Key Governance Developments - January 2020
Regulators raise concern over tick-box approach to governance compliance
Too many companies in Europe pay only lip service to corporate governance issues and take a box-ticking approach to compliance that fails to address key concerns, according to public authorities. in the UK, the Financial Reporting Council says that often companies not only flout guidelines on appointing independent directors and not letting CEOs retain control by becoming chairman, or setting limits on chairmen's tenure, but also fail to meet their obligation to provide an explanation for not following the standards. The issue of director independence has been highlighted in recent months by the rejection by German and European regulators of Jürg Zeltner, CEO of KBL European Private Bankers (now Quintet Private Bank), as an independent director of Deutsche Bank, on the grounds of conflict of interest given the competition between the two banks in wealth management in Germany and elsewhere. Deutsche is reported to be still searching for a candidate that meets the regulators' independence criteria while being acceptable to the group's Qatari shareholders.
UK audit regulator criticises corporate approach to governance code compliance
An annual review by the UK Financial Reporting Council has criticised listed UK companies for taking a tick-box approach to compliance with the Corporate Governance Code. Many companies declare themselves fully compliant with the code's requirement to provide information on their governance policies and practices, and the outcomes observed. However, they frequently failed to explain why they had too few independent directors on their boards, why former CEOs have been appointed as chairman, or why chairmen have remained in the position for more than 18 years.
Best source: Compliance Week
CSSF fines Luxembourg fund firms for compliance failings
The CSSF has fined two fund management firms for non-compliance with regulatory requirements. Private label fund provider Axxion has been fined €80,000 following onsite monitoring in June 2017, while Hamburg-based Hansainvest Lux has received a penalty of €23,000, also following an onsite check in March 2018. The CSSF says the penalties took into account the remedial action taken and planned by the firms, which share an address in Grevenmacher. Hansainvest Lux management board member Christian Tietze was head of German business at Axxion until last June.
Best source: Paperjam (in French)
Dutch companies linked to Angolan human rights abuse
Dutch dredging company Van Oord, ING Bank and insurer Atradius have been linked to land grabs and human rights abuse by Urbinveste, a company owned by Isabel dos Santos, daughter of a former Angolan president. Three thousand families claim they were intimidated and forced from their homes to make way for an urban redevelopment project, which was ultimately cancelled by a new administration in Luanda. ING lent more than €350m to the project, which was insured by Atradius.
Best source: NL Times
Ghosn continues fight with Nissan and Renault
The legal team representing former Nissan CEO Carlos Ghosn has denied new allegations filed by Nissan to the Tokyo Stock Exchange linked to claims that Ghosn illegally under-reported his income from the Japanese auto manufacturer. Ghosn recently fled Japan for Lebanon. Ghosn is also suing Renault for €250,000 in pension payments and future share entitlements he says he is owed for his role as chairman, despite his forced resignation after being arrested and imprisoned in Japan. Nissan executives are reported to be making contingency plans for quitting the alliance between Renault, Nissan and Mitsubishi that was championed by Ghosn, although the claims have been denied.
Best source: Euronews
See also: Financial Times (subscription required)
Airbnb creates stakeholder committee to improve corporate governance
Online property rental platform provider Airbnb is establishing a board stakeholder committee, and will link staff bonuses to the safety of customers who stay at properties let via the platform. The company says it will measure guest safety incidents and verify the seven million listings on the platform, as well as increasing employee diversity and measuring its global carbon footprint.
Best source: Bloomberg
Deutsche Bank struggles to find alternative to Jürg Zeltner for supervisory board
The search by Deutsche Bank and its Qatari shareholders for a successor to Jürg Zeltner on its supervisory board is making little progress, months after banking supervisors at BaFin and the European Central Bank made it clear that Zeltner was not appropriate as a member of the board because of a conflict of interest with his role as group CEO of KBL European Bankers. Deutsche has now engaged headhunting firm Egon Zehnder to find candidates that enjoy the confidence of the Qatari shareholders and are acceptable to the regulators.
Best source: Handelsblatt (subscription required, in German)
Wirecard shareholders demand independent review of fraud allegations
Lawyer Wolfgang Schirp says that more than 100 private shareholders, family offices and small fund managers with a stake of over 2% in payment company Wirecard are demanding an independent examination of allegations of fraud and false accounting at the company’s business in Singapore. Wirecard has already commissioned its own report by KPMG. The firm’s chairman, Wulf Matthias, has resigned and will be succeeded by former Deutsche Börse chief financial officer Thomas Eichemann, who oversaw the commissioning of the KPMG report.
Best source: Financial Times (subscription required)
Hong Kong Exchanges chair says directors must take lead on sustainability
Laura Cha, chairwoman of Hong Kong Exchanges and Clearing and a member of the territory’s executive council, says that with environmental, social responsibility and governance issues now seen as critical to business success, boards must drive companies' sustainability agenda. She says that while policy-makers and regulators can demand change, directors should play a leading role because they possess the deepest understanding of the businesses' goals and motivations and of the culture of their operating markets, as well as being the primary monitors of risk and guardians of long-term enterprise value.
Best source: World Economic Forum
Credit Suisse surveillance cases raise questions about governance: Swiss regulator
Thomas Bauer, head of Swiss regulator Finma, says the surveillance of executives by Credit Suisse is not itself a supervisory issue, but the agency does have questions regarding governance, documentation, controls and communication channels at the bank. Whether the review of these issues will prompt any supervisory consequences remains unclear. The bank had wealth manager Iqbal Khan and human resources director Peter Goerke shadowed by detectives in separate incidents.
Best source: Reuters (in German)
ABN Amro appoints CEO to respond to money laundering investigation
ABN Amro has appointed Robert Swaak, the former chairman of PwC Netherlands, as its CEO in place of Kees van Dijkhuizen. Swaak's first job will be to handle the results of a government investigation into allegations of failures in the bank's money laundering and financing of terrorism controls. ABN Amro, which has tripled its compliance and financial crime prevention staff to 1,400 and last year pledged a further €220m to tighten procedures to curb money laundering, is alleged to have failed to carry out sufficient due diligence and monitoring of customers, as well as omitting to report suspicious transactions to the Dutch financial intelligence unit.
Best source: Financial Times (subscription required)