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

Corp Gov Roundup: Reining in CEO Pay, Hong Kong Regroups after Alibaba IPO

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


Efforts over the years to rein in CEO pay in Australia seem to be having an effect, according to the report CEO Pay in ASX 200 Companies, released by the Australian Council of Superannuation Investors. According to the report, the average total pay for CEOs, which — at $4.84 million represents 63 times the average earnings of full-time employees — is at its lowest level in a decade and 33% below the 2007 peak of 94 times average earnings of full-time employees. Termination payments to chief executives of Australia’s largest listed companies are down nearly 70% in the past five years, according to the study. A number of factors likely attributed to the pay results, including increased engagement by investors, “say-on-pay” votes that began in 2006, and Australia’s two-strikes law that calls for the entire board to stand for re-election within three months of a second consecutive vote in which at least 25% of shareowners vote against a company’s remuneration report.


The long wait for a single securities regulator in Canada is coming closer to resolution. The Canadian government and the four provinces of British Columbia, Ontario, Saskatchewan, and New Brunswick published The Cooperative Capital Markets Regulatory System Governance and Legislative Framework in September that fleshes out some of the details regarding the proposed securities regulator. The document sets out the structure, governance, and accountability of the Capital Markets Regulatory Authority and the Cooperative System between the provinces. Many of these elements that ultimately will establish the regulatory authority will be included in separate legislation. According to the plan, the uniform provincial Capital Markets Act, which will be proposed for enactment by each participating province and territory, modernizes existing provincial securities legislation and harmonizes the regulatory approaches taken by the British Columbia, Ontario, New Brunswick, and Saskatchewan securities acts. The plan is to have a new agency operating in late 2015.

Comments are due by 7 November.

Hong Kong

In the wake of losing the Alibaba IPO to the New York Stock Exchange, the Hong Kong exchange issued a concept paper on weighted voting rights. The concept paper seeks views on whether governance structures that give certain persons voting power or other related rights disproportionate to their shareholding (weighted voting right structures) should be permissible for companies listed or seeking to list on the exchange’s markets.

Subject to comments and views elicited by the concept paper, the exchange anticipates the paper may lead to one of the following outcomes:

  • A conclusion that no amendment to the listing rules to allow companies to use weighted voting right structures is appropriate at this time and that current practice is supported. In this case, the exchange would publish conclusions explaining the reasons for any such outcome.
  • Support for a material change to the listing rules on the acceptability of weighted voting right structures. In these circumstances, the exchange would again publish conclusions. Any change to the listing rules would require a second-stage formal consultation process, including consultation on the details of the scope and language of any proposed listing rule changes.

Responses to the concept paper are due on 30 November.

Middle East and North Africa

The Organization for Economic Co-operation and Development recently held a summit in Paris to discuss corporate governance in the Middle East and North Africa (MENA) region. Specifically, the summit focused on ways that the Institute of Directors and corporate governance centers in the region can better collaborate and share ideas and resources to make a greater impact on corporate governance in the region.


APG Asset Management released guidelines on how executives at European public companies in its portfolio should be paid. The guidelines state that pay policies should support long-term value creation for shareholders. APG defines value creation as added economic value over and above the cost of capital.

To achieve alignment between shareowner interests and those of management, the guidelines suggest that boards focus on:

  1. Strategy and risk alignment: Pay policies should be designed to reflect and support the company’s business strategy. Adherence to generic market practice should not be a primary concern.
  2. Shareholder and stakeholder alignment: Pay policies should be aligned with long-term shareholders’ interests. Inevitably this also means consideration of a broader set of constituents of stakeholders to ensure continuity and sustainable creation of value.
  3. Pay levels: Pay is part of the operational costs and as such should be effectively managed. Regardless of whether pay represents a material cost, individual executive pay levels at our portfolio companies are also of concern to us, especially when doubts are raised about shareholder alignment, effective governance, or corporate disregard to societal responsibilities.
  4. Time alignment: Pay policies, especially incentives, should be considered in the context of the strategic and capital cycles of the company.

United Kingdom

The Financial Reporting Council recently issued an update to the UK Corporate Governance Code that went into effect 1 October. The key changes include:

Going concern, risk management, and internal control:

  • Companies should state whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so.
  • Companies should robustly assess their principal risks and explain how they are being managed or mitigated.
  • Companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months.
  • Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.
  • Companies can choose where to put the risk and viability disclosures. If placed in the strategic report, directors will be covered by the “safe harbour” provisions in the Companies Act 2006.


  • Greater emphasis is placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee.
  • Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.

Shareholder Engagement: 

  • Companies should explain when publishing general meeting results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.

United States

The Conference Board released the report on Women on Boards: Beyond Quotas (free registration required to nonmembers to access the publication). The report aims to look beyond the issue of quotas that some countries have adopted to increase the number of women serving on corporate boards. The report agrees with the now popular notion that women serving on boards can help improve board decision making, but comes to the conclusion that quotas may not be the best way to go about increasing female representation.

In the words of the report’s authors:

Quotas do not necessarily increase the number of women who serve in board positions, help women obtain executive positions on boards, and in some cases, do not help qualified female candidates to obtain board positions at all. More importantly, quotas do not address the root causes that have given rise to the lack of women in senior levels of business in the first place.

Long-term change requires work to prompt normative changes in companies and to reduce the general labor market barriers that may hinder women’s participation. This can be done through a multilayered approach that includes more inclusive nomination procedures, disclosure rules, mentoring or sponsorship programs, and alterations to the institutional factors compromising women’s participation in the labor force.

To see a summary of the current state of women on boards around the world, take a look at our recent blog post on the topic.

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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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