Key Governance Developments - February 2019

Legal cases shine spotlight on governance issues at carmaker alliance and Bankia

The high-profile arrest in Japan of Nissan chairman Carlos Ghosn on charges of failing to declare income, and the company's subsequent creation of an $83m accounting provision against Ghosn's deferred compensation, has led to closer examination of corporate governance both at the Japanese group and France's Renault. Since the 1990s Ghosn has been the all-powerful figure at the two companies and their carmaking alliance with Mitsubishi, raising questions about board oversight of dominant executives. Meanwhile, in Spain, a trial of former IMF managing director Rodrigo Rato and other executive members of bailed-out savings bank group Bankia is examining their role and that of Spain's central bank in the entity's creation and subsequent collapse, leaving 300,000 retail investors out of pocket.

US public companies demand regulation of proxy advisers

A group of 319 listed US companies co-ordinated by the Nasdaq stock exchange has written to the Securities and Exchange Commission calling for the regulation of proxy advisers. The companies say they are concerned about potential conflicts of interest and a lack of transparency in the methods used by advisers to determine their voting recommendations in areas such as the election of board members, executive remuneration and other corporate governance issues. Glass Lewis and Institutional Shareholder Services dominate the US proxy adviser market. Nasdaq says frustration with proxy advisers is deterring some companies from listing on the stock market, reflected in a downturn in the number of IPOs.

Best source: Financial Times (subscription required)

See also: Financial Times (subscription required)

Nissan books $83m provision against Ghosn deferred pay

Carlos Ghosn, former chairman of Nissan

Nissan Motor Co. has booked an $83m provision in connection with deferred pay compensation arrangements for Carlos Ghosn, the company’s former chairman who is currently under arrest in Japan. The charge relates to unpaid remuneration to Ghosn, who is accused of understating his personal income and other financial misconduct. The indictment of Ghosn by Tokyo prosecutors following his arrest last year has focused an unflattering spotlight on the corporate governance controls of both Nissan and its French alliance partner, Renault, which Ghosn also headed until January.

Best source: Bloomberg

Former chairman blames central bank mismanagement for Bankia collapse

Former International Monetary Fund managing director Rodrigo Rato has blamed the Banco de España for mishandling the merger of seven regional mutual banks to form Bankia. Just a year after Bankia’s 2011 initial public offering under Rato's chairmanship, which raised €3.1bn, the bank needed a €22.5bn bailout and was nationalised, wiping out the stakes of more than 300,000 retail investors. Rato, who along with three other former Bankia board members is on trial charged with fraud, price fixing and falsifying accounts, is already serving a four-and-a-half year prison term for embezzlement.

Best source: Reuters

Japanese committee sets out governance reforms

A sub-committee of the Legislative Council of Japan's Justice Ministry has drafted proposed reforms to corporate governance, including a requirement on both listed and unlisted large companies to have independent directors. More than 90% of Tokyo Stock Exchange-listed companies already have external directors. Boards would also be required to determine and disclose their strategy on executive compensation and the standards set for fixed and performance-linked remuneration elements.

Best source: Nikkei Asia Review

UK company directors face imprisonment for abuse of employee pension funds

The UK's Department for Work and Pensions has published legislative proposals under which company directors could be sentenced to imprisonment or unlimited fines if they fail to provide correct information or to notify certain events in the operation of employee pension funds. The ministry is seeking to give Britain's Pensions Regulator greater powers to investigate corporate transactions to ensure that defined-benefit pension funds are protected.

Best source: Department for Work and Pensions

Singapore regulator creates corporate governance advisory committee

The Monetary Authority of Singapore has set up a committee to advise on good corporate governance practices. Bobby Chin, director of Singapore Telecommunications, will chair the committee, which will revise current guidance to clarify the country's Code of Corporate Governance. The committee's role is advisory rather than regulatory or of an enforcement nature, with the Singapore Exchange Regulation, MAS, and the Accounting and Corporate Regulatory Authority remaining responsible for taking regulatory action against corporate governance-related breaches.

Best source: Singapore Business Review

Bank enquiry instructs Australian regulator to amend executive pay rules

Australia's enquiry into wrongdoing in the country's banking industry has urged the Australian Prudential Regulation Authority to adopt a more prescriptive approach toward bank remuneration, asking the regulator to rewrite its rules to enable compensation of employees for the management of non-financial risk. The enquiry has called for remuneration systems to be designed to minimise the risk of misconduct.

Best source: Australian Financial Review

Bank of England may intervene in Barclays activist investor dispute

Mark Carney may intervene if corporate activist destabilises Barclays

The governor of the Bank of England, Mark Carney, may intervene if corporate activist Ed Bramson destabilises Barclays, one of the UK’s biggest banks. Bramson has built a significant equity stake in the bank and is seeking a board position, but will need approval from the Prudential Regulation Authority, part of the Bank of England.

Best source: This is Money

UK pension outsourcing to face competitive tendering

The UK's Competition and Markets Authority says that pension schemes outsourcing the management of more than one-fifth of their assets to consultants and fiduciary managers must run competitive tenders involving a minimum of three companies. Arrangements already in place must be put out to tender within five years. The competition regulator has already examined fees and performance in the sector following a referral by the Financial Conduct Authority.