Views on improving the integrity of global capital markets
09 August 2016

CorpGov Roundup: Has Brexit Ushered in Monumental Change to UK Corporate Governance?

Brexit has been dominating the news, and now it is making news in regards to corporate governance after an announcement from the UK’s new prime minister that could be a potential governance bombshell. Canada takes another step toward implementing a single national securities regulator, which will be a big step toward better protecting investors. In moves toward improving engagement with and disclosures to investors, Germany released guiding principles for dialogue between supervisory boards and investors and Japan released a report that offers suggested improvements for issuers to clarify their disclosures.


Canada may finally have a single securities regulator by 2018, which most developed markets already enjoy. On 22 July, Canada announced the inaugural board of directors for the new Capital Markets Regulatory Authority. I expect our Canadian friends to weigh in with comments if they disagree with this analysis.

The new regulatory authority is to become the single regulator administering the proposed uniform provincial-territorial Capital Markets Act and complementary federal Capital Markets Stability Act. When passed, these acts will form the legislative cornerstones of the new Cooperative Capital Markets Regulatory System.

Participating jurisdictions will use their respective best efforts to implement the two acts by 30 June 2018, and the authority is expected to be operational in 2018. The participating jurisdictions are committed to moving forward and taking the necessary steps to ensure a successful launch of the Cooperative Regulatory System along with a smooth transition for market participants.


Ernst & Young headed up an impressive group of individuals from companies, institutional investors, and academia to put forth Guiding principles for the dialogue between investors and German supervisory boards.

The guiding principles are designed as a practical tool to facilitate a fruitful dialogue between investors and German supervisory boards regarding the topics of such a dialogue as well as its format. At the same time they aim to establish a framework for the communications of listed companies and to contribute to good dialogue practices.

According to the authors of the principles, the principles themselves are consistent with the legal framework and the most current version of the German Corporate Governance Code.


The Japan Financial Services Agency released an English translation of the Report by “Working Group on Corporate Disclosure” of the Financial System Council – Promoting Constructive Dialogue.

The document aims to help issuers improve the transparency of their financial reporting with the recognition that such efforts will allow for more fruitful engagement with investors.

In the report, the working group explains that the disclosure of corporate information serves as the basis for constructive dialogue, so it was suggested that the working group reconsider the way in which information is currently disclosed in Japan in order to promote more constructive dialogue. For example, in terms of the information that is disclosed, the following suggestions are being made:

  • Increase flexibility by making it possible to unify entries across different mandatory disclosure documents and eliminate duplicated contents across different disclosure documents, thus ensuring that the information required by investors can be provided to them in a more timely and effective/efficient fashion.
  • Improve the disclosure of business policies/strategies as well as disclosure of Management’s Discussion and Analysis of Financial Condition, Results of Operations, and Cash Flows.
  • Make information available earlier and establish appropriate dates for annual general meetings, thus further enhancing review and dialogue about the agenda items of annual general meetings.
  • Push forward with the electronic provision of materials pertaining to convening notices of annual general meetings

Saudi Arabia

We don’t get to talk about Saudi Arabia much in this blog, so we highlight here a recent article by Simon C.Y. Wong about the ramifications on corporate governance of the Saudi Arabian government’s plan to take Saudi Aramco public (at least partially).

Wong wonders whether the Saudi government is ready for the extra scrutiny and transparency that will come once the company is listed and gains influential investors who are likely to object to a governance structure dominated by government insiders. Wong also notes that Saudi Aramco is now involved in a number of businesses outside of the oil and petrochemical business, including running hospitals and universities. These far flung enterprises may meet with more skepticism from investors who may want the company to focus more on its core businesses.


The Taiwan stock exchange (TWSE) recently published Stewardship Principles for Institutional Investors.

According to the document, stewardship responsibilities for institutional investors may include monitoring investee companies and being part of the corporate governance mechanism by attending annual general meetings and voting as well as interacting with and having conversations with management on behalf of the capital providers. By referring to international trends/experiences and domestic practices, the TWSE established the following six principles:

  1. Establish and disclose stewardship policies,
  2. Establish and disclose policies on managing conflicts of interest,
  3. Regularly monitor investee companies,
  4. Maintain an appropriate dialogue and interaction with investee companies,
  5. Establish clear voting policies and disclose voting results, and
  6. Periodically disclose to clients or beneficiaries about the status of fulfillment of stewardship responsibilities.

Signatories of the Principles have been asked to publicly endorse the Principles by posting a statement of how the Principles have been applied on their websites and a website designated by the Corporate Governance Center. Relevant disclosures can also be incorporated on the signatories’ press releases or reports, such as business reports or annual reports.

United Kingdom

Anyone wondering how the recent Brexit vote may influence the direction of corporate governance in the United Kingdom got their answer last month when the newly appointed UK Prime Minister, Theresa May announced that UK companies should consider placing employee and stakeholder representatives on corporate boards — a practice that is common in other European markets, but has never been the practice in the United Kingdom. A telling quote from her speech on the matter points to the kind of changes she is envisioning.

“I want to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders,” May said. “In practice, they are drawn from the same narrow social and professional circles as the executive team.”

If such employee board representation does come to pass, it would signal a monumental shake up in board culture in Britain — a nation that is often seen at the forefront of corporate governance. Governance practices that are seen as working in the United Kingdom are often adopted by other markets that want to improve their own corporate governance.

Stay tuned.

United States

The issue of short-termism is a perpetually popular item of discussion among capital market participants and corporate governance gurus alike. We have even weighed in on the matter a couple of times; back in 2006 and more recently in 2012.

Now a group is looking to start a Long-Term Stock Exchange that would require companies to adopt compensation plans that are long term in nature and offer shareowners more power by providing more voting rights to shareowners who hold shares longer or engage in behavior conducive to more long-term thinking.

Also in the United States, a group of commonsense principles for corporate governance and investor stewardship were launched in July. The principles are aimed at setting a standard for strong corporate governance and stewardship in the United States.

We have a more detailed analysis of the principles themselves in a separate forthcoming blog post.

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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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