Views on improving the integrity of global capital markets
03 April 2014

Corp Gov Roundup: Comply-or-Explain Principles, Corp Gov Roadmap, Clawback Bonuses

It’s time to span the corporate governance globe to review important developments from the month of March. Topics include the development of a corporate governance roadmap in Indonesia, the presentation of the country’s first national corporate governance code in Japan, recent developments concerning Alibaba in Hong Kong, and rules surrounding clawback bonuses in the United Kingdom.


Six proxy advisers proposed The Best Practice Principles for Shareholder Voting Research 2014 in late 2013. The comply-or-explain principles put forward in the document will be monitored for two years before being reviewed by the signatory group. The code is meant to address concerns by issuers that proxy advisory firms do not adequately police themselves, as companies on both sides of the Atlantic Ocean have long complained about the power that proxy advisory firms wield with little to no governance oversight.

CFA Institute commented on the original draft of the principles in December.


Add the Governance Institute of Australia to the growing list of those advocating more issuer/shareowner engagement. At the end of February, the Governance Institute of Australia and Sandy Easterbrook released for public consultation the exposure draft of Guidelines: Improving Engagement Between ASX-Listed Entities and Their Institutional Investors.


An interesting corporate governance drama is playing out in Chile. The governance issue focuses on the proposed merger between Chile’s CorpBanca and Brazil’s Itaú Unibanco. Cartica Capital, a US-based fund that focuses on corporate governance issues, issued a letter to the board protesting a number of benefits that the deal would bring to álvaro Saieh, who controls Chile’s third-largest bank through his CorpGroup Holding.

Those criticizing the deal feel that the Brazilian bank is trying to acquire control of a Chilean bank by purchasing a third of its shares without paying a premium to minority shareowners — instead paying a premium solely to the Chilean bank’s majority shareholder in order to gain control. Also troubling is that the proposed deal specifically says that the directors will vote as instructed by the controlling shareholders or they will be fired.


We missed this news in early February but wanted to update everyone on an important corporate governance development in Indonesia. The Financial Services Authority (OJK) of Indonesia launched the Indonesian Good Corporate Governance (GCG) Roadmap for publicly listed companies. The group that helped craft the roadmap includes regulatory institutions (Bank Indonesia, State-Owned Enterprises Ministry, Taxation Directorate General, State Development and Finance Comptroller, Indonesian Accounting Association, and Indonesia Stock Exchange) and governance institutions (National Committee on Governance Policy, Indonesian Institute for Corporate Directorship, Indonesian Institute for Corporate Governance, and Indonesian Institute of Commissioners and Directors) as well as the International Finance Corporation.

The roadmap focuses on corporate governance framework, shareholder protection, stakeholders’ roles, transparency of information, as well as roles and responsibilities of the board of commissioners and board of directors. The roadmap benchmarks practices against some international best practices.


We recently learned that the Liberal Democratic Party of Japan is planning to present the country’s first national corporate governance code to the government in June. The Tokyo Stock Exchange (TSE) tried to put forward a governance code over a decade ago but gave up after pushback from businesses.

Proponents of the new code are banking on erasing a corporate governance discount that has long plagued Japanese markets, which have historically been seen as laggards in corporate governance standards.

Hong Kong

In March, mainland Chinese company Alibaba finally announced that it would be listing its much-anticipated IPO in New York rather than in Hong Kong. Alibaba founders wanted to retain control of the company through a dual-class listing standard. Hong Kong wouldn’t allow that, but the New York Stock Exchange will. If you are wondering, CFA Institute endorses a one-share, one-vote standard.

The Hong Kong exchange has a one-share, one-vote requirement for listed companies, while the New York Stock Exchange allows companies to issue shares with different voting rights. Such dual-class shares often give some shareholders more voting rights than others. In this case, Alibaba’s founders will likely be able to control the vote at the company (with more than 50% of the voting power) without having to risk equal capital by having a commensurate capital at risk (having less than 50% of the capital at risk).


The Corporate Governance Center of the Taiwan Stock Exchange Corporation (TWSE) recently announced a Corporate Governance Evaluation System based on the Corporate Governance Roadmap 2013. The plan is for TWSE to perform corporate governance evaluations on all publicly listed companies in order to:

  • reward outstanding companies and designate good companies
  • be in line with international best practice
  • increase disclosure of information and improve the quality of capital markets

The TWSE held a Corporate Governance Evaluation System Conference in March that included governance experts from around the world, as well as the Taiwan Corporate Governance Association, Business Council for Sustainable Development of Taiwan, Securities and Futures Investors Protection Center, the Institute of Internal Auditors– Taiwan, and delegates from publicly listed companies.

According to the TWSE, the evaluation system borrows heavily from the Organisation for Economic Co-operation and Development (OECD) Principles of Corporate Governance. The framework consists of five major categories, which are the rights of shareholders, equitable treatment of shareholders,  board composition and management, information transparency, and protection of stakeholder interests and corporate social responsibility.

If such a system does in fact materially improve the corporate governance of Taiwan-listed companies, expect other markets to follow Taiwan’s lead.

United Kingdom

The Bank of England is considering rules that would allow firms to clawback bonuses for up to six years after an event that would trigger such a clawback. The Bank of England already has the power to require firms to stop payment of unvested bonuses called malus.

The conditions in which vested remuneration would be clawed back under the proposals in the consultation paper are:

  • there is reasonable evidence of employee misbehavior or material error
  • the firm or the relevant business unit suffers a material downturn in its financial performance
  • the firm or the relevant business unit suffers a material failure of risk management

The proposed rule would expand clawbacks to include executives involved in malfeasance as well as anyone who “could have been reasonably expected to be aware of the failure or misconduct at the time but failed to take adequate steps” to address it. Comments are due by 13 May.

United States

In early March, the Conference Board Task Force on Corporate/Investor Engagement published its thoughts and recommendations on the hottest corporate governance topic of the moment — shareowner/director engagement. The task force brought together directors of public companies and leading investors in a series of public forums, expert reports, and commissioned research. The task force concluded that fixing corporate governance — and, ultimately, restoring trust in business — calls for an open, yet purpose-driven process of re-establishing alignment between corporate strategy and investor interests.

These efforts produced three papers on governance and engagement (available for download after free registration), a white paper on the state of governance and trust in the United States, a set of recommendations for improving governance, and a set of guidelines for engagement.

The Conference Board task force is just the latest in a long line of groups around the globe that have weighed in on corporate engagement over the past year. They will not be the last.

For a more in-depth look at the landscape of engagement around the globe and the pros and cons of increased engagement between shareowners and boards, take a look at our recent blog post on the subject.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.