Tuesday, February 25, 2014

Internal Corporate Governance and External Corporate Governance

Corporate Governance (CG) can be viewed as the system by which companies are directed and controlled. Companies can also be held accountable by CG, limiting managerial discretion in order to protect the interests of outsiders in the corporation.

Such 'outsiders' can be shareholders, stakeholders, other interested parties or even society as a whole.

Any CG 'system' consist of a large number of mechanisms. We can broadly categorize CG mechanisms into two groups:

Internal corporate governance encompasses the controlling mechanisms between various actors inside the firm: the company’s management, its board and the shareholders.
In this form, the shareholders and other constituents 'delegate' the controlling function to internal entities or mechanisms, such as the Supervisory Board (in case of two-tier board) or the Board of Directors (one-tier) and/or special committees

External governance encompasses the influences from outside the firm on the governance of the firm. These can originate from a number of external sources.

For more information and examples, see the interesting discussion at 12manage on internal and external corporate governance.

Tuesday, January 18, 2011

Boardroom Focus in 2011: Growth and Strategy

According to Sarah Johnson of cfo.com, the Boardroom Focus in 2011 will be: Growth. In general, directors will focus more on corporate strategy this year and less on the compliance issues that commanded their attention during the past decade, say experts. More than two-thirds of directors now view strategic planning and oversight as their number-one priority, according to the National Association of Corporate Directors's (NACD) most recent governance survey. Just three years ago, only 24% of directors put strategy at the top of their priority list. Go here for the full article.

Saturday, January 23, 2010

Co-Filers Wanted on Petition to Eliminate Street Name Registration

As I indicated in my last post (Can We Change Voting Behavior?), I’m working with the United States Proxy Exchange (USPX) on a petition to the SEC to end “street name registration.” That largely ad hoc system took root under emergency conditions stemming from a paperwork crisis during the 1960s, before networked computers were ubiquitous in trading markets. Street name registration, and a system that immobilized stock, were supposed to be temporary measures but they have grown to undermine our ownership culture. Just as poker chips allow us to play under rules that often favor the house, those holding “security entitlements” do not acquire the rights of real shareowners.

Street name registration is the primary reason proxy solicitations cost hundreds of thousands of dollars—and that exorbitant cost is why entrenched boards routinely run unopposed. Eliminating street name registration, in favor of a direct registration system, could bring the cost of proxy solicitation down to a few thousand dollars, which would have a bigger impact on shareowner rights than the SEC's proposed proxy access initiative. It would also eliminate the use of voter information forms and other vehicles that circumvent the legal rights of shareowners with official proxies.

We welcome interested parties to co-sign the petition with us. The January 12, 2010 draft petition may go though minor revisions, based on your recommendations, but the substantive points will remain. We intend to submit the petition by the end of January to help ensure it is considered by staff preparing recommendations to the Commission concerning how to resolve various "proxy mechanics" issues. If you are interested in signing on to the petition, please e-mail Glyn Holton, Executive Director, United States Proxy Exchange, indicating you want to co-sign, and provide the following:

  • Your signature block with your organization affiliation, if any

  • Please note the affiliation is for "identification purposes only" if you are not signing on behalf of the organization

  • Please include a small pdf of your signature that can be used in the filing

Tuesday, August 02, 2005

Function, role and qualities of Compliance Officer

Where the accountants have failed, a new supervisor is rising: the (Chief) Compliance Officer.

In an article in the Financieele Dagblad (a Dutch newspaper), Edwin Weller, CCO of Robeco (a Dutch Financial Institution) discusses the function, role and qualities a Compliance Officer should have.

He says that the compliance function is an independant function in an advisory role, aimed at controling the risks that are relevant for maintaining or strenghtening the corporate reputation. However, the final responsibility for controling these compliance risks and for the definition of integrity remains a task of the Executive Board.
Mr Weller says the main personal qualities of a Compliance Officer are discreetness, objectivity, independence, professionalism, and that he should be experienced in relation to the activities of the corporation.
The Compliance Officer should have knowledge about legal, economic, social, operational and commercial aspects and preferably have a legal background.

Do you agree that the role of the Chief Compliance Officer is merely an advisory one? Is protecting the corporate reputation his most important goal? Are the mentioned qualities and expertise areas complete?

Monday, April 25, 2005

hello, i'am searching for information on corporate governance ratings, in particullar for the belgian market and on the ussefulness of such instruments.

Ruben De Meyer

Monday, April 18, 2005

Downsizing the CEO

According to Business Week,"directors, auditors, and lawyers are more powerful than ever. That shift has fundamentally altered relations between CEOs and the advisers they depend on. At their best, these supposed guardians of shareholder value, chosen for their ability to complement the CEO and provide specific areas of expertise, were trusted advisers. At their worst, they were little more than bag carriers and sycophants. Either way, these advisers -- who were always supposed to work for the shareholders, not the CEO -- usually exercised their power as watchdogs only in moments of genuine crisis. But now the chumminess and banter have given way to a more adversarial attitude...Even CEOs who don't lose their jobs are finding that their ability to impose their will, whether it's in setting strategy or hiring a successor, has been severely curtailed."

David Henry, Mike France and Louis Lavelle argue "the new rules may initially go too far and create their own distinctive set of problems." Candid conversarions are gone. CEOs are being micromanaged by boards and now seek safe strategies rather than risk confrontations. Pay for performance is the new standard. Board independence makes it harder for CEOs to put together boards that compensate for their weaknesses. CEOs are being bullied by boards, auditors and attorneys. "The downsizing of the CEO has led, to a certain extent, to the supersizing of the advisers. That's not necessarily a cure for everything that ails Corporate America. It is a clue that successful CEOs will have to be consensus builders in the future. And should be a warning to CEOs everywhere: The age of the absolute corporate monarch, such as AIG's Greenberg, is over." (The Boss On The Sidelines, 4/25/05) http://www.businessweek.com/magazine/content/05_17/b3930015_mz001.htm

Really? CEOs still seem to have the power to block the SEC from finalizing its "equal access rule." True, they are less likely to be out and out crooks and that's certainly a step in the right direction. Is the imperial CEO dead?

Sunday, April 17, 2005

FTSE and ISS reveil Corporate Governance indices

The six new CGI indices focus on the US, UK, Japan, Europe, the eurozone and the developed world and rank about 2,200 companies. Companies are rated on a scale of one to five, with the higher scores for the best governed. The top five sectors for good governance include oil and gas, while the bottom five sectors include construction and materials, and healthcare.

The FTSE ISS CGI Series contains six regional indexes. The ratings, which cover over 2,200 companies from 24 countries are based on the following five themes of corporate governance:

- Equity structure and anti-takeover devices,
- Structure and independence of the Board,
- Independence and integrity of the audit process,
- Executive and non-executive director stock ownership,
- Compensation systems for executive and non-executive directors.

The world's top five performers are BHP Billiton; Smith & Nephew, a UK medical devices company; utility Scottish Power; UK telecoms company BT
Group; and Cognos.

In the US the top companies are maker of electrical tools and hardware Cooper Industries, car-maker General Motors, bank National City Corp, contract electronics manufacturer Flextronics International and oil and gas producer Occidental Petroleum.

In Europe, top-ranked companies include French cement maker Lafarge and Dutch food group Numico. In Japan, Nomura Holdings is a leader.

In Asia, the top companies are Hong Kong Exchanges & Clearing, Asia Sat Telecom Hldgs, Hysan Development, Parkway Holdings, and Nomura Holdings.

In the UK, top-ranked companies include BHP Billiton, Smith and Nephew, Scottish Power, BT Group and BPB.

Mark Makepeace, chief executive FTSE Group, and John Connolly, ISS chief executive, said: “Until now, quantifying the risk represented by corporate governance practice has posed a challenge for investors. The ratings provide a means to integrate that information into global portfolios.” More on ISS here.

Pressure for stricter corporate governance guidelines has increased in recent years after a series of high-profile corporate collapses, including US energy firm Enron Corp and Italian food company Parmalat.

While the EC has launched a public consultation on shareholders rights, some prefer shareholders vote with their hands and feet. Also the board structure, in particular separating the CEO and Chairman role is part of the debate.

Critics of stricter rules say too much focus on corporate governance could distract top management and lead to higher costs. Also there are doubts about whether check list approaches towards Corporate Governance work work at all.

Wednesday, March 16, 2005

Sallie Mae Receives Perfect '10' Score for Corporate Governance

SLM Corporation, commonly known as Sallie Mae and the nation's leading provider of education funding, today announced that it has received a "perfect" score of 10 for corporate governance according to the latest ratings issued by GovernanceMetrics International (GMI), the corporate governance research and ratings agency. SLM Corporation was one of only 34 companies globally -- and one of only 27 American companies -- to receive a 10, GMI's highest rating. The average rating for reviewed companies in the United States was 7.03.

GMI's rating system incorporates hundreds of data points across six broad categories of analysis: board accountability, financial disclosure and internal controls, executive compensation, shareholder rights, ownership base and takeover provisions, and corporate behavior and social responsibility. More on Sallie Mae see their website.

Wednesday, December 29, 2004

Bestselling Corporate Governance Books

Wednesday, September 22, 2004

EC launches public consultation on shareholders' rights

The European Commission has launched a public consultation on facilitating the exercise of basic shareholders’ rights in company general meetings and solving problems in the cross-border exercise of such rights, particularly voting rights. Responses will be taken into account in a forthcoming proposal for a Directive – part of the Commission Action Plan on Corporate Governance. The deadline for responses is 16 December 2004.

The Commission’s May 2003 Action Plan to modernise company law and enhance CG (see IP/03/716 and MEMO/03/112) contains a set of initiatives aimed at strengthening shareholders' rights, reinforcing protection for employees and creditors, increasing the efficiency and competitiveness of European business and boosting confidence on capital markets.

Internal Market Commissioner Frits Bolkestein said: “Shareholders need to be able to ensure that management is acting in the best interests of the company. To do so, they need access to appropriate information and to effective ways of exercising real influence. Making sure shareholders can exercise their rights will help spread cross-border investing and integrate EU capital markets. If we want the extra growth that will result from that, we need to say ‘goodbye’ to opacity and communication from the age of the carrier pigeon and ‘good morning’ to modern, electronic, transparent information systems that result in real rights being exercised. So I encourage all interested parties - companies, individual and institutional shareholders and regulators - to respond. We will listen.”

The Commission’s consultation paper gives first indications as to the possible future EU regime on shareholders’ rights in listed companies. The Commission considers that this should be based on a Directive, since the effective exercise of such rights requires solving a number of legal difficulties.

The main issues on which the Commission is seeking responses are:
  • the entitlement to control the voting right - investors in shares are often not recognised as shareholders, in particular in cross-border situations, and are in practice deprived of their right to vote as they wish
  • the dissemination of information before the general meeting and the possible need for minimum standards to ensure that all shareholders, irrespective of where they live, get information in time
  • the criteria for participation in general meetings, and the removal of overly cumbersome criteria, such as share blocking requirements
  • possible minimum standards for the rights to ask questions and table resolutions
    possible measures to enable shareholders to vote by post, electronically, or by proxy
    the dissemination of information following the general meeting and the possible need for confirmation that votes have been executed.

    The consultation paper is available here.

    Responses should be sent by 16 December 2004 to DG Internal Market - Unit G4, European Commission, B-1049 Brussels, or emailed to: Markt-COMPLAW@cec.eu.int

Do you agree with Frits Bolkenstein that "(...) modern, electronic, transparent information systems that result in real rights being exercised (...) are important for additonal economic growth?