the remuneration committee.

United States                  

As noted above, the business groups are looking to rein in the influence of proxy advisers. This has led to the U.S. Securities and Exchange Commission sponsoring a roundtable on proxy advisory services on 5 December. Stay tuned to this space for any highlights/lowlights from the meeting.

Influential proxy adviser Institutional Shareholder Services (ISS) has released its proxy voting policies for 2014 for the Americas, EMEA, and Asia Pacific. ISS gathered input from institutional investors, issuers, and other market participants in putting together its voting policies.

Interested parties can join webcasts in the coming weeks to better understand the policies:

  • Dec. 10 at 2:30 p.m. GMT (3:30 p.m. CET) for a review of EMEA policy updates
  • Dec. 11 at 11 a.m. EST (8 a.m. PST) for Americas region policy updates
  • Dec. 12 at 10 a.m. HKT (11 a.m. JST) for a review of the Asia-Pacific region.

Register now for these webcasts.

ISS also is requesting feedback from governance stakeholders globally on potential longer-term changes to seven discrete voting policies as part of a new, ongoing consultation period running until February. Items under consideration include auditor rotation and independent chairs in the U.S., stock issues without preemptive rights in Europe and Asia, and equity-plan scoring in both Canada and in the U.S.

As revised 5 December 2013.

Photo credit: iStockphoto/YinYang

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

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

2 thoughts on “Corp Gov Roundup: Proxy Advisers, EU Code of Conduct, JPX-Nikkei Index”

  1. Sarah Wilson says:

    Matt, thanks. For flagging up the consultation regarding corporate governance research. The consultation is available here: and I should point out that it is GLOBAL, not European and wholly independent of ESMA.

  2. Matt Orsagh, CFA, CIPM says:

    Thank you for your comments Sarah. We have updated the blog post to better reflect the current state of the project.

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