Views on improving the integrity of global capital markets
06 April 2016

CorpGov Roundup: Hermes EOS Hire Signals Serious Reform Business in Japan

With the hiring of Hermes Equity Ownership Services, Japan’s corporate governance reform gets serious. In the US, the Council of Institutional Investors calls for initial public offering (IPO) companies to abandon dual-class structures; T. Rowe Price takes an even bolder stand. These and other headlines were spanning the corpgov globe in March.


Brazil is joining the markets that currently have or are considering a stewardship code for investors. The Association of Capital Market Investors (AMEC) in Brazil is modeling the code after the recently published International Corporate Governance Network (ICGN) code, and plans to alter the code slightly to address the unique characteristics of the Brazilian market. AMEC will celebrate its 10th anniversary in October, and says it hopes to complete the code by then.


At the end of March, the Autorité Des Marchés Financiers (AMF) published a comparative study of corporate governance codes in 10 different markets. It compares the French governance code with those from Belgium, Finland, Germany, Italy, Luxembourg, the Netherlands, Spain, Sweden, and the United Kingdom. The findings show the variety of approaches on the codes’ development and monitoring, the scope or coverage of which are slightly different. France stands out for several reasons:

  • It is the only country where codes are drawn up by bodies representing issuers.
  • It is one of the only countries where amendments to the code are not subject to a prior public consultation on the website of the entity responsible for drafting the code.
  • France and the UK are the only ones where the specific characteristics of small- and mid-caps are taken into consideration, creating a tailored code for these companies.
  • France is the only country where the market regulator publishes an annual precise monitoring report including individual quotes on good and bad practices.

Hong Kong

The Securities and Futures Commission (SFC) in Hong Kong published a final stewardship code (Principles of Responsible Ownership) in early March that aims to provide guidance on how investors should fulfil their ownership responsibilities in relation to investments in Hong Kong-listed companies. The principles are nonbinding and voluntary. Investors are encouraged to adopt the principles by disclosing to their stakeholders that they have done so, and then they either apply the principles in their entirety and disclose how they have done so, or explain why aspects of the principles do not, or cannot, apply to them.

The principles are as follows:

  1. lnvestors should establish and report to their stakeholders their policies for discharging their ownership responsibilities.
  2. lnvestors should monitor and engage with their investee companies.
  3. lnvestors should consider and establish clear policies on when they will escalate their engagement activities.
  4. lnvestors should have clear policies on voting guidance.
  5. lnvestors should be willing to act collectively with other investors where appropriate.
  6. lnvestors should report to their stakeholders on how they have discharged their ownership responsibilities.
  7. When investing on behalf of clients, investors should have policies on managing conflicts of interests.


Five Italian organizations, including Nedcommunity and Sodali, launched the FTSE-MIB Integrated Governance Index in March, the first-ever annual study to track good governance at 40 public companies listed on the Italian FTSE-MIB Index.

The FTSE-MIB Integrated Governance Index is based on the outcome of three parallel research projects. The first involves the companies themselves, which were invited to participate in a quantitative survey. The results of the survey will provide scores for each of the companies to create a ranking (the “Index”). The second research project involves a qualitative survey of independent, nonexecutive company directors to compare current best practice with actual boardroom culture. Finally, the third research project gathers the perceptions of institutional investors in relation to the level of integrated governance within Italian companies.

The study findings, including best practices, will be unveiled at a national event, the Integrated Governance Index Conference.


Corporate governance reform in Japan may be getting serious. The Japan Pension Fund Association (PFA) signaled as much recently when it hired Hermes Equity Ownership Services to coordinate the association’s stewardship and engagement efforts in Japan. Hermes coordinates engagement for a number of global funds in a number of markets around the world, but previously did not have a presence in Japan.

That the PFA has appointed a group that specializes in engagement shows that the fund is quite serious about improving its engagement profile and shows that it is taking its stewardship responsibilities quite seriously.

Middle East and Northern Africa

Global Proxy Watch featured news of GOVERN, the advisory and research center in March, stating that it launched in 2015 to focus on economic and corporate governance issues in the Middle East and North Africa. The firm will conduct research and provide specialist advice on corporate governance to stock exchanges, securities regulators, central banks, and ministries of economy and finance, and other regulators in the region. Its founder and managing director, Alissa Amico, published an opinion piece on 21 March on our Enterprising Investor blog, “Is Privatization in the Future of GCC Countries?”

South Africa

The Institute of Directors Southern Africa recently published a draft of the King IV report on corporate governance. The Code is divided into five chapters:

  1. Leadership, Ethics and Corporate Citizenship
  2. Performance and Reporting
  3. Governing Structures and Delegation
  4. Governance Functional Areas
  5. Stakeholder Relationships

Sector supplements will be published and open for comments in April 2016.


Smaller UK banks will be exempt from European Union bonus caps. UK regulators announced at the end of February that smaller UK banks would not have to comply with executive bonus caps currently in place in the European Union.

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have notified the European Banking Authority (EBA) that the regulators will comply with all aspects of the EBA Guidelines on Sound Remuneration Policies, except for the provision that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval (the bonus cap), must be applied to all firms subject to the Capital Requirements Directive (CRD).


The Council of Institutional Investors (CII) held their annual meeting in Washington, DC, in March, and the most important policy statement coming out of the conference was a call by CII for IPO companies to abandon dual-class share structures.

According to CII’s statement, a company going public should have a “one-share, one-vote” structure, simple majority vote requirements, independent board leadership, and annual elections for board directors. CII members are an influential group as they collectively hold more than $3 trillion in assets.

Earlier in the month, CII member T. Rowe Price took a stand on the issue of dual-class shares by announcing that it will oppose certain company directors and members of corporate governance committees at companies controlled by insiders via a dual-class stock structure.

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Image Credit: 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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