Views on improving the integrity of global capital markets
17 May 2017

CorpGov Roundup: Snap Controversy, Rating CorpGov Performance, CARE, and More

A round of updates to best practice principles is making its way around the globe. Euronext launched a new governance index that rates governance performance. Japan and Malaysia have published updates emphasizing culture and communication. The United Kingdom has called for an expanded role for the Financial Reporting Council to engage and issue ratings on boards of directors. Meanwhile, there is news out of the United States of Snap-inspired exclusion for firms that issue shares that do not include voting rights.


Euronext recently launched the CAC40 governance index meant to rate companies in the French market’s signature index by their corporate governance performance.

The index weights the stocks of the CAC40 based on their corporate governance score, using the analytics of the firm Vigeo Eiris. These analytics are based on 45 indicators and focus on the following:

  • Responsible board practice and organization: effectiveness, balance of power, integration of social responsibility factors
  • Audit and internal controls: Independence of specialized committees and review of CSR risks
  • Shareowner rights: Fair treatment and protection of minorities
  • Responsible executive remuneration


The Best Practice Principles Group for Shareholder Voting Research “BPP Group” recently announced that the group will be reviewing and potentially updating their best practice principles, which were first published in 2014. The aim of the review is to ensure that the Principles are achieving their intended objective and to identify where there is room for improvement. A public consultation is scheduled to be held in the third quarter of 2017. As part of this consultation, an advisory panel made up of company, asset owner, asset manager, and other stakeholder representatives will review the current principles and decide whether changes are needed.


The Council of Experts on the Stewardship Code has published a revised version of Japan’s Stewardship Code and is seeking comments.

Additions to the code in this revision include calls for institutional investors to better communicate to their clients and beneficiaries about their compliance with the stewardship code, to improve overall disclosure around their compliance with the code, and to provide thorough explanations if they choose not to comply with any aspect of the code.

Some of the principles themselves in the code were expanded, with more detail and guidance given by the Council of Experts on stewardship, conflicts of interests, dispute mitigation, voting and voting disclosure, and sustainable investing practices.


The Securities Commission of Malaysia recently published an update to the countries corporate governance code. The new code places greater emphasis on the internalization of a corporate governance culture among not only listed companies, but also among non-listed entities, including state-owned enterprises, small and medium enterprises, and licensed intermediaries.

A key feature of the new code is the introduction of the Comprehend, Apply, and Report (CARE) approach, and the shift from “comply or explain” to “apply or explain an alternative.” This feature is meant to encourage listed companies to put more thought and consideration into adopting and reporting on their corporate governance practices.

The code also adopts a differentiated and proportional approach in the application of the code, taking into account the differing size and complexity of listed companies. The code now identifies certain practices and reporting expectations to only apply to companies in the FTSE Bursa Malaysia Top 100 Index and those with a market capitalization of RM2 billion or more.

Another new dimension in the code is the introduction of “Step Up” practices to encourage companies to go further in achieving corporate excellence. This includes the requirement that audit committees be composed of only independent directors and the establishment of a risk management committee.

United Kingdom

The Business Committee of the UK Parliament’s House of Commons recently released their proposed corporate governance changes in the United Kingdom.

The recommendations call for an expanded role for the Financial Reporting Council (FRC) that would include increased power to engage and even issue ratings on boards of directors.

The topic of remuneration is emphasized a great deal by the proposal, which calls for the publishing of a pay ration at each company that compares the average pay of workers with that of the CEO. The proposal also favors more long-term stock grants that cannot be touched for five years after issuance and calls for the resignation of compensation committee chairs at companies at which a say-on-pay vote fails to get 75% support. The proposal also mirrors the Australian “two-strikes” law on pay, where a binding vote on pay is required a year after the pay vote fails to reach the 75% threshold.

On the topic of diversity, the proposal calls on government to set a target from May 2020 that at least half of all new appointments to senior and executive management level positions in the FTSE 350 and all listed companies should be women.

United States

Many Institutional Investors are not happy about the precedent set when the company Snap went public with no voting rights for its shareholders. Many Institutional Investors called for index providers to exclude the company for their indices.  S&P Dow Jones Indices and FTSE Russell have both opened consultations to determine whether they should indeed exclude firms that do not offer voting rights from their indices.

Also in the US, the Financial Choice Act is making its way through the House Financial Services Committee, with the goal of undoing a number of provisions of the Dodd–Frank Act. There is a provision in the bill that would require shareholders who want to file a resolution at a company’s annual meeting to hold 1% of a company’s shares for three years. Such a threshold would make it difficult for all but the largest institutional investors to file shareowner resolutions. Currently, a shareowner must only own US$2,000 of a company’s shares for one year to file a resolution.

Supporters of the proposed changes to the shareowner resolution say that they are looking to limit so-called “nuisance” resolutions from a handful of individual investors who they argue take up too much company time and resources with resolutions that often gain little support.

Those opposed to the legislation believe that the 1% threshold is much too high because it would exclude most  investors except for the largest pension funds and fund families from filing resolution that they see as a key engagement tool with companies. Institutional investors also point out that many best practices in governance today, such as de-staggered boards, say on pay, majority voting for directors, and proxy access, started out as shareowner resolutions backed by investors with much less than a 1% stake in the company.

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Photo Credit: ©Getty Images/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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