Key Governance Developments - March 2019

Pressure for change at Asian groups as investors start to enforce governance rules

Activist investors and other shareholders in Asia are starting to flex their muscles to demand greater transparency and board oversight at listed companies, including groups controlled by founding families that have monopolised decision-making power through opaque cross-shareholding structures. Institutions are seeking the dismissal of a Japanese building material company's CEO, invoking the country's still lightly-applied corporate governance and stewardship code. In South Korea, activist investors are pressing for boardroom change and greater accountability at Hyundai and the parent of Korean Air Lines. Meanwhile, European regulatory authorities are focusing more closely on the role played by professional firms such as lawyers, accountants and consultants in upholding probity at the companies they advise.


Institutions use governance code to seek removal of Japanese company’s CEO

Institutional investors have called for the dismissal of Yoichiro Ushioda, CEO of Japanese housing material supplier Lixil. The company’s previous CEO resigned without prior warning, and investors suspect that proper corporate governance procedures were not followed. The demands are among the first actions taken by investors to enforce governance and stewardship codes introduced by Japan four years ago.

Best source: Financial Times (subscription required)

See also: Reuters 

Irish banker accountability law likely to be delayed

The Irish government expects the draft legislation on accountability for senior bankers may be delayed, although finance minister Paschal Donohoe had promised the proposals would be introduced in the first three months of this year. The Central Bank of Ireland may not gain for another year the power to order banks to document the responsibilities of each senior manager, and make it easier to hold them responsible for risks and problems in the future.

Best source: Irish Times 

Activist investors target corporate governance at family-controlled Korean groups

Elliott Management, the world's largest activist fund investor, has failed in its bid to compel Hyundai to appoint outside directors to its board to improve accountability at South Korea's second largest family-run conglomerate as it prepares for vice-chairman Chung Eui-sun to succeed his father. Analysts say the initiative was the first serious challenge by shareholders to a system in which founding families maintain a strong grip over listed companies in Korea through complex cross-shareholdings with affiliates. Hyundai Motor's annual general meeting is due to be followed by that of Korean Air Lines and its parent Hanjin KAL, at which local activist firm Korea Corporate Governance Investment is expected to challenge the group's controlling family.

Best source: Nikkei Asia Review 

See also: Bloomberg

UK accountants and lawyers failing in fight against money laundering: regulator

UK accounting and law firms are failing to take adequate measures to counter money laundering due to conflicts of interest and fear of business going to rivals, according to Britain's Office for Professional Body Anti-Money Laundering Supervision. The regulator supervising 22 professional bodies says the firms fail to gather basic information and lack appropriate governance arrangements, while a quarter don't even have any supervision of money laundering controls.

Best source: Financial Times (subscription required) 

See also: Reuters

BaFin investigating whether Wirecard violated disclosure rules

German regulator BaFin is investigating whether Wirecard violated its obligation to disclose market-relevant information in connection with alleged accounting irregularities in Asia, in addition to conducting an enquiry into possible market manipulation involving the shares of the payments firm. BaFin will also examine whether the company's senior management should have investigated the allegations against managers at its Singapore subsidiary.

Best source: Börsen-Zeitung (subscription required, in German) 

See also: Die Welt (in German) 

UK regulator pushes for changes to Metro Bank board

The UK's Financial Conduct Authority is applying pressure to Metro Bank not to appoint Ben Gunn, previously the challenger bank’s senior independent director, to the new role of deputy chairman. The regulator is unhappy with Metro’s response to its recently-uncovered accounting errors that left it short of capital requirements, and would like to see bigger changes to the board’s make-up. Gunn has already passed the nine-year maximum term for a non-executive director recommended under Britain’s corporate governance code.

Best source: Financial Times (subscription required) 

See also: City A.M.

US firms to reveal political donations under shareholder pressure

Ameriprise Financial, Chubb, Mondolez International, MSCI and Tractor Supply will reveal details of their spending on political campaigns and candidates, following pressure from shareholders to reveal how shareholder funds are spent. Other companies, including Walmart, supermarket chain Publix, Intel, AT&T and Purina, have cut off corporate political funding after protests at the public statements of candidates who had received support. Bruce Freed, president of the Center for Political Accountability, says the organisation and investors it partners with have reached accountability pacts with 173 member companies of the S&P 500 over the past 15 years.

Best source: Financial Times (subscription required) 

See also: MarketWatch

Half of Scottish limited partnerships not complying with transparency rules

Just 47% of the existing 32,500 Scottish limited partnerships have registered a so-called person of significant control, a shareholder with at least a 25% interest in the entity, despite being required to do so since mid-2017. The remaining limited partnerships - the UK corporate structure most associated with money laundering - have failed to comply to date, but have not been fined. Entities failing to disclose their beneficial owners potentially face fines of up to £500 per day, and the owners a prison sentence of up to two years.

Best source: Financial Times (subscription required) 

Liechtenstein regulator orders Skandia Leben to take over rivals

Liechtenstein's financial market authority has ordered the transfer of the life insurance portfolios and employees of Vaduz-based Wealth-Assurance and its subsidiary Valorlife to Skandia Leben, arguing that the shareholders of the two companies cannot guarantee sound and prudent corporate governance. The two portfolios comprise private placement life insurance policies for about 3,000 individuals with a total asset value of CHF3.6bn.

Best source: Finews (in German) 

See also: Fonds professionell (in German)

See also: Neue Zürcher Zeitung (in German) 

Dubai regulator to examine governance issues after Abraaj collapse

Bryan Stirewalt, CEO of the Dubai Financial Services Authority, says the regulator may change its oversight procedures and approach to corporate governance following the collapse of private equity firm Abraaj Capital. Stirewalt says the DFSA will review its risk-based approach to supervision to ensure that it adequately captures some of the features of the Abraaj case, notably the fact that the regulator did not supervise key group entities including Abraaj Holdings and Abraaj Investment Management, or its private equity funds because they were domiciled in the Cayman Islands.

Best source: Arab News