Views on improving the integrity of global capital markets
04 February 2014

Corp Gov Roundup: Integrated Reporting, Board Diversity, Stewardship Codes

It’s time to span the corporate governance globe to review important developments from the month of January. Topics include integrated reporting, board diversity in Canada, stewardship codes in Japan and Malaysia, and more.


Integrated reporting is taking further steps toward going mainstream. The International Integrated Reporting Council (IIRC) and the US Sustainability Accounting Standards Board (SASB) agreed to work together to make their currently separate integrated reporting frameworks compatible, which may bring the world closer to a more unified standard — asked for by investors, issuers, and accountants alike.

Institutional Shareholder Services (ISS) is updating and enhancing Governance QuickScore, a scoring and screening solution designed to help institutional investors identify governance risk within portfolio companies.


Regulators in a number of markets continue to address the issue of board diversity; more specifically women on boards. In January, the Ontario Securities Commission proposed amendments to listing rules that would require Toronto Stock Exchange (TSX)-listed issuers (and other non-venture issuers) that are reporting issuers in Ontario to provide disclosure regarding the following matters on an annual basis:

  • Director term limits
  • Policies regarding the representation of women on the board
  • The board’s or nominating committee’s consideration of the representation of women in the director identification and selection process
  • The issuer’s consideration of the representation of women in executive officer positions when making executive officer appointments
  • Targets regarding the representation of women on the board and in executive officer positions
  • The number of women on the board and in executive officer positions

Currently, most TSX-listed companies do not provide this information. Comments are due by 16 April.


New corporate governance recommendations made by the French Asset Management Association (AFG) are calling for more independence on boards and more women on boards. The recommendations state that independent directors should make up at least 50% of board members at widely held companies and at least 35% at controlled companies. The recommendations also call for an advisory shareholder vote on executive pay plans every three years and an annual vote on pay awarded in the prior year. The AFG recommendations call for more attention to risk management and reaffirm the equality of voting rights between shareowners, calling on companies to explain their reasoning if shareowner voting rights differ from the one-share, one-vote standard.


The English version of Japan’s draft stewardship code was published in January by the Financial Services Agency expert group. The code plans to adopt a comply-or-explain model asking institutional investors to have a clear policy detailing how they fulfill their stewardship responsibilities and how they handle conflicts of interests. The code also asks investors to have a clear policy on voting and voting disclosure and to report periodically on how they fulfill their stewardship responsibilities.

Finally, the code asks institutional investors to have in-depth knowledge on companies in which they invest and the capability to appropriately engage with companies and make proper judgments in fulfilling their stewardship activities.

It will be interesting to see the reaction to the code (especially the call on investors to engage with issuers) as one of the main criticisms of similar codes — such as the UK stewardship code — is the assumption that investors have enough time and resources to engage the companies in which they invest. Such engagement is also a challenge for index investors, who would likely have to increase fees — therefore undercutting the very appeal of their business model — in order to comply with the code.

Comments are due by 9 February.


Stewardship code fever must be catching as the Securities Commission Malaysia (SC) and the Minority Shareholder Watchdog Group (MSWG) recently issued a joint consultation paper seeking public feedback on the Malaysian Stewardship Code for Institutional Investors 2014.

The code sets out eight principles together with guidance for institutional investors on effective exercise of stewardship responsibilities towards the delivery of sustainable long-term value to the institutional investors’ ultimate beneficiaries or clients.

The eight principles are set out as follows:

      1. Institutional investors should disclose the policies on their stewardship responsibilities.
      2. Institutional investors should monitor their investee companies.
      3. Institutional investors should engage with investee companies as appropriate.
      4. Institutional investors should adopt a robust policy on managing conflicts of interest which should be publicly disclosed.
      5. Institutional investors should incorporate corporate governance and sustainability considerations into the investment decision-making process.
      6. Institutional investors should publish a voting policy.
      7. Institutional investors should consider acting collectively with other investors where appropriate.
      8. Institutional investors should engage in the development of relevant policies and best practices.

Comments are due by 28 February.

United Kingdom

The UK Financial Reporting Council (FRC) posted its response to the UK Competition Commission’s proposal last year to establish shareowner “say-on-audit” votes. The FRC stated that the proposal does not “appear to enhance” shareholders’ ability to express their views. The FRC plans to put the issue out for consultation but stated that any plan to implementate such a rule would depend on the feedback it receives from interested parties. The council also will consult on amending the UK corporate governance code to incorporate a commission decision to require companies to put audit contracts out for bid every 10 years.

United States

A percolating issue in the governance world is the adoption of corporate bylaws that prohibit extra payments for directors nominated in proxy contests by activist investors. A number of US companies have adopted such bylaws to counter special compensation promised in proxy battles at companies such as Hess and Agrium. Proxy adviser Institutional Shareholder Services (ISS) weighed in on the matter, stating that it would not support such bylaws unless they were voted on by shareholders. The official position of ISS is articulated as follows:

The adoption of restrictive director qualification bylaws without shareholder approval may be considered a material failure of governance because the ability to elect directors is a fundamental shareholder right. Bylaws that preclude shareholders from voting on otherwise qualified candidates unnecessarily infringe on this core franchise right. Consistent with ISS’ “Governance Failures” policy, we may, in such circumstances, recommend a vote against or withhold from director nominees for material failures of governance, stewardship, risk oversight, or fiduciary responsibilities.

However, ISS has not recommended voting against directors and boards at companies which have adopted bylaws precluding from board service those director nominees who fail to disclose third-party compensatory payments. Such provisions may provide greater transparency for shareholders, and allow for better-informed voting decisions.

Finally, pay disclosure requirements may be changing in the United States in the not-so-distant future. A recent study by SEC staff noted that the SEC may revisit its executive pay disclosure requirements. The report offers two possible approaches: a comprehensive review last done in 1996 or an issue-by-issue approach looking at specific topics such as executive compensation and risk disclosures. There is no word yet on when interested groups will be asked to comment, but when that word comes, expect an avalanche of commentary for the SEC staff.

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.

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