Dr Hans-Christoph Hirt

Lessons from Norway?

‘There are of course good reasons for SWFs to stay away from shareholder activism that is typically carried out by short-term and event-focused hedge funds. These include, but are not limited to, potential political sensitivities and regulation that is specifically targeted at SWFs. However, it seems difficult to defend a complete hands-off approach of SWFs in relation to the governance of companies in which they invest.’

Sacha Sadan

Active ownership: driving the change

‘A code of practice is not about creating a one-size-fits-all approach, or re-writing the rules to add another reporting requirement for companies, but to ensure that the purpose of [board] reviews is more in equilibrium between investors and companies rather than tilted towards management. Transparency with regards to the methodology undertaken is fundamental to this, albeit recognising that sensitivity around some issues may prevent full public disclosure.’’

Alex Edmans

Reforming CEO pay

‘... in years in which the CEO has significant equity vesting, he cuts investment in many forms – R&D, advertising, and capital expenditure. Moreover, in these years, he’s more likely to exactly meet or just beat analyst earnings’ forecasts – if the forecast is $1.27 per share, he reports earnings of $1.27 or $1.28. Indeed, the magnitude of the investment cuts is just enough to allow the CEO to meet the target. Thus, vesting equity induces the CEO to act myopically – to cut investment to meet short-term targets.’

Dr Shann Turnbull

Defining and achieving good governance

‘Stakeholders can be expected to have views that are contrary to those of management. In this way directors can not only cross check management reports on the known knowns, but also obtain different views on the known unknowns and expose themselves to becoming aware of the unknown unknowns. This is not possible in command and control hierarchies where contrary behaviour or views may not be tolerated.’

Livia Amidani Aliberti

The Italian way

‘Quotas make numerical change happen. The law needs the market and the market needs a “nudge” from the law. The final aim is the quality of boards, the contribution boards add to the management of a company and their ability to create sustainable value for the stakeholders. Only a sincere and mature engagement of the market can ensure that the numerical change develops into value for stakeholders.’

Seamus Gillen

The future of governance in the Gulf?

‘The scale of economic development is now so complex, significant and fast – even furious – that the region needs to embrace governance good practice with a heightened sense of urgency and commitment. No-one in the Gulf wants to see repeated the corporate collapses and value destruction which became the hallmark of the western economies during the financial crisis.’

David Young and Lawrence Reed

NAS: the new nightmare

‘What companies do in the next two years could impact on the whole of their procurement of both audit and non-audit services after 2016. Put simply, who a company uses now for a professional service in a subsidiary may affect who may audit them in, say, 2018.’

Peter Montagnon

Ethics, risk and governance

‘Many boards acknowledge the importance of a healthy corporate culture, both because of the role this plays in mitigating risk and because of the value to their franchise of a sound reputation. A healthy culture also reduces politics inside the company and makes for more engaged employees. Yet there is often a temptation to see embedding culture as largely a compliance exercise, whereas values actually go to the heart of what a business is and how it works.’

Dr Shann Turnbull

It’s time to fix toxic governance

‘While a European supervisory board separates some governance powers from those of management the conflicts remain because the management board is accountable to the governing supervisory board rather than being separately elected and accountable to shareholders.’

Alex Cameron

Evaluating board performance

‘The most enlightened boards use the process to address sometimes longstanding issues or topics where an outside perspective is valuable, eg succession. In fact, some boards are using external evaluation more regularly than required by the Code.’

Anthony Fitzsimmons

Risk reporting guidance

‘Behavioural and organisational risks are important causes of reputational damage and of many well-recognised risks. However, boards cannot properly report until they have systematically identified and evaluated both the range of behavioural and organisational risks at work in the company and the extent to which they may give rise to principal risks including reputational hazard.’

Cheryl Gustitus

Greater alignment

‘Unless directors take the initiative to engage with investors, they are woefully unequipped to determine how aligned or unaligned they are with their investors. When issues go unaddressed, investor discontent escalates and results in either contentious engagement or a battle to throw out seated directors.’

Liz Murrall

EU audit reform

‘These reforms will go a long way to address investors’ concerns. However, there are fears that the flexibility afforded to mandatory rotation could adversely impact audit quality ... allowing Member States options to either extend the mandatory rotation period or indeed shorten it, could create a patchwork of different regimes with companies using different auditors in different parts of the globe.’

Ken Kobayashi

Engagement in Japan

‘Contrary to popular belief, Japanese shareholder rights are actually very strong, but we feel that seeking to assert those rights to impose change is not as productive or conducive to long-term value as working with the management to get better results.’

Helen Pitcher

The board’s strategic succession imperative

‘... succession needs a 20-year horizon not the limited three- to five-year horizon that spans a typical CEO’s tenure. Interestingly, organisations that have focused in depth on such matters have had long-standing CEO’s, stellar performance and a clear and deeper focus on their talent, providing both formal development, stretch assignments and exposure to the board.’

Lawrence Reed

Materiality – a new era of transparency and scrutiny

‘Crucially the new audit report disclosure means that investors and all other stakeholders will be able to make comparisons with levels at other similar companies in similar sectors. If it proves that levels which might be expected to be similar vary significantly then it should raise questions and prompt audit committees to seek justifications.’

Dennis Kerslake

What are non-execs for?

‘Our research suggests that some CEOs feel that non-execs have a tendency to use compliance as a personal safety net rather than as a means of maintaining best practice. There is a sense that while non-execs’ first duty is to the shareholders, they are sometimes perceived to be concerned principally in their own self-preservation.’

Julie Baddely

Collaborative leadership in the boardroom

‘In the executive group, CEOs need to bring options to a board with a genuine desire for more non-exec input to the decision, not just a fait accompli to be rubber stamped. There is nothing more frustrating or likely to damage relationships within a board as a group of non-execs who think that they are being manipulated or bounced into a decision.’

Brian Back

Out of site, out of mind?

‘In some cases factories and depots have been closed down for more than a year, others have been forced to relocate due to the level of contamination. Sadly, in many cases the sheer weight of the financial fines, remuneration costs and inadequate insurance cover mean that the closures are permanent.’

Elaine Forrest

New Year, new reporting regulations

‘There has been a real focus on revisiting roles, responsibilities and process for the year-end reporting process. Preparers are also changing the content they put in front of the board. And boards are getting involved much earlier so that there’s more time for reflection, challenge and amendment.’

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