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

Corp Gov Roundup: Shareholder Engagement, Proxy Voting Guidelines for 2015

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


The Governance Institute of Australia recently joined the list of organizations that have released guidelines around investor and issuer engagement. This effort was led by Australia governance guru Sandy Easterbrook, who founded Australia’s first governance and proxy advisory firm, Corporate Governance International (CGI), in the mid-1990s. The new guidelines clarify what channels of communication and processes should be in place to ensure a genuine understanding between a company and its institutional investors.

The report focuses on six main engagement principles:

  • Principle 1: It is good practice for institutional investors to explain how they vote and engage with companies; for companies to explain how they engage with institutional investors; and for each of them to keep abreast of this information.
  • Principle 2: It is good practice for institutional investors and proxy advisers to explain their voting and other governance guidelines; how they apply them to voting; when they can engage; and for companies to keep abreast of this information.
  • Principle 3: It is good practice for companies to know their significant institutional investors; for institutional investors to know their significant investee companies; and for companies to know and engage with intermediaries.
  • Principle 4: It is good practice for companies and institutional investors to have a regular, efficient, and meaningful engagement program.
  • Principle 5: It is good practice for institutional investors and companies to incorporate ESG issues in engagement.
  • Principle 6: It is good practice for companies and institutional investors to take advantage of technology to facilitate disclosure and engagement.


The chairman of India’s securities regulator, the Securities and Exchange Board of India, recently came out to reinforce the point that the regulator would have little patience with companies that do not comply with recently issued corporate governance norms. These corporate governance reforms came about after a long consultative process, and have been discussed recently here and here on this blog.

The regulator has stated that it will not issue extensions for companies to comply, but would work with companies facing compliance issues.

Under the new governance norms, companies need to have at least one woman on the board of directors, and independent directors are required to step down after seven years on the board. The reforms also call on companies to rotate their auditors periodically and expand the role of the audit committee.

Also concerning India, investors may be interested in reading a new report by the Organisation for Economic Co‑operation and Development (OECD) titled Improving Corporate Governance in India – Related Party Transactions and Minority Shareholder Protection. The book presents the findings of an OECD policy dialogue with Indian stakeholders on policies to improve the monitoring and prevention of abusive related-party transactions in India.


Those interested in corporate governance and Japan — and who isn’t — might want to check out a working paper by the International Monetary Fund (IMF): Unstash the Cash! Corporate Governance Reform in Japan.

The paper posits that high corporate savings rates in Japan may be holding back growth. The authors state that Japan’s weak corporate governance might be contributing to high cash holdings, and that improving corporate governance would help unlock corporate savings and improve Japan’s growth strategy.

The paper reveals that cash on corporate balance sheets in Japan is at more than twice the levels found in most other developed markets.

The authors applaud recent efforts to create a stewardship code for institutional investors in Japan as well as plans to encourage the use of outside directors on a “comply or explain” basis, but feel that reforms need to go further. They suggest a corporate governance code for companies that complements the investor’s code and an expanded use of outside directors.


In June, the Swiss Business Federation (economiesuisse) published a revised Swiss Code of Best Practice for Corporate Governance. The draft represents the first revision of the code since 2007. The “Swiss Code” has served as a guideline for corporate governance since 2002. A final version of the code is expected later in 2014. Corporate governance in Switzerland is only partially set by stock exchange rules, with much of the corporate world using the Code of Best Practice as a voluntary guideline.

Code revisions focus on the following:

  • Recently enacted rules against excessive pay
  • Introduction of a “comply or explain” principle into the code
  • Board composition — focusing on diversity, board independence, and chairman/CEO separation
  • Corporate social responsibility

United Kingdom

The Financial Conduct Authority (FCA) in the UK recently proposed rules meant to increase the accountability of financial institutions and their managers in the consultation paper Strengthening Accountability in Banking: A New Regulatory Framework for Individuals.

In the consultation, regulators are proposing changes to the way individuals working for UK banks, building societies, credit unions, and certain investment firms are assessed and held accountable for the roles they perform. The proposals reflect the recommendations of the Parliamentary Commission on Banking Standards and implement changes required by amendments the Financial Services (Banking Reform) Act 2013 made to the Financial Services and Markets Act 2000. These changes include:

  • A new “Senior Managers Regime” for individuals who are subject to regulatory approval, which will require firms to allocate a range of responsibilities to these individuals and to regularly vet their fitness and propriety. This will focus accountability on a narrower number of senior individuals in a firm than the current Approved Persons Regime.
  • A “Certification Regime” that will require relevant firms to assess the fitness and propriety of certain employees who could pose a risk of significant harm to the firm or any of its customers.
  • A new set of “Conduct Rules,” which will apply to the following:
    1. All individuals approved by the FCA or Prudential Regulation Authority (PRA) as senior managers
    2. All individuals covered by the FCA or PRA’s Certification Regime44
    3. All other employees other than those ancillary staff who perform a role that is not specific to the financial services business of the firm

United States

With the 2014 proxy season largely behind us, investors and issuers are already focusing on Institutional Shareholder Services’ (ISS) 2015 Proxy Voting Guidelines. ISS opened its annual global benchmark policy survey to institutional investors, issuers, directors, and other market participants through the end of August. This year’s survey covered a number of key issues for consideration for the 2015 proxy season, including the evaluation of equity plans, board diversity, jurisdictional approaches to the application of ISS policies, and pay for performance evaluations.

ISS has also addressed a frequent complaint of issuers who are concerned about the accuracy of ISS data by launching a new data verification portal covering information on equity-based compensation plans that US companies submit for approval by their shareholders. The new portal allows all US companies with an equity plan on the ballot that file their proxy statements with the Securities and Exchange Commission to utilize the new platform to verify key data points underlying ISS’ evaluation of the plan.

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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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