Views on improving the integrity of global capital markets
08 July 2014

Corp Gov Roundup: Petrobrás, Short-termism, “Say on Pay” Results

It’s time to span the corporate governance globe to review important developments from the month of June.


A little over a month ago, the Global Network of Director Institutes (GNDI) threw its hat into the ongoing and always topical discussion on Curbing Excess Short-Termism in the markets. GNDI represents global director membership organizations in a number of markets.

The International Corporate Governance Network (ICGN) recently held its annual conference in Amsterdam. (One way to see what you may have missed is to hop on Twitter and access the #ICGN14 hashtag for a taste of the topics and commentary from conference participants.) Areas covered ran the gamut of corporate governance greatest hits, with sessions devoted to regulatory reform, short-termism, banking oversight, shareowner/issuer engagement, proxy advisers, executive pay, and transitioning to a low-carbon economy. Because the conference was held in the heart of Europe, there was also an increased focus on the Shareholder Rights Directive proposed in April by the European Commission. Not surprisingly, investors tended to be more supportive than issuers of proposals around “say on pay” and related-party transactions, but there was some investor concern about a proposal regarding reporting of engagement with issuers. The directive is expected to pass later this year.


For those interested in corporate governance in Asia — and who isn’t — put the dates of 4-5 November on your calendar for the Asian Corporate Governance Association Conference (ACGA) in Hong Kong. The agenda is still being finalized, but some early program highlights include overviews of governance in Asia, governance at state-owned enterprises, the fight against corruption, board dynamics, shareholder rights, and sustainability. The ACGA is a leader in corporate governance in Asia, so we expect the program to be worthwhile for those who attend.


Corporate governance issues are piling up at the government-controlled energy company Petrobrás. Most recently, two board members said that they were not properly informed by the company of a deal by the government to sell as much as 15.2 billion barrels of offshore oil rights to Petrobrás. One director said he is considering a complaint to the Securities Commission of Brazil (CVM) because of the government’s actions.

Earlier this year Petrobrás filed a complaint with market regulator CVM about critical press statements made by board member Mauro Rodrigues da Cunha, CFA, a member of the CFA Institute Americas Policy Subcommittee. Da Cunha was elected to a second term this year as a minority shareholder representative under Brazil’s proxy access system. The company kicked da Cunha off the board’s audit committee and replaced him with a government planning minister — despite regulation requiring committee member independence. The attacks came after da Cunha, chair of the Brazilian Association of Capital Market Investors (AMEC), voted against the firm’s financial statement for lacking sufficient information — information that was not shared with shareowners until da Cunha complained about the lack of disclosure.


The Financial Services Agency (FSA) in Japan recently announced that nearly 130 asset managers have signed on to the new Japanese Stewardship Code. Signatories represent most Japanese asset managers, but also include many global managers. Those that sign on to the code must disclose their specific policies for following the code principles on managing conflicts of interest and on voting issues. Calls for improvement in corporate governance have increasingly come from foreign investors, who now own 30% of Japanese shares (up from only 4% in 1989) according to The Economist, but decades of no growth have helped build Japanese support for governance reforms.

The government is looking to establish a more robust corporate governance code, as it sees corporate governance as a key reform needed to drive better economic growth. The drafting of such a code will be left to a panel of experts, under the guidance of the FSA and Tokyo Stock Exchange. The code is expected by mid-2015.


The Minority Shareholder Watchdog Group (MSWG) and the Securities Commission Malaysia have issued a Malaysian Code for Institutional Investors that aims to improve corporate governance in Malaysia. We first learned of the code earlier this year when the MSWG and Securities Commission first asked for comments.

Development of the code began about a year ago with the formation of a steering committee composed of chief executive officers and key representatives from institutional investors in Malaysia, including the Employees Provident Fund, Permodalan Nasional Bhd, Kumpulan Wang Persaraan (Diperbadankan), Pertubuhan Keselamatan Sosial (PERKESO), Lembaga Tabung Angkatan Tentera, Lembaga Tabung Haji, Private Pension Administrator, Malaysian Association of Asset Managers, and Malaysian Takaful Association.

The code is voluntary, with institutional investors encouraged to be signatories to demonstrate their commitment to adopting these best practices. The code sets out broad principles of effective stewardship by institutional investors such as the disclosures of stewardship policies, monitoring of and engagement with investee companies, and managing conflict of interests.

The code provides guidance on effective exercise of stewardship responsibilities towards the delivery of sustainable long-term value to the institutional investors’ ultimate beneficiaries or clients. There are six key principles:

  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.

United Kingdom

The Financial Conduct Authority recently announced changes to listing rules for UK companies with a controlling shareholder (30% shareholder). Under the new rules, minority owners may veto transactions between the majority owner and the company. Transactions between the company and controlling shareholder must be at arm’s length, and robust disclosures will be required in the annual report. Also, independent corporate directors must now win a majority of votes cast by minority investors as well as a majority in a separate ballot of all shareowners.

United States

Half of 2014 has already gone, so it must be time to review proxy season in the United States (April–June, when most annual meetings are held). As of 23 June, ISS Corporate Services’ Voting Analytics database contains vote outcomes for the 2,135 companies in the Russell 3000 index that have filed the results of their 2014 say-on-pay proposals. Average support for these proposals stands at 91.6%, up from the 2013 average of 91.4% for the index. Median support for 2014 stands at roughly 96%.

About 7.6 % of Russell 3000 companies have received less than 70% support for their say-on pay-votes. Year to date, 47 companies in the Russell 3000 have failed to receive majority support for their say-on pay-votes.

The main reason behind most negative votes is a perceived pay-for-performance misalignment or a lack of adequate disclosure by companies. A number of companies that had poor say-on-pay results in 2013 have improved their results by addressing these concerns and doing better to align pay and performance as well as offering a more robust explanation of pay.

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Photo credit: iStockphoto/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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