On 19 March 2013, the Global Corporate Governance Forum* published a paper by Ivan Choi, who is a Hong Kong based colleague of mine, in their publication Private Sector Opinion.
Ivan invited me to write a foreword to his paper, which follows. The paper itself can be accessed at:
The financial crisis and its rippling effects on the wider corporate sector have prompted companies to rethink how they govern and manage risk. This paper discusses the board’s role in the governance of risk and the benefits of establishing a separate board-level risk-management committee – a need that applies to financial and nonfinancial institutions, as well as large and small companies.
All business decisions involve risk. The challenge to boards and senior management is to balance risk with acceptable reward, to create value without hazarding the enterprise. This means understanding the corporate exposure to risk, determining how those risks are to be faced, and ensuring that they are handled appropriately.
There are four possible responses to a business risk:
1. Avoid the risk. Abandon the proposed project.
2. Mitigate the risk. Make capital investments or incur on-going expenditures – for example, by obtaining standby equipment, duplicating critical components, investing in staff training – plus establish risk policies, such as requiring top executives to travel separately in case of an accident.
3. Transfer the risk. Spread the exposure to other parties. Insure against the risk, although some risks may be uninsurable. Hedge the risk by negotiating long-term contracts. Create derivative instruments, agreements with financial institutions that transfer the risk to third parties.
4. Retain the risk. In other words, accept the risk. This is often the only available solution for strategic risks.
Risk is often handled well at the operational level, taking appropriate precautions and insurance against, for example, fire, theft, employee accidents, and vehicle damage. Risks internal to the organization are usually recognized.
Risks at the managerial level tend to be less well-handled. These risks are not so obvious: product liability, loss of profits following an incident, failure of computer-based systems, reputational loss following a media allegation of corporate bribery, for example.
But risks at the strategic level may not be recognized at all, even by top management. Consider, for example, the massive fines that international banks had to pay for the Libor rate-rigging scandal, the market disaster and product liability that Boeing faced with the failure of the batteries on its 787 Dreamliner airplane, the loss of life and horrendous cost to BP of the collapse of the Deepwater Horizon oil rig, or Tokyo Electric Power’s disaster at the Fukushima Daiichi atomic power station. These examples cover catastrophic costs and huge reputational damage, but every company faces strategic risks that could threaten its existence. Many strategic plans fail to consider risk. Directors and senior management need to face up to the unexpected “what if…” questions.
This paper goes to the heart of these issues.
Crucially, it argues that successful organizations should focus on risk management at every level. But the responsibility for risk management starts with the board. The paper advocates that a board-level risk management committee, separate from the board-level audit committee, offers a sound basis for enterprise-wide risk management.
Many corporate failures can be attributed to the board’s inability to recognize the underlying risks faced by the company and to take appropriate mitigating actions.
Corporate governance and enterprise-wide risk management are interconnected. Risk management, like corporate governance, involves both conformance and performance aspects: ensuring that past and present issues are well handled while also looking to the future.
This paper differentiates the roles of the audit committees and the risk-management committee. The risk-management committee has an oversight role in developing, updating, enforcing, and monitoring the implementation of the risk-management policy on behalf of the board. Usefully, the paper makes specific recommendations on the duties of such a committee and realistically sets the benefits against the costs.
All company decisions involve risk. Sound risk management starts with board-level responsibility. This paper has important messages for board chairmen and directors, both executive and nonexecutive. The paper will also provide valuable insights for chief executives and senior management responsible for implementing the board’s risk policies. Staff involved in risk management, including the CFO and finance staff, the company secretary and secretarial staff, and the risk function if there is one, will also find this paper relevant to their work.
*The Global Corporate Governance Forum is part of the International Finance Corporation’s Corporate Governance Group. The Forum is a donor-supported facility, co-founded in 1999 by the World Bank and the Organisation for Economic Co-operation and Development (OECD) and supports corporate governance reforms in developing countries, promoting good practices in corporate governance. It also supports director training organizations engaged in implementing corporate governance reforms. Private Sector Opinion is one of their many publications. http://www.gcgf.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Global+Corporate+Governance+Forum
Bob Tricker 23 March 2013
Board diversity, and in particular the presence of women in the boardroom, has seen a number of developments in recent months. There have, for example, been significant developments in the European Union (EU).
Back in March 2012, the European Commission (EC) publication “Women in economic decision-making in the EU: Progress report” http://ec.europa.eu/justice/newsroom/gender-equality/opinion/files/120528/women_on_board_progress_report_en.pdf
highlighted that, whilst progress had been made in increasing the number of women on corporate boards, nonetheless a quarter of the EU’s largest companies (25%) still had no women on their top-level board.
Subsequently, in November 2012, the EC adopted a law which sets a minimum objective of “40% of the under-represented sex in non-executive board-member positions in listed companies in Europe by 2020, or 2018 for listed public undertakings”, see IP/12/1205 http://europa.eu/rapid/press-release_IP-12-1205_en.htm and MEMO/12/860 http://europa.eu/rapid/press-release_MEMO-12-860_en.htm
The main elements of the draft law include that a company which does not have 40 per cent of women on its supervisory board will be required to introduce a new selection procedure for board members which gives priority to qualified female candidates (note the emphasis on qualification, i.e. no one would be appointed to the board just because they are female). It is worth noting that the law only applies to the supervisory boards or non-executive directors of publicly listed companies, due to their economic importance and high visibility (small and medium enterprises are excluded). However, alongside this, there is a provision for a “flexi quota” which is an obligation for companies listed on the stock exchange to set themselves individual, self-regulatory targets regarding the representation of both sexes among executive directors; this flexi quota to be met by 2020 (or 2018 in case of public undertakings), and with companies reporting annually on the progress made.
In order to become law, the Commission’s proposal needs to be adopted by the European Parliament and by the EU Member States in the Council. On 15 January 2013, the draft law successfully passed the Subsidiarity Check (this is where national parliaments give opinions about whether it is appropriate to tackle an issue at EU level or whether it is best left to the Member States).
On 25th January 2013, an EU Press release “Regulatory pressure gets the ball rolling: Share of women on company boards up to 15.8% in Europe” http://europa.eu/rapid/press-release_IP-13-51_en.htm showed an increase in the number of women on boards to 15.8%, up from 13.7% in January 2012. This comprised an average of 17% of non-executive board members and 10% of executive board members with an increase in the share of women on boards in all but three EU countries (Bulgaria, Poland and Ireland).
Countries with quota legislation are in the vanguard of these increases. For example, Italy recently adopted a quota law that requires listed and state-owned companies to appoint one third women to their management and supervisory boards by 2015; and France, which introduced a quota law in 2011, has become the first EU country to have more than one woman on the top-level board of all of its largest listed companies.
However Scheherazade Daneshkhu and James Boxell in their article ‘Evolution not revolution in French companies’ (FT, Jan 2013) point out that none of the CAC 40 (France’s largest companies) are currently headed by a woman. In Germany, the DAX 30 companies all operate voluntary schemes for promoting women but, as Tony Barber points out in his FT article ‘Germany shifts the debate about women on boards’ (January 2013), ‘the rising proportion of women on German supervisory boards – at 16 per cent, a bit above the EU average – obscures the fact that a majority are workers’ representatives, not career executives’.
It seems clear that there is increasing board diversity in various countries and that whilst the pace of change may be slower than some would like, nonetheless change is occurring. Furthermore, developments at both national and international levels should facilitate more board diversity in the future.
Chris Mallin 6th February 2013
Executive remuneration (compensation) is always a hot topic, and the remuneration committee is often focussed upon as the key corporate governance mechanism in setting executive director remuneration (although recently the ‘say on pay’ has seen a growth in shareholder influence over executive pay packages as discussed in this blog and elsewhere).
The UK Corporate Governance Code (2012) states that ‘The board should establish a remuneration committee of at least three, or in the case of smaller companies two, independent non-executive directors. In addition the company chairman may also be a member of, but not chair, the committee if he or she was considered independent on appointment as chairman. The remuneration committee should make available its terms of reference, explaining its role and the authority delegated to it by the board. Where remuneration consultants are appointed, they should be identified in the annual report and a statement made as to whether they have any other connection with the company (para D.2.1). http://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-September-2012.aspx
Remuneration committees may draw on the advice of specialist remuneration consultants when constructing executive remuneration packages. The UK’s High Pay Centre (2012) publication ‘The New Closed Shop: Who’s Deciding on Pay?’ http://highpaycentre.org/files/hpc_dp_remco.pdf states that remuneration consultants are ‘normally hired by the remuneration committee. The voluntary guidelines for remuneration consultants state that if they are engaged by the remuneration committee they cannot also work for the executive, whose pay they are determining. The advice they provide varies, but typically includes designing new remuneration plans, and drawing up a comparator group against which the executive pay can be benchmarked’.
Remuneration Consultants Group (RCG) Voluntary Guidelines
The voluntary guidelines to which the High Pay Centre refers were published by the Remuneration Consultants Group (RCG) which was formed in 2009 and represents the vast majority of executive remuneration consultancy firms advising UK listed companies. In fact the RCG’s website states that ‘Any consulting firm, or individual acting as a sole trader, named in the relevant Directors’ Remuneration Reports of at least one FTSE350 company is eligible to become a registered member of the RCG. If a parent firm has separate legal entities acting as Remuneration Consultants then only one of the family of firms may be such a member of the RCG’.
The RCG published the Voluntary Code of Conduct in Relation to Executive Remuneration Consulting in the United Kingdom in 2009 and it is revised every two years , the most recent edition was published in 2011. The Code states that ‘Executive remuneration consultants, comparable with other business professionals, should comply with the fundamental principles of transparency, integrity, objectivity, competence, due care and confidentiality. They should also ensure that, whether or not part of a larger consulting group providing a wider range of services, their internal governance structures promote the provision of objective and independent advice. The full Code is available at: http://www.remunerationconsultantsgroup.com/assets/Docs/December%202011%20Code%20of%20Conduct.pdf
The effectiveness of the Code was reviewed in 2012, see http://www.remunerationconsultantsgroup.com/assets/Docs/Annual%20Review%20including%20Code%20Effectiveness%20Review%20December%202012.pdf In early 2013, following on from the 2012 review, the RCG urged remuneration committees to cite use of the Code to show external audiences that they have followed due process with regard to executive remuneration.
Pros and cons of remuneration consultants
The fourth edition of ‘Corporate Governance’ (Mallin, 2012), discusses the role of remuneration consultants, identifying academic literature in the area highlighting both potential benefits and downsides of remuneration consultants. Various studies are considered but to mention two here, Voulgaris et al. (2010), in a study of 500 UK firms from the FTSE 100, FTSE 250, and the Small Cap indices, find that compensation consultants may have a positive effect on the structure of CEO pay as they encourage incentive-based compensation. On the other hand, Murphy and Sandino (2010) examine the potential conflicts of interest that remuneration consultants face, which may lead to higher recommended levels of CEO pay. They find ‘evidence in both the US and Canada that CEO pay is higher in companies where the consultant provides other services, and that pay is higher in Canadian firms when the fees paid to consultants for other services are large relative to the fees for executive-compensation services.’
In the US, the Stock Exchange Commission has approved new corporate governance listing standards for the New York Stock Exchange (NYSE) and the NASDAQ. The standards generally apply to any company with listed equity securities.
The provisions include that, from 1st July 2013, compensation committees have to conduct an independence assessment of advisers including compensation consultants and legal counsel from whom they wish to seek advice. A non-independent adviser may still be used but the independence assessment must still be carried out. There are also new, stricter independence criteria for compensation committee members.
Weil, Gotshal & Manges LLP give a useful summary of the new standards in their Alert ‘New NYSE and Nasdaq Listing Standards on Independence of Compensation Committees and Their Advisers: It’s Time to Prepare’ (January 28, 2013, Weil Alert) http://www.weil.com/news/pubdetail.aspx?pub=11491
The role of remuneration consultants and their potential influence on executive remuneration packages has become the focus of more attention in recent years. The new US standards relating to the independence of compensation committees and their advisers go much further than in many countries, including the UK. Time will tell whether other countries follow suit and introduce tougher recommendations and guidelines.
1st February 2013
On Friday 28 September 2012, fellow blogger Christine Mallin and I were on High Table at Clare, the Cambridge college founded in 1326. We were there to celebrate the twentieth anniversary of the refereed research journal Corporate Governance – an International Review.
The current editor1, William Judge (Old Dominion University, Virginia) recognizing the high standing of the journal in academic circles for its rigour, expressed the hope that in the future corporate governance research could become more relevant to the policies and practice of the subject.
Chris Mallin (Norwich Business School, University of East Anglia), who was editor from 2001 to 2007, described the heavy workload involved in editing a refereed journal, the challenge to meet deadlines, and the important contribution of referees.
Having been the founder-editor in 1993, I told stories of the early years. The genesis of the journal had come many years earlier. In the 1970’s audit committees of independent outside directors had become popular in the United States, not least as a hedge against potential litigants, who eyed auditors’ insurance-backed ‘deep pockets’ for damages. In 1978, Deloittes in London had asked me to consider the relevance of audit committees to the UK. I discovered that, although in principle they might be a good idea, in practice they would not work in Britain because the concept of independence among non-executive directors was unknown. The resultant report was published as The Independent Director2.My interest in boards and directors had been kindled.
But that spark was fanned by my experiences as Director of the Oxford Centre for Management Studies, a company limited by guarantee, whose governing body consisted of an equal number of heads of Oxford colleges and leaders of British business. I was astounded by the incredible behaviour of some members, who wielded power, with prejudice and passion. This was not the rational decision-making or analytical management theory we were teaching in the management centre. I realised that governance was different from management. It was about power.
The opportunity to explore the subject came with a subsequent five year research fellowship at Nuffield College, Oxford. I titled the resultant book Corporate Governance3, but wondered about that phrase ‘corporate governance’; after all I had called the trust set up to fund the research the Corporate Policy Group. My worries were not resolved when I sat next to a visitor at High Table in Nuffield, whom I learned later was a professor of ancient English. Commenting, rather stupidly, that I had just written a book, he asked the title. “Corporate Governance”, I said. “You mean corporate government?” he queried. “No,” I replied, “its corporate governance. I looked the word up.” “My dear fellow,” he said, “governance, good gracious, governance, that word has not been used since the time of Chaucer.” It turned out that was not strictly true, but I did lose some confidence. Subsequently, Sir Adrian Cadbury was gracious enough to say that the book had introduced him to the phrase, which he used for his seminal report4, which, of course, was the forerunner of corporate governance codes around the world.
The Oxford publisher Blackwells then approached me to edit an academic journal on the subject. The first edition of Corporate Governance – an International Review was published in January, 1993. Members of the distinguished editorial board included Adrian Cadbury and other authors who would make major contributions to the subject including Thomas Clarke, Philip Cochran, Ian Hay Davison, Ada Demb, Charles Handy, Jay Lorsch, Fred Neubauer, Bernard Taylor, and Steven Wartick.
On a less anecdotal note, I hoped that in the future, Corporate Governance – an International Review could become a conduit to link today’s parallel universes of corporate governance research and corporate governance practice. I concluded with thanks and best wishes for every success to the publishers, subscribers, editors, members of the editorial board, reviewers, and, of course, the contributors, for the next twenty years.
10 October 2012
1 From 1 January 2013, Alessandro Zattoni (Bocconi University, Italy) and Praveen Kumar (University of Houston, USA) will become joint editors. William Judge will remain on the Editorial Advisory Board
2 Tricker, R. I., The Independent Director, Tolley, London, 1978
3 Tricker, R. I., Corporate Governance – practices, procedures and powers in British companies and their boards of directors, Gower, Aldershot, UK, 1984
4 Cadbury, Adrian (Chairman of the Committee), The Financial Aspects of Corporate Governance, Gee, London,1992
Serious study of corporate governance is relatively new. Early books on the work of directors and boards date back no more than forty years and the subject only acquired its title in the mid 1980s. Throughout the 20th century, the focus of attention was not on corporate governance but on management. Marketing, production, finance, operations research, and management information systems were at the forefront of interest. Organizational studies forged ahead, but the board of directors seldom appeared on the organization chart.
Now corporate governance has become the focus for the 21st. century. True, the US Securities and Exchange Commission had existed since 1934, promoting sound corporate regulation and reporting practices. But that was before the collapse of Enron, the world-wide implosion of Arthur Andersen, and the sub-prime financial catastrophe. Corporate scandal and collapse in the 1980s led to the first corporate governance code: the UK’s Cadbury Report. This seminal work soon led to codes in other countries around the world.
These codes, however, tended to concentrate on form rather than function, emphasizing the importance of independent outside directors, the need for audit, remuneration, and nomination committees of the board, and the separation of the role of the board chairman from the CEO. More recently, enterprise risk assessment, and corporate social responsibility have been added to the lexicon. Corporate governance reports were required confirming that public companies had complied with the code or, if not, explaining why. With the emphasis on structure, little concern was shown for the process of corporate governance: what actual goes on inside the board room, the leadership style of the chairman, internal political manoeuvres, and directors’ inter-personal behaviour when strong personalities meet.
Corporate governance is about the way power is exercised over corporate entities.
It involves the behaviour of boards and their directors, the interaction between the governing body and management, the company’s links with its shareholders and other players in the stock market, and the relations between the company and its many stakeholders. It involves strategy formulation and policy making on the one hand, and executive supervision and accountability on the other.
Corporate governance codes have been incorporated into the rules of many stock exchanges and compliance has become a requirement for listing. They have developed and reinforced good governance structures. But have they changed corporate behaviour?
Have the codes worked?
The corporate governance codes have certainly been a force for improving governance structures, procedures, and reporting. But the codes have not changed perceptions of corporate behaviour. Consider a few cases.
- BP, the oil company, published policies on corporate social responsibility and sustainability, yet lost over half its share value following the Deepwater Horizon oil-rig debacle in the Gulf of Mexico.
- Companies claiming to be good corporate citizens have been criticized for ‘aggressive’ tax avoidance by moving their profits, legally but questionably, through offshore tax havens.
Despite companies’ declared commitment to corporate social responsibility, publishing ethics codes and compliance reports, concerns about business ethics are widespread and serious. Around the world, the behaviour of companies, the attitudes of their directors and the actions of key executives have come under the public spotlight. Fraudulent management in Australia’s HIH Insurance, the world-wide collapse of auditors Arthur Andersen, corruption in Italy’s Parmalat, allegations of bribery against BAE Systems in Europe, the rigging of Libor interest rates by British banks and, of course, excessive risk taking by financial institutions around the world that sparked the global economic crisis, provide just a few examples.
Critics of business behaviour point to fraud, bribery and corruption. They allege price-rigging, pollution, and counterfeiting. They see arrogance, greed, and abuse of power by those at the top of companies. Some are cynical about business behaviour. How can you trust these people, they ask? Protestors challenge the basis of capitalism. For them, business ethics has become an oxymoron, citing corporate avarice, disparity of wealth, and excessive director remuneration that does not reflect corporate performance.
Yet business exists by satisfying customers, creating employment, and generating wealth. Business provides the taxes that society needs to function. Many companies accept a social responsibility to be sound corporate citizens. They recognize that they have a duty to respect the interest of all the stakeholders who might be affected by their actions. Many also seek a sustainable, environmentally friendly approach to their operations. To those who doubt whether modern business can be trusted, they point out that business dealings and the very concept of the limited-liability company are based on trust. Not everyone is convinced.
Since the 19th century, the underpinning of corporate governance has been company law, with ownership as the basis of power. Shareholder members of the company appoint directors, approve the directors’ reports and financial accounts, receive the report of the auditors, and approve dividends. The fiduciary duty of the directors is to be stewards for their shareholders’ interests. The reality, as we all know, is very different, particularly in large, international, listed companies. It is the directors, not the shareholders, who wield the power over the corporate entity, despite valiant attempts by institutional investors to regain the initiative.
Meanwhile, interest in business ethics seems to be at an all time high. The subject of business ethics has grown significantly, with interest focusing on corporate citizenship, companies’ social responsibilities, and their relations with stakeholders. More recently, green credentials and sustainability have been added to the agenda. But business ethics is not just about corporate citizenship: business ethics are basic to running successful business.
Ethics and the corporate governance codes
Ethics are hardly mentioned in the corporate governance codes, yet the examples just cited all raise ethical issues. They concern the way those companies were governed, how power was exercised over them, and the way business risks were taken. In other words, business ethics are inherently part of corporate governance. They are not an optional exercise in corporate citizenship.
Ethics involve behaviour. Business ethics concern behaviour in business and the behaviour of business. Decisions at every level in a company have ethical implications – strategically in the board room, managerially throughout the organization, and operationally in each of its activities. Ethical risks abound, whether decisions are at the strategic, managerial, or operational level.
Corporate entities, though granted many of the legal powers of human beings, have no moral sense. The board has to provide the corporate conscience. Directors set the standards for their organization, provide its moral compass. British-based Barclays bank was fined £290 million by US and UK regulators for colluding with other banks to rig the interest rates set for loans between them. Misstating the rate improved the financial standing of the bank and increased traders’ bonuses. The British regulator said that “the misconduct was serious, widespread and extended over a number of years…There was a cultural tendency to always be pushing the limits… a culture of gaming, and gaming us. The problem came from the tone at the top.” Every organization’s culture is fashioned by its board and top management.
Ultimately, the board of directors and top management are responsible for the ethical behaviour of their enterprise. The board of directors with top management are responsible for establishing their company’s risk profile, determining the acceptable level of risk. Some companies accept higher levels of risk than others. Determining the acceptable exposure to ethical risk needs to be part of every organization’s strategy formulation, policy making, and enterprise risk management.
With moral dilemmas in business it is often not a matter of right or wrong, but what’s best for all concerned, both in the company and among all those affected by its actions. Boards have to recognize issues and make choices. This is a function of corporate governance, which needs to be built on the bedrock of business ethics. It seems likely that future codes of corporate governance will find their foundations in ethics.
As reported in an earlier blog post (5th July 2010), the Financial Reporting Council (FRC) issued the UK Stewardship Code in the summer of 2010 with the aim of enhancing ‘the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities’.
The principles of the UK Stewardship Code are:
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
Principle 3: Institutional investors should monitor their investee companies.
Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.
Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities.
To what extent have asset managers, asset owners and service providers complied with the recommendations of the Stewardship Code? Several reports have been produced which detail the level of compliance.
Level of compliance
The FairPensions (2010) survey analysed 29 of the largest asset managers and found that 24 of these had published a formal statement/response with respect to the Stewardship Code. An additional four (Insight, Invesco, Morgan Stanley and State Street) had posted short statements on their website referring to the Code. FairPensions reviewed the 24 compliance statements to assess the quality of disclosures made with respect to the Code.
They were disappointed as they felt that the investors’ statements often gave ‘tick-box’ responses to the Stewardship Code principles whereas it was an opportunity to “tell their story” as to how they monitor companies and incorporate stewardship activity into their wider investment process. http://www.fairpensions.org.uk/sites/default/files/uploaded_files/whatwedo/StewardshipintheSpotlightReport.pdf
The Investment Management Association (IMA) (2011) survey of adherence to the Stewardship Code analysed the questionnaire responses from 41 asset managers, seven asset owners and two service providers. The questionnaire was developed with the oversight of a Steering Group chaired by the FRC’s Chief Executive. The IMA (2011) survey covered the period to 30 September 2010 and showed widespread adherence by 50 UK institutional investors to the best practice set out in the FRC’s Stewardship Code. The IMA reported:
“Over 90% of major institutional investors now vote all or the great majority of their shares in UK companies; nearly two thirds now publish their voting records.
At the time the survey was conducted, 43 out of 50 respondents had published a statement on adherence to the Code, and another six did so subsequently.
Over 1,300 people focusing on stewardship activities are employed by 43 of the respondents to the survey.”
The FRC (2011) published Developments in Corporate Governance 2011, The Impact and Implementation of the UK Corporate Governance and Stewardship Codes, FRC, London.
They reported that, as of December 2011 the Stewardship Code had attracted 234 signatories, including 175 asset managers, 48 asset owners and 12 service providers23. This level of take-up indicates that the concept of stewardship is being taken seriously. Importantly there has been a wide base of support for the Stewardship Code including from both large and small institutional investors.
There seems to be rather mixed evidence as to whether institutional shareholders are engaging more with their investee companies since the Stewardship Code was introduced. However over time it is to be expected that overall there will be a higher level of engagement.
Reasons for non-compliance
Organisations not complying with the Stewardship Code tend to fall into two groups: (i) those not signing based on their specific investment strategy, and (ii) those who do not commit to codes in individual jurisdictions.
The FRC proposes to make limited revisions to both the UK Corporate Governance Code and the Stewardship Code which, subject to consultation, will take effect from 1st October 2012. As far as the Stewardship Code is concerned, they FRC state that it is ‘not currently envisaged that new principles will be introduced but it may be helpful to clarify the language in certain places, for example on the different role of asset managers and asset owners.’
Areas where the FRC might consider strengthening the language include conflicts of interest, collective engagement, and the use of proxy voting agencies, and possibly a recommendation that investors disclose their policy on stock lending.
Finally a Stewardship Working Party has been formed consisting of Aviva Investors, BlackRock, Governance for Owners, Railpen Investments, Ram Trust and USS together with Tomorrow’s Company. They will determine whether it is possible to devise a “scale of stewardship” which would enable institutions to differentiate themselves.
Chris Mallin 8th March 2012
In September 2011, the Corporate Secretaries International Association (CSIA) hosted an international corporate governance conference in Shanghai, jointly with the Shanghai Stock Exchange. CSIA represents over 100,000 governance practitioners worldwide through its 14 company secretarial member organizations. Speakers and panellists from Africa, Australia, mainland China, Hong Kong SAR, India, the UK and the US plus delegates from the 14 CSIA member countries discussed the cultural dependence of corporate governance. For more information on CSIA see http://www.csiaorg.com
The conference considered whether corporate governance principles and practices around the world were converging. Would a set of world-wide, generally-accepted corporate governance principles eventually emerge? Or was differentiation between corporate governance practices inevitable because of fundamental differences in country cultures?
Speaking at the conference the writer of this blog suggested that:
“A decade or so ago, it was widely thought that corporate governance practices around the world would gradually converge on the United States model. After all, the US Securities and Exchange Commission had existed since 1934, sound corporate regulation and reporting practices had evolved, and American governance practices were being promulgated globally by institutional investors. But that was before the collapse of Enron, Arthur Andersen, the sub-prime financial catastrophe, and the ongoing global economic crisis. A decade ago it was also believed that the world would converge with US practices because the world needed access to American capital. That is no longer the case. So the convergence or differentiation question remains unanswered.
Forces for convergence
“Consider first some forces that are leading corporate governance practices around the world to convergence.
Corporate governance codes of good practice around the world have a striking similarity, which is not surprising given the way they influence each other. Though different in detail, all emphasise corporate transparency, accountability, reporting, and the independence of the governing body from management, and many now include strategic risk assessment and corporate social responsibility. The codes published by international bodies, such as the World Bank, the Commonwealth of Nations, and OECD, clearly encourage convergence. The corporate governance policies and practices of major corporations operating around the world also influence convergence.
Securities regulations for the world’s listed companies are certainly converging. The International Organisation of Securities Commissions (IOSCO), which now has the bulk of the world’s securities regulatory bodies in membership, encourages convergence. For example, its members have agreed to exchange information on unusual trades, thus making the activities of global insider trading more hazardous.
International accounting standards are also leading towards convergence. The International Accounting Standards Committee (IASC) and the International Auditing Practices Committee (IPAC) have close links with IOSCO and are further forces working towards international harmonization and standardization of financial reporting and auditing standards. US General Accepted Accounting Principles (GAAP), though some way from harmonization, are clearly moving in that direction.
In 2007, The US Securities and Exchange Commission announced that US companies could adopt international accounting standards in lieu of US GAAPs. However, American accountants and regulators are accustomed to a rule-based regime and international standards are principles-based requiring judgement rather than adherence to prescriptive regulations.
Global concentration of audit for major companies in just four firms, since the demise of Arthur Andersen, encourages convergence. Major corporations in most countries, wanting to have the name of one of the four principal firms on their audit reports, are then inevitably locked into that firm’s world-wide audit, risk analysis and other governance practices.
Globalisation of companies is also, obviously, a force for convergence. Firms that are truly global in strategic outlook, with world-wide production, service provision, added-value chain, markets and customers, which call on international sources of finance, whose investors are located around the world, are moving towards common governance practices.
Raising capital on overseas stock exchanges, also encourages convergence as listing companies are required to conform to the listing rules of that market. Although the governance requirements of stock exchanges around the world differ in detail, they are moving towards internationally accepted norms through IOSCO.
International institutional investors, such as CalPers, have explicitly demanded various corporate governance practices if they are to invest in a specific country or company. Institutional investors with an international portfolio have been an important force for convergence. Of course, as developing and transitional countries grow, generate and plough back their own funds, the call for inward investment will decline, along with the influence of the overseas institutions.
Private equity funding is changing the investment scene. Owners of significant private companies may decide not to list in the first place. Major investors in public companies may find an incentive to privatise. Overall the existence of private equity funds challenges boards of listed companies by sharpening the market for corporate control.
Cross-border mergers of stock markets could also have an impact on country-centric investment dealing and could influence corporate governance expectations; as could the development of electronic trading in stocks by promoting international securities trading.
Research publications, international conferences and professional journals can also be significant contributors to the convergence of corporate governance thinking and practice.
Forces for differentiation
“However, despite all these forces pushing towards convergence, consider others which, if not direct factors for divergence, at least cause differentiation between countries, jurisdictions and financial markets.
Legal differences in company law, contract law and bankruptcy law between jurisdictions affect corporate governance practices. Differences between the case law traditions of the US, UK and Commonwealth countries and the codified law of Continental Europe, Japan, Latin America and China distinguish corporate governance outcomes.
Standards in legal processes, too, can differ. Some countries have weak judicial systems. Their courts may have limited powers and be unreliable. Not all judiciaries are independent of the legislature. The state and political activities can be involved in jurisprudence. In some countries bringing a company law case can be difficult and, even with a favourable judgement, obtaining satisfaction may be well nigh impossible.
Stock market differences in market capitalisation, liquidity, and markets for corporate control affect governance practices. Obviously, financial markets vary significantly in their scale and sophistication, affecting their governance influence.
Ownership structures also vary between countries, with some countries having predominantly family-based firms, others have blocks of external investors who may act together, whilst some adopt complex networked, leveraged chains, or pyramid structures.
History, culture and ethnic groupings have produced different board structures and governance practices. Contrasts between corporate governance in Japan with her keiretsu, Continental European countries, with the two-tier board structures and worker co-determination, and the family domination of overseas Chinese, even in listed companies in countries throughout the Far East, emphasise such differences. Views differ on ownership rights and the basis of shareholder power.
The concept of the company was Western, rooted in the notion of shareholder democracy, the stewardship of directors, and trust – the belief that directors recognise a fiduciary duty to their company. But today’s corporate structures have outgrown that simple notion. The corporate concept is now rooted in law, and the legitimacy of the corporate entity rests on regulation and litigation. The Western world has created the most expensive and litigious corporate regulatory regime the world has yet seen. This is not the only approach; and certainly not necessarily the best. The Asian reliance on relationships and trust in governing the enterprise may be closer to the original concept. There is a need to rethink the underlying idea of the corporation, contingent with the reality of power that can (or could) be wielded. Such a concept would need to be built on a pluralistic, rather than an ethnocentric, foundation if it is to be applicable to the corporate groups and strategic alliance networks that are now emerging as the basis of the business world of the future.
Around the world, the Anglo-Saxon model is far from the norm. A truly global model of corporate governance would need to recognise alternative concepts including:
- the networks of influence in the Japanese keiretsu
- the governance of state-owned enterprises in China, where the China Securities and Regulatory Commission (CSRC) and the State-owned Assets Supervision and Administration Commission (SASAC) can override economic objectives, acting in the interests of the people, the party, and the state, to influence strategies, determine prices, and appoint chief executives
- the partnership between labour and capital in Germany’s co-determination rules
- the financially-leveraged chains of corporate ownership in Italy, Hong Kong and elsewhere
- the power of investment block-holders in some European countries
- the traditional powers of family-owned and state-owned companies in Brazil
- the domination of spheres of listed companies in Sweden, through successive generations of a family, preserved in power by dual-class shares
- the paternalistic familial leadership in companies created throughout Southeast Asia by successive Diaspora from mainland China
- the governance power of the dominant families in the South Korean chaebol, and
- the need to overcome the paralysis of corruption from shop floor, through boardroom, to government officials in the BRIC and other nations.
The forces for convergence in corporate governance are strong. At a high level of abstraction some fundamental concepts have already emerged, including the need to separate governance from management, the importance of accountability to legitimate stakeholders, and the responsibility to recognize strategic risk. These could be more widely promulgated and adopted. But a global convergence of corporate governance systems at any greater depth would need a convergence of cultures and that seems a long way away.
Stock lending is the lending of securities (including equities, government bonds and corporate debt obligations) to a borrower, with the borrower agreeing to return equivalent securities to the lender at a pre-determined time. The focus of this article is on the lending of securities and, in particular, the potential impact on shareholders’ votes.
Benefits and costs
The International Corporate Governance Network (ICGN) Securities Lending Code of Best Practice (2007) identifies the potential benefits but also the potential corporate governance implications of stock lending. Benefits of stock lending include that it ‘improves market liquidity, reduces the risk of failed trades, and adds significantly to the incremental return of investors.’ However, there are potentially significant adverse effects on corporate governance in terms of shareholders’ voting rights. The ICGN state ‘Misconceptions as to its [stock lending] nature have led to loss of shareholder votes in important situations, as well as to cases of shares being voted by parties who have no equity capital at risk in the issuing company, and thus, no long-term interest in the company’s welfare. Lenders’ corporate governance policies may also be undermined through lack of coordination with lending activity. It is also imperative that there be as little risk as possible that a poll of the shareholders may be compromised through misuse of the borrowing process.’ The issues identified by the ICGN are very real ones which may have heightened importance in situations where investors are voting on contentious issues. Resolutions which otherwise may have failed to be passed, may be passed because of the way in which votes secured through stock lending have been cast, and vice versa.
Pauline Skypala in her article ‘Securities lending – kept from view’ (FTfm, Page 6, 5th September 2011) points out that last year the Pensions Regulator advised pension fund trustees and others managing schemes they should be aware of whether scheme assets could be lent and on what terms. In particular, they should know how much of the income earned was passed on to the scheme.
Ellen Kelleher in her article ‘Inquiries starting into “empty voting”’ (FTfm, Page 3, 26th September 2011) gives the example of an activist hedge fund which might briefly borrow shares in a company purely to vote in favour of its takeover at the next general meeting. This would be legitimate in most markets but can hardly be called best practice.
SCM Private, an actively managed passive investment firm, carried out research which revealed that UK retail fund managers controlling over £241 billion may lend out up to 100% funds but investors would be kept in the dark. Furthermore, levels of disclosure, transparency and protection within current legislation are, SCM find, totally inadequate. http://www.scmprivate.com/content/file/pressreleases/press-release-scm-private-stock-lending-release-01-september-2011.pdf
Meanwhile the Investment Management Association (IMA) has defended stock lending pointing out that they are happy with the level of disclosure required.
ICGN basic tenets of best practice
Lenders and borrowers would do well to take note of the ICGN Securities Lending Code of Best Practice (2007) basic tenets of best practice:
1. All share lending activity should be based upon the realisation that lending inherently entails transfer of title from the lender to the borrower for the duration of the loan.
2. During the period of a stock loan, lenders may protect their rights only with the borrower, since they have no rights with the issuer of the shares which have been lent.
3. Institutional shareholders should have a clear policy with respect to lending, especially insofar as it involves voting.
4. Lending policy should be mandated by the ultimate beneficial owners of an institution’s shares.
5. Where lending activity may alter the risk characteristics of a portfolio, the policy should state the extent to which this is permitted.
6. The returns from lending should be disclosed separately from other investment returns when reporting to clients or beneficiaries. They should not be hidden under management and other costs.
7. It is bad practice to borrow shares for the purpose of voting. Lenders and their agents, therefore, should make best endeavours to discourage such practice.
Stock lending has ramifications in a number of areas including fee income, portfolio risk, and voting rights. Lenders have a responsibility to be aware of the full implications of lending their shares and borrowers should not borrow shares with the intention of using the attached voting rights to circumvent corporate governance best practice.
Chris Mallin 16th October 2011
The following case has been adapted from the second edition of Corporate Governance – principles, policies and practices, due to be published early 2012.
The News Corporation case
News Corporation (NewsCorp) is a media conglomerate, founded by Rupert Murdoch in Australia in 1979. In 2010, the company, now head-quartered in New York, had world-wide revenues of over $30 billion, profits of over $2.5 billion, and over 50,000 employees. The company’s main revenues come from cable networks, with the Fox News channel, and filmed entertainment. Publishing, including newspapers, accounted for less than 20%. NewsCorp shares are listed on NASDAQ and the Australian Securities Exchange.
Rupert Murdoch, born in 1931, has enjoyed unrivalled political influence around the world, being described by the Economist (23.7.11) as “a press baron, a manipulator of politicians, and a king maker.” The Murdoch family dominate the control of NewsCorp using dual-class shares. The ‘A’ shares, which account for 70% of the equity, have no voting rights, and consequently the holders of these shares have no say in board-level appointments. The B shares, which account for 30% of the equity, carry all the votes. The Murdoch family control about 39% of these voting shares, giving them unassailable control
News International Ltd. is the wholly-owned British subsidiary of NewsCorp, publishing the “The Times” newspaper, and the “News of the World”. The chairman of News International is James Murdoch, born in 1972, who is Rupert Murdoch’s son.
The seventeen directors of NewsCorp include nine who are nominally independent, but whose length of service and connections would make that definition doubtful in some corporate governance codes. They are:
Rupert Murdoch, Chairman and Chief Executive Officer, NewsCorp
José María Aznar, independent director. Former President of Spain. President,
Foundation for Social Studies and Analysis
Natalie Bancroft, 34, independent director, member of the family that controlled
Dow Jones and Wall Street Journal prior to their disputed take-over
Peter Barnes, independent director, Chairman of Ansell Limited a US-based and
Australian-registered maker of industrial gloves
Chase Carey, Deputy Chairman, President and Chief Operating Officer, NewsCorp
Kenneth E. Cowley, independent director, Chairman, R.M. Williams Holdings Pty.
David F. DeVoe, Chief Financial Officer, NewsCorp
Viet Dinh, 43, independent director and chairman NewsCorp Nominating and
Corporate Governance Committee. Professor of Law, Georgetown
University. Having fled war torn Vietnam, he served as assistant attorney general under President George Bush
Rod Eddington, independent director appointed in 1999. Chairman for Australia and New Zealand, J.P. Morgan. Former chief executive of British Airways
and of Australia’s Ansett Airlines. Said to have been mentor to Rupert
Murdoch’s son Lachlan, who is also a NewsCorp director
Joel Klein, Executive Vice President, CEO, Education Division, NewsCorp
Andrew S.B. Knight, independent director. Chairman, J. Rothschild Capital
James Murdoch, Deputy Chief Operating Officer, NewsCorp
Chairman and CEO, International News Corporation
Lachlan Murdoch, Executive Chairman, Illyria Pty Ltd
Thomas J. Perkins, independent director. Partner, Kleiner, Perkins, Caufield & Byers
Arthur M. Siskind, Senior Advisor to the Chairman, NewsCorp
John L. Thornton, independent director appointed in 2004. Professor and Director of
Global Leadership, Tsinghua University of Beijing. Formerly Chief Operating Officer of Goldman Sachs and an independent director of HSBC involved in power struggles at board level.
Stanley S. Shuman (Director Emeritus), Managing Director, Allen & Company LLC
The matter of succession has been raised by some analysts. The possibility of a dynasty passing from father to son was questioned, and the suggestion made that Rupert Murdoch move to non-executive chairman and a new appointment made as CEO. The name of Chase Carey, currently COO NewsCorp, was often mentioned.
Details of the board committees can be found at: http://www.newscorp.com/corp_gov/bc.html, which also provides access to the charters of those committees, including the Nomination and Corporate Governance Committee. The News Corporation Statement of Corporate Governance is at www.newscorp.com/corp_gov/socg.html
NewsCorp publish the group’s standards of business conduct, which can be accessed at www.newscorp.com/corp_gov/subc.hrml
The concern for ethical conduct is reflected in a letter from Rupert Murdoch, Chairman and Chief Executive Officer:
For more than a half century, News Corporation has shaped global media by ensuring the public’s needs are met and that our offerings are of the highest caliber. Today, hundreds of millions of people around the world trust us for the best quality and choice in news, sports and entertainment.
This public trust is our Company’s most valuable asset: one earned every day through our scrupulous adherence to the principles of integrity and fair dealing.
We have revised this Standards of Business Conduct to make it easier to read and use, and to clearly outline what we should all expect of ourselves as colleagues. Each of us has the power to influence the way our Company is viewed, simply through the judgments and decisions we each make in the course of an ordinary day.
It’s an important responsibility and I’m honored to share it with you.
Disaster strikes NewsCorp and its subsidiary News International
In July 2011 the best-selling British Sunday newspaper, the “News of the World”, was closed after 168 successful years. For some years, the company had faced damaging allegations of telephone hacking to obtain stories, but had claimed that this was the work of a single rogue, free-lance investigator, who went to jail. But subsequently it emerged that the practice was widespread and known to senior executives. The public were not too concerned when they believed that the hacked telephones belonged to entertainment and sports stars, and other celebrities. But when it emerged that the journalists had intercepted voice messages of a missing 13 year-old school girl, Milly Dowler, who was subsequently found murdered, the public mood changed. Worse, it was discovered that journalists had deleted messages from her cell phone to make more space for subsequent material, leading her parents to believe she was still alive. Evidence emerged that telephone hacking to obtain stories was widespread and ran to thousands, including families of soldiers killed in Iraq and Afghanistan and people killed in the terrorist bombings in London. It was then alleged that large sums had been paid to celebrities, who had discovered that their voice mails had been listened to by the “News of the World”, to settle actions for breach of privacy. On 19 July 2011, Rupert and James Murdoch were summoned before a committee of the British House of Commons to answer questions. Rupert Murdoch said that “this is the most humble day of my career”
Worse was to come, when it appeared that payments had been made to police for information. This raised the possibility of prosecution for bribery under the American Foreign Corrupt Practices Act. Some senior police officers resigned.
The BSkyB deal fails
News International owned 39% of the company BSkyB, which ran the successful British satellite Sky TV station. James Murdoch was chairman of BSkyB. In early 2011, New International bid for the remaining shares. Expectations were high that the bid would be approved by the UK broadcasting and competition authorities, and accepted by the shareholders. However, the saga over telephone hacking and payments to police caused the government to block the bid, which was abandoned on 14 July 2011. News Corp shares plunged 7%, wiping $3bn. off its market value. Nevertheless, on 29 July 2011, the BSkyB board of directors unanimously voted for James Murdoch to remain as chairman.
Some questions inevitably arise
1. How can the disreputable behaviour have occurred at the News of the World when the Group had such a clear commitment to high standards of conduct?
2. As the top executives of the subsidiary and the holding companies respectively, should either James or Rupert Murdoch be held responsible, for the bad behaviour in a relatively small and not very significant part of the Group?
3. Is the use of dual class shares to maintain a family’s domination over a public company really desirable? Is it right that the ‘A’ shares, which account for 70% of the equity, have no voting rights and therefore no say in board-level appointments?
Bob Tricker 8 September 2011
The disquiet over excessive executive remuneration packages and a lack of appropriate links with relevant performance measures has been a matter of concern in recent years. After the financial crisis, there is even more of a focus on this aspect with shareholders becoming increasingly frustrated with both the amount and the design of executive remuneration packages.
The latest Manifest and MM&K Total Remuneration Survey 2011 finds little link between remuneration, performance and shareholder value, reporting that the median FTSE100 CEO remuneration increased by 32% to £3.5million in 2010 compared to 2009, whilst the FTSE100 index only rose 9% over the same period. Moreover over a 12 year time horizon, CEO remuneration has quadrupled whilst share prices have been flat.
In the US, the BDO 600: 2011 Survey of Board Compensation Practices of 600 Mid-Market Public Companies reported that ‘director pay in the middle market is up seven percent, reflecting the increased responsibilities, time commitment, and regulatory issues – such as the Dodd-Frank Act – that boards face today’. The report states that these factors, coupled with a rebounding stock market, have allowed companies to increase director pay to $110,155, up from $102,809 in 2009, and that much of this increase can be attributed to a greater use of full-value equity vehicles, which are up 22% from last year, indicating that the recovering stock market is adding to compensation growth overall.
Issues of concern
Concern has been expressed at a number of companies where shareholders have thought that executive directors would receive remuneration in excess of what they deserved in relation to their performance or in relation to the company’s performance. For example, Andrew Parker in his articles (FT, Page 17, 29th June 2011 ‘Strategy and pay fuel anger at C&WW’ and FT, Page 15, 5th July 2011 ‘Amber-top alert over C&W pay’) highlighted that the Association of British Insurers (ABI) issued an ‘amber top’ to alert shareholders about a number of issues at C&W including aspects of the planned new pay scheme at C&W Worldwide. The ABI was concerned that ‘given C&W Worldwide’s depressed stock price, the chief executive and finance director could be awarded too many performance shares’.
Robert Wright in his article (FT, Page 4, 24th June 2011) ‘Ex-rail chief defends £1m payoff’ stated that that Mr Coucher, the former CEO of Network Rail, had defended the £1.07m payout that he received on leaving the company saying that it represented a payment in lieu of his notice period and the bonuses he would have received if he had been allowed to work his notice period after resigning.
In some companies chief executives have forfeited their bonus if the company has not performed to expected standards. In his article (FT, Page 16, 28th June 2011) ‘TalkTalk struggles see chief’s bonus cut’, Andrew Parker pointed out that Dido Harding, chief executive of TalkTalk, had secured only 20% of her maximum potential bonus in 2010/11 as there were ‘acute customer service problems’. Justin King, the CEO of J. Sainsbury, saw his salary and bonus fall significantly because the company did not achieve key profit targets, reported Andrea Felsted (FT, Page 19, 8th June 2011) ‘Sainsbury chief’s pay drops sharply after missed targets’.
Elsewhere Vodafone has decided to place more emphasis on profit improvement in its executive pay plan. Andrew Parker in his article (FT, page 20, 2nd June 2011) ‘Vodafone refocuses executive pay plan’, reported that greater account would be taken in future of profit-based targets by reducing the relative importance of revenue-based targets.
Banking and insurance sector
In the banking and insurance sector, some banks have slashed cash bonuses, for example, Michiyo Nakamoto reported in his article (FT, Page 15, 4-5 June 2011) ‘Nomura slashes cash bonuses’ that Japan’s largest investment bank, Nomura, had slashed the cash bonuses paid to its top executives and directors by 95% after suffering a decline in profits and its share price. As a result only 6 out of 23 directors/executives received a cash bonus in the year to March 2011. Patrick Jenkins reported in his article (FT, page 19, 1st July 2011) ‘Europe’s banks and insurers lead in withholding bonuses’, that nearly three-quarters of banks and insurers in Europe have introduced a system to withhold bonuses from staff if their performance does not match up to expectations. One of the contributors to the financial crisis was thought to be overly generous short-term bonuses, and many banks have decided to put in place a system of deferred payments. There are also malus or clawback arrangements which may be used, for example, for a breach of code of conduct.
Increased use of ‘say on pay’
The use of ‘say on pay’, whereby shareholders have an advisory vote on executive pay proposals (remuneration committee report), has been utilised much more in recent months. Tim Bradshaw and Kate Burgess (FT, page 20, 3rd June 2011) in their article ‘WPP suffers shareholder revolt over pay’ highlighted that WPP had a large shareholder revolt when over 40% of shareholders voted against the WPP pay policies. They report that one large fund manager stated ‘Investors are increasingly concerned by salary creep. It is a topical issue at the moment. Some companies seem to think after a couple of years of restraint that they can claw back the pay rises they would have got’. Roger Blitz (FT, Page 19, 14th June 2011) ‘William Hill expects fallout over chief’s pay deal’ points out that some 38% of votes cast either opposed or did not endorse the group’s remuneration report, with Ralph Topping, the Chief Executive, receiving a salary increase of 11% and shares worth £1.2m by way of a ‘golden handcuffs’ retention payment.
In the US, the say on pay has also been used frequently in recent weeks, as Dan McCrum finds in his article (FT, Page 17, 6th July 2011) ‘Shareholders quick to put ‘say on pay’ powers to work’. He reports that Hewlett-Packard and Jacobs Engineering saw their pay packages rejected outright whilst Monsanto and Northern Trust faced stiff shareholder protest votes, during this, the first year that large public companies have been required to have an advisory vote on executive compensation as part of the Dodd Frank legislation.
It may be that, with the advent of a more widespread use of say on pay in a number of markets, the days of golden executive remuneration packages are numbered.
Chris Mallin 13th July 2011