Key Governance Developments - April 2019

New EU moves to protect whistle-blowers as asset manager condemns ‘overboarding’

The European Parliament has approved a draft directive to protect the rights of whistle-blowers who highlight corporate wrongdoing in breach of EU law, legislation put forward despite reluctance on the part of the European Commission. Jes Staley, CEO of UK bank Barclays, remains under pressure from corporate governance advisers after his attempt in 2016 to uncover the identity of a whistle-blower who had made allegations against a friend and former colleague of Staley. Meanwhile, efforts continue to increase the accountability and effectiveness of directors. Proposed changes at Tesla, previously criticised for the dominance exercised by CEO Elon Musk, would put directors up for re-election every two years, rather than three at present, while asset manager Legal & General has taken a formal stance against the 'overboarding' of directors with too many director roles to fulfil them adequately, as well as serving executives with more than one external board position.


European Parliament approves whistle-blower directive

The European Parliament has approved a directive that will give increased protection to whistle-blowers who report breaches of EU law. The European Commission was initially against introducing legislation, but pressure from the media, charities and parliamentarians, along with the impact of the LuxLeaks disclosures on tax rulings through whistle-blowers at PwC Luxembourg, forced a change of opinion. The directive must now be approved by EU ministers and transposed into national law in member states.

Best source: EU Observer

 ISS advises Barclays shareholders to reject remuneration report

Investor advisory service Institutional Shareholder Services is advising shareholders in Barclays to vote down the UK financial group’s remuneration report, to mark their disapproval of CEO Jes Staley’s role in trying to silence a claimed whistle-blower in 2016. Staley was fined £624,000 by the Financial Conduct Authority, and the bank clawed back £500,000 from his remuneration, while Barclays was itself later fined $15m by the New York Department of Financial Services. ISS says the response of the remuneration committee has been inadequate in the light of the reputational damage to the institution.

Best source: Financial Times (subscription required)


Fund managers say lack of tax transparency can indicate corporate governance deficiencies

Investment fund managers are among the strongest advocates of corporate tax transparency, because they know that a lack of transparency often disguises underlying business failures by multinationals, according to Daniel Bertossa, co-chairman of the Independent Commission for the Reform of International Corporate Taxation and assistant general secretary of Public Services International, a global body representing public sector trade unions. He notes the conviction of Norway's central bank that complex or opaque ownership, organisational and tax structures compromise investors' financial analysis.

Best source: The Namibian


Legal & General to oppose ‘overboarding’ of company directors 

Asset manager Legal & General Investment Management has formally adopted a policy against company directors holding too many other positions, popularly known as ‘overboarding’. The UK’s biggest fund manager has joined US investment groups BlackRock and Vanguard in its voting policy. LGIM now says corporate executives should hold no more than one external non-executive director position.

Best source: Financial Times (subscription required)


Tesla proposes reduction in number and term of board members

Tesla CEO Elon Musk will not seek re-election to the Tesla board in 2020

Electric vehicle manufacturer Tesla is to cut the number of members of its board from 11 to seven, and reduce the term for directors from three to two years. The move will give shareholders a more frequent opportunity to vote on the performance of each member. If the changes are approved at the electric car manufacturer's annual shareholders' meeting on June 11, venture capitalist Stephen Jurvetson and private equity firm founder Antonio Gracias - both long-time associates of Tesla CEO Elon Musk and directors of the billionaire’s rocket launch company SpaceX - have indicated they would not seek re-election to the Tesla board in 2020.

Best source: Bloomberg

UK banks must do more to improve corporate culture: Banking Standards Board

UK banks need to take action to improve their corporate culture, according to the Banking Standards Board's latest annual survey of banking staff. Some 40% of those who had raised concern about a work-related problems say that they did not feel listened to or taken seriously by their employer, and around a quarter of staff say working at their company had a negative impact on their health and well-being.

Best source: Pinsent Masons

See also: Banking Standards Board


Belgium rolls out new company code 

Belgium's parliament has approved the country's Companies and Associations Code, which is designed to make the jurisdiction more attractive to international companies. The code, which will become applicable from May 1 with staggered effect, abolishes the two-shareholder requirement and the one-share, one-vote rule, enables multiple voting rights, as well as permitting the appointment of a sole director rather than a multi-member board.

Best source: Jones Day


Five banks launch Irish Banking Culture Board

Five retail banks have launched the independent Irish Banking Culture Board, headed by former Appeal Court judge John Hedigan. The board has been established to improve transparency and customer service in the banking industry following the banking crisis, followed by the tracker mortgage issues that saw thousands of mortgage customers charged unduly high interest rates on their loans. A survey shows that two in five employees at the banks have felt their institution was not acting in the best interests of customers but were fearful about raising concerns with their superiors.

Best source: Irish Examiner

See also: Irish Times


Japanese prosecutors file fresh misappropriation charges against former Nissan chairman Carlos Ghosn

Japanese prosecutors have filed new charges of breach of trust against former Nissan chairman and one-time CEO Carlos Ghosn, accusing him of misappropriating $5m from the car manufacturer. The fourth charge follows other indictments involving falsifying his remuneration and abusing his position to transfer unrealised trading losses to Nissan. Ghosn denies the charges and has secured his release from prison on $4m bail. The Tokyo District Public Prosecutor's Office says Ghosn devised a mechanism through which part of payments made by a Nissan subsidiary to an overseas distributor were used to benefit the former chairman and his family, including the purchase of a luxury yacht from Beauty Yachts, a company owned by Ghosn’s wife, and an investment in a company partly owned by his son.

Best source: Financial Times (subscription required)


UK competition authority says accountancy firms should ringfence auditing and consultancy

The UK's Competition and Markets Authority wants the Big Four accounting companies to ringfence their auditing work from their consultancy work for clients to avoid conflicts of interest, as part of its response to the auditing failures and collapse of construction company Carillion and retailer BHS. PwC was fined £6.5m for its auditing failures at BHS, after the authority found the accountancy firm had spent two hours auditing the retailer in 2014 but 31 hours on more profitable consultancy work.

Best source: Reuters