Views on improving the integrity of global capital markets
02 March 2015

Corp Gov Roundup: “Collective Action,” Chairman-CEO Split, Pension Plan Governance

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


The proxy advisers who are the signatories to the “Best Practice Principles for Shareholder Voting Research & Analysis” (BPP Group) recently revealed that they are providing a feedback mechanism that allows real-time delivery of comments directly to all members of the BPP Group to ensure that complaints about proxy advisers can be heard and addressed.

According to a recent announcement, the BPP Group encourages all stakeholders to provide meaningful feedback and substantiated comments as a way to consider updates and improvements to the Principles.

The BPP Group will develop a comparative framework, slated for completion in summer 2015, to assess how each signatory in the BPP Group has complied with the Principles and related guidance. The framework is expected to be completed in the summer of 2015.

While comments and feedback will be reviewed on a real-time basis, The BPP Group will undertake a formal biennial review of the Principles and related Guidance. This will also include a review of the results of the European Securities and Markets Authority’s (ESMA) independent review of the Principles and other market developments. Any potential updates to the Principles and related guidance will be subject to a stakeholder consultation.

European Union

The European Commission (EC) recently published a Green Paper, Building a Capital Markets Union, in which the EC lays out its plans for unlocking funding for Europe’s businesses through the creation of a single market for capital. Corporate governance is mentioned throughout the green paper, with a concentration on the protection of minority shareholder rights, board performance, and cross-border voting.


In mid-February, the Australian Securities and Investment Commission (ASIC) issued a consultation paper concerning the rules for investors who want to take collective action to improve the corporate governance of listed companies. Collective action is a form of investor engagement that involves investors in a company coming together. Actions may include discussing issues about the company, including problems and potential solutions, discussing possible matters to be raised with the company’s board, and holding discussions or meetings about voting at a specific or proposed meeting of that company.

The consultation includes:

  • updated guidance on how the takeovers and substantial holding notice provisions apply to collective action by investors, including illustrative examples of conduct which is unlikely or likely to trigger these provisions
  • an outline of ASIC’s  proposal to approach enforcement in relation to these provisions by focusing on conduct that is control-seeking rather than simply promoting good corporate governance
  • an overview of other legal and regulatory issues that can arise in relation to investor engagement

Comments on the paper are due by 20 April.


A recent report by AFEP and MEDEF (two employer associations that oversee the French corporate governance code) addresses the always contested issue of whether a board should separate the positions of chairman and CEO. The report states that it is best left to a company’s board of directors to decide — which must report to shareowners on the grounds and justifications for making such governance decisions. The authors of the report distinguish the French governance system from the UK and other regional systems that tend to favor separating the two positons. (See related commentary on the 2013 controversial shareholder proposal to split the chairman and CEO roles at JPMorgan.)

Hong Kong

Add Hong Kong to the list of countries that have adopted or are looking to adopt a stewardship code for investors. The Securities and Futures Commission (SFC) of Hong Kong has launched a consultation on proposed Principles of Responsible Ownership. The aim is to provide guidance for how investors should fulfil their ownership responsibilities in relation to their investment in public companies.

The seven principles of responsible ownership ask investors:

  • to establish and report to their stakeholders their policies for discharging their ownership responsibilities
  • to monitor and engage with their investee companies
  • to establish clear policies on when to escalate their engagement activities
  • to have clear policies on voting
  • to be willing to act collectively with other investors when appropriate
  • to report to their stakeholders on how they have discharged their ownership responsibilities
  • to have policies on managing conflicts of interests when investing on behalf of clients

The principles, as proposed, would be nonbinding and operate on a “comply-or-explain” basis. Comments on the principles will be accepted until 2 June.


In early February, the Italian Finance Minister said the government will not extend a 31 January deadline in a 2014 decree that would allow firms to pass resolutions establishing double voting rights for shares held for more than two years with a simple majority, instead of the typical two thirds. The thinking behind issuing double voting rights is that it can fight short-termism by granting special rights (in some cases special dividends have been discussed) to long-term shareholders. Opponents of such arrangements feel that rewarding one group of shareholders over another is a fundamental flaw in a company’s governance — no matter who is rewarded with extra rights. CFA Institute officially endorses the governance standard of one-share, one-vote, noting that a structure that permits one group of shareowners disproportionate votes per share creates the potential for a minority shareowner to override the wishes of the majority of owners for personal interest. Where such dual structures are legal, companies should disclose the arrangements and situations, the manner, and the extent to which those arrangements may affect other shareowners.


The Dutch Senate recently passed the Dutch Act on the Remuneration Policies of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, the “Act”), which will place a 20% bonus cap on banker salaries. The bonus cap will apply to all Dutch financial firms and to foreign banks that have branch offices in the Netherlands. Groups whose “main activities” do not relate to the financial sector are exempt from some of the rules. The language of the act states the following:

“A financial undertaking cannot pay any person ‘working under its responsibility’ variable remuneration that exceeds 20% of the fixed remuneration on an annual basis.”

Tougher banker pay may be in line for Europe as well because the European Central Bank recently signaled that they it examine bank bonus payments and share options made by financial institutions.

United Kingdom

The Financial Conduct Authority (FCA) in the UK recently published lengthy rules that would require defined contribution (DC) plans to set up independent governance committees (ICGs) to improve pension plan governance. The IGCs will have a duty to act in the interests of plan members and will need to operate independently of the firm. They will assess and, where necessary, raise concerns about workplace personal pension schemes.

In the report the FCA states that the new rules will advance the following statutory objectives of the FCA:

  • Securing an appropriate degree of protection for consumers: IGCs will protect the interests of relevant policyholders by assessing the value for money of their schemes and raising concerns where necessary.
  • Promoting effective competition in the interests of consumers: IGCs will report on the value for money of their firm’s schemes. This will increase the quality of information provided to employers and employees and may improve competition between firms providing workplace personal pension schemes.

United States

Proxy access continues to be the defining corporate governance issue of the 2015 proxy season. General Electric took the lead on the corporate front by becoming one of the first corporations to endorse proxy access when the company adopted a proxy access bylaw allowing a group of up to 20 shareowners holding 3% of the stock for three years to nominate directors on the corporate proxy. Citigroup followed later in the month, stating that it would endorse a shareowner proposal (with slight modifications) calling for proxy access at the company.

In mid-February, proxy adviser Institutional Shareholder Services (ISS) announced its approach to evaluating resolutions on proxy access. ISS noted at that time, there were currently nearly 100 proposals for proxy access on corporate proxy ballots, and stated that it would generally recommend a vote in favor of management and shareholder proposals for proxy access that contain the following provisions:

  • Ownership threshold: maximum requirement not more than 3% of the voting power
  • Ownership duration: maximum requirement not longer than three years of continuous ownership for each member of the nominating group;
  • Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group
  • Cap: cap on nominees of generally 25% of the board

ISS included strong language concerning instances in which companies would exclude shareowner proposals on proxy access:

Under the governance failures policy, ISS will generally recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company omits from its ballot a properly submitted shareholder proposal when it has not obtained:

  1. Voluntary withdrawal of the proposal by the proponent
  2. No-action relief from the SEC
  3. A U.S. District Court ruling that it can exclude the proposal from its ballot

The recommendation against directors in this circumstance is regardless of whether there is a board-sponsored proposal on the same topic on the ballot. If the company has taken unilateral steps to implement the proposal, however, the degree to which the proposal is implemented, and any material restrictions added to it, will factor into the assessment.

It appears the tide seems to be turning in favor of more proxy access. Many institutional investors have also come out in support of proxy access recently. The New York City Comptroller’s office launched a proxy access campaign last fall at 75 companies. Bloomberg BNA recently reported that Zachary Oleksiuk, CFA, head of corporate governance, Americas, for BlackRock, said his firm may “vote against certain directors, including potentially members of the governance committee of boards and independent board leadership, where it appears that boards are provided the opportunity to provide proxy access but do not appear to be acting in good faith to do so.” California pension fund CalSTRS also has recently come out in support of proxy access, stating:

“Our intention is to oppose any proxy access proposal with a structure more onerous than three-and-three ownership by a group of shareholders.” CalSTRS Corporate Governance unit will also urge fellow shareholders to withhold their votes from company directors who either exclude a three-and-three shareholder proposal from the proxy statement, or who deliberately preempt such a shareholder proposal with one of their own that establishes more excessive thresholds.”

With the majority of corporate Annual General Meetings held in April and May in the United States, this should prove to be a very informative time concerning proxy access and corporate governance in the United States.

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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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