Views on the integrity of global capital markets
13 October 2016

CorpGov Roundup: Investors Have Opportunity to Speak Up in Multiple Regions

Investors in the United Kingdom, Thailand, and Hong Kong have the opportunity this month to offer comments on corporate governance issues, including responding to an inquiry about governance issues at UK-listed companies, providing feedback on a new investment governance code, and commenting on proposed enhancements to an exchange.

Brazil

The Brazilian Association of Capital Market Investors (AMEC) recently sent a letter to proxy adviser Institutional Shareholder Services (ISS) asking the firm for more detailed guidelines concerning proxy advise given to companies in Brazil. AMEC believes that the current proxy voting guidelines offered by ISS do not take into account governance concerns specific to the Brazilian market.

Hong Kong

The Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), recently announced a two-month extension of the deadline for responding to the joint consultation on the proposed enhancements to the Exchange’s decision-making and governance structure for listing regulation.

The consultation contains the following proposals:

  • Two new Exchange Committees on which the SFC and the Exchange are equally represented will be established: The Listing Policy Committee, which will initiate, steer, and decide listing policy with participation by representatives of the HKEX board and the Takeovers and Mergers Panel, and the Listing Regulatory Committee, which will decide on IPO and post-IPO matters that have suitability concerns or broader policy implications.
  • The Listing Committee will provide a non-binding view to both the Listing Policy Committee and the Listing Regulatory Committee on their decisions.
  • The listing function will remain within the Exchange, which will continue to be the frontline regulator for listing matters.
  • The Listing Committee, together with the Listing Department, will continue to decide a large majority of initial listing applications and post-listing matters.
  • The SFC’s powers and functions in relation to listing matters will remain unchanged, but the ways in which those powers and functions are exercised and performed will be enhanced.

The consultation period will now end on 18 November 2016.

Singapore

The Listing Advisory Committee of the Singapore Stock Exchange recently voted in favor of allowing companies with dual-class share structures to list on the exchange. The move is aimed at allowing the exchange to compete for listings of companies that prefer a dual-class structure.

A dual-class share structure gives controlling shareholders voting power or other related rights disproportionate to their stockholding. Ordinary shares typically carry one vote each, whereas shares in dual-class structures can confer different voting rights. Google, Alibaba, and Facebook are some companies with dual-class structures.

CFA Institute is in favor of the one-share-one-vote principle. 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 such arrangements and the situations, the manner, and the extent to which those arrangements may affect other shareowners.

Thailand

The Securities and Exchange Commission of Thailand is seeking public comment on the Investment Governance Code (I Code), which contains guidance for institutional investors to manage investment policies and monitor investee companies responsibly for clients’ best interest. Declaration of voluntary compliance with the I Code is expected to launch in 2017 and the disclosure of information based on the I Code principles will begin in 2018.

The I Code consists of seven key principles: (1) establishing a clear stewardship policy; (2) sufficiently managing conflicts of interest for clients’ best interest; (3) monitoring the investee companies closely and actively; (4) escalating stewardship activities, when appropriate; (5) disclosing voting policy and the results of voting activities; (6) volunteering collective engagement when appropriate; and (7) disclosing stewardship policy and activities.

The I Code could also be a useful tool for strengthening local institutional investors’ competitiveness in the global market and promoting listed companies’ responsible business operation in line with environmental, social, and governance criteria.

Comments are due by 31 October.

United Kingdom

The Business, Innovation, and Skills Committee of the UK Parliament recently announced a new inquiry into corporate governance at UK listed companies. The inquiry focuses on executive pay, directors duties, and the composition of boardrooms, including worker representation and gender balance in executive positions.

Some of the questions raised by the inquiry include the following:

  • Is company law sufficiently clear on the roles of directors and non-executive directors, and are those duties the right ones? If not, how should it be amended?
  • Is the duty of boards to promote the long-term success of the company clear and enforceable?
  • What factors have influenced the steep rise in executive pay over the past 30 years relative to salaries of more junior employees? How should executive pay take account of companies’ long-term performance?
  • Should executive pay reflect the value added by executives to companies relative to more junior employees? If so, how?
  • What evidence is there that more diverse company boards perform better?
  • How should greater diversity of board membership be achieved? What should diversity include — for example, gender, ethnicity, age, sexuality, disability, experience, socio-economic background?

The committee has asked for any written comments by 26 October.

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Photo credit: ©iStockphoto.com/YinYang

 

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

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