Key Governance Developments - January 2019
Collapse of Santander CEO appointment underlines hazards of deferred compensation rules
The aborted appointment of former UBS investment banker Andrea Orcel as CEO of Banco Santander over the €50m cost of compensating him for deferred remuneration that would have been withheld by UBS because he was joining a competitor has illustrated some of the unintended consequences of deferred compensation schemes that require large proportions of executive pay to be paid out in the form of shares and staggered over several years. In this case it appeared that Orcel and Santander assumed, wrongly, that UBS would not invoke the competitor clause on account of Santander's different strategic focus and the Swiss bank's longstanding advisory relationship with the Spanish-based group. The episode suggests that while deferred remuneration is designed to align the interests and time horizon of executives and shareholders, sometimes other factors can defeat these good intentions.
Santander CEO appointment founders on cost of compensation for lost deferred pay
The appointment of former UBS investment banker Andrea Orcel as CEO of Banco Santander has collapsed over concerns about the amount of financial outlay required to compensate Orcel for the loss of UBS stock options due to him as part of deferred pay because he was set to join a competitor. Santander says the amount, estimated at €50m, would be unacceptable for a retail and commercial bank. Incumbent José Antonio Álvarez will remain in the post with the position of vice-chairman instead of stepping up to chairman as previously planned. For now, Santander does not plan to search for another CEO candidate.
Best source: eFinancialCareers
See also: Handelsblatt (subscription required, in German)
See also: Financial Times (subscription required)
See also: The Guardian
Former Deutsche Börse CEO to pay nearly €5m to settle insider trading allegations
Former Deutsche Börse CEO Carsten Kengeter must pay nearly €5m to settle allegations of insider trading in connection with the attempted acquisition of the London Stock Exchange. The investigation was dropped by prosecutors in Frankfurt on condition of a payment of €250,000 along with the €4.5m Kengeter invested in Deutsche Börse shares ahead of the 2016 announcement of a merger with the UK exchange operator, later dropped after competition objections from the EU. Deutsche Börse itself was fined €10.5m over the controversy, which ultimately cost Kengeter his job.
Best source: Handelsblatt (subscription required, in German)
See also: Handelsblatt (subscription required, in German)
Swiss whistleblower protection reforms criticised as inadequate
Plans by the Swiss government to reform whistleblower laws have been criticised as failing to offer sufficient protection to employees who expose bad practice or wrongdoing at their companies. Critics say the changes may not be adequate to protect the jobs of whistleblowers or their ability to obtain further employment in their field of expertise. Credit Suisse and UBS have established internal schemes that comply with global standards of protection.
Best source: Financial Times (subscription required)
Official review proposes replacement of UK Financial Reporting Council
A government review by Sir John Kingman, chairman of Legal & General, has suggested that the UK Financial Reporting Council be replaced by a new regulator with clear statutory powers and goals. Kingman suggests the new regulator be known as the Audit, Reporting and Governance Authority and have the power to impose strict disclosure requirements on UK companies. He also suggests abolition of the Stewardship Code, which sets out reporting standards, and is already the subject of a planned overhaul by the council.
Best source: The Actuary
UK delays introduction of company ownership registers in overseas territories
The UK government has delayed the mandatory creation of publicly accessible company ownership registers in Britain's 14 overseas territories from the end of 2020 until 2023. The public register requirement stems from an amendment last year to the UK’s Sanctions and Anti-Money Laundering Act, which would oblige the territories to make the names of owners of offshore companies registered in the jurisdictions publicly available as a means to curb tax avoidance.
Best source: International Adviser (registration required)
Shell to link executive pay to carbon emission reduction
Oil and gas group Royal Dutch Shell is to introduce three-year or five-year carbon emissions reduction targets annually from 2020, to which it will link its executive pay. Shell had previously intended to set only non-binding long-term emissions targets, but it has now agreed to stricter commitments under pressure from its shareholders. Shell’s targets will include so-called Scope 3 emissions from the burning of fossil fuels sold to millions of customers around the world, rather than just emission reductions in its own operations.
Best source: Reuters
UK introduces executive pay transparency requirements
UK listed companies with more than 250 employees must henceforth disclose and explain the pay of their executives and the gap between these salaries and that of their average employee. Companies will be required to reveal the ratio of their CEO’s pay to the median, lower quartile and upper quartile of their UK employees on an annual basis, starting from the beginning of 2020 for data covering 2019.
Best source: UK government
Former Barclays executives deny fraud in Qatar capital-raising case
Former Barclays CEO John Varley and three other ex-executives have denied charges of conspiracy to commit fraud in connection with capital injections from Qatar in 2008. A trial expected to last months will begin next week. Qatari investors invested £6.1bn in Barclays, enabling it to avoid having to seek a state bail-out, in exchange for what the Serious Fraud Office alleges was £300m in side-deals not fully disclosed. Barclays is reported to be contributing £30m toward the defendants' legal costs.
Best source: Financial Times (subscription required)
See also: Börsen-Zeitung (in German, subscription required)
Denmark considers regulatory overhaul in wake of Danske Bank case
The Danish government is considering changes to the operations of the country’s financial regulator in the wake of the Danske Bank money laundering affair to prevent regulatory capture. Business minister Rasmus Jarlov says proposed changes include measures designed to avoid the Financial Supervisory Authority being too strongly influenced by the banks it is meant to supervise, and that Denmark is consulting with other countries to find the right balance between competence and conflicts of interest in staffing at the regulator.
Best source: Financial Times (subscription required)
Activist calls for ban on SGX companies moving to junior market
A study by corporate governance advocate Mak Yuen Teen argues that companies should not be allowed to switch their listing from the Singapore Exchange main board to Catalist, the market for smaller, fast-growing companies. The report says that preventing companies from making the switch will improve corporate governance standards and help sustain companies' financial performance and profitability.
Best source: Straits Times