The concept of institutional investor stewardship is based on the notion that in publicly listed companies responsibility for corporate governance is shared. The primary responsibility lies with the board, which oversees the actions of its management. Institutional investors in the company are assumed to play an important role in holding the board to account for fulfilling its responsibilities. According to the UK Stewardship Code (2010), effective stewardship is about well-chosen engagement. This means that institutional investors monitor and engage with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration. Engagement means having a purposeful dialogue with companies on these matters as well as on issues that are the immediate subject of votes at general meetings.
Posts Tagged ‘EU’
In the European Union insider trading has been regulated much more recently than in the United States, and it can be argued that, at least traditionally, it has been more aggressively and successfully enforced in the United States than in the European Union. Several different explanations have been offered for this difference in enforcement attitudes, focusing in particular on resources of regulators devoted to contrasting this practice, but also diverging cultural attitudes toward insiders. This situation has evolved, however, and the prohibition of insider trading has gained traction also in Europe. Few studies have focused on the substantive differences in the regulation of the phenomenon on the two sides of the Atlantic.
1. On 10 April 2014 some of the legislation that provides for the extraterritorial effect of the European Markets Infrastructure Regulation (“EMIR”) came into force. The remaining legislation will come into force on 10 October 2014. This post considers this legislation and the counterparties to which it applies. It also considers whether some counterparties might be able to avoid the extraterritorial effect as a result of the European Commission making an equivalence decision in respect of third country jurisdictions. It considers the European Securities and Market Authority (“ESMA”) advice to date on the equivalence of the regulatory regimes in the US, Japan, Australia, Canada, Hong Kong, India, Singapore, South Korea and Switzerland and notes that even in the US ESMA did not find full equivalence. Finally this post also considers the requirements that third country central counterparties (“CCPs”) and trade repositories must meet in order respectively to provide clearing services to their EU clearing members and to provide reporting services to EU counterparties which enable those counterparties to satisfy their clearing reporting requirements under EMIR.
Regulation of proxy advisers is a widely discussed subject matter worldwide. The European Securities and Markets Authority (ESMA), the regulator responsible for enforcing European securities regulation, declared in its ESMA Final Report and Feedback Statement on the Consultation Regarding the Role of the Proxy Advisory Industry in February 2013, to favor a self-regulatory approach over mandatory regulation of the industry. “In order to ensure a robust process in developing, maintaining, and updating the Code of Conduct,” ESMA set up a list of key governance for developing a Code of Conduct for the industry (see ESMA, Final Report, at p. 11). These included, inter alia, a transparent composition and the appointment of an independent Chair that possesses the relevant skills and experience. The Code of Conduct was required to “adequately address the needs and concerns of all relevant stakeholders (including proxy advisors themselves, institutional investors, and issuers).” ESMA’s Final Report offered guidance for the detailed elaboration of the Code of Conduct on certain subject matters. In particular, ESMA asked the industry to respond to concerns regarding conflicts of interests and communication with issuers.
…continue reading: Best Practice Principles for Proxy Advisors and Chairman’s Report
Over the past few years there has been a noticeable increase in the frequency of activist investors building up considerable stakes in German listed companies in the context of public takeovers. One reason for this development is what appears to be a new business model of hedge funds—the realization of profits through litigation after the completion of a takeover. To this end, the funds take advantage of minority shareholder rights granted under German stock corporation law in connection with certain corporate measures which are likely to be implemented for business integration purposes following a successful takeover.
Like in the US, European policy-makers have taken a number of measures as a reaction to the financial crisis, some of which address corporate governance issues of credit institutions and investment firms (hereafter collectively referred to as “banks”). Other than in the U.S., however, and more consistently with the financial origins of the crisis, very little has made its way into legislation that applies to non-financial corporations.
Two articles (among several) in a comprehensive proposal to revise EU corporate governance would have a significant beneficial impact if they were to be adopted in the United States. In large measure they mirror recommendations by Chief Justice Leo E. Strine, Jr., in two essays: Can We do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, 114 Columbia Law Review 449 (Mar. 2014) and One Fundamental Corporate Governance Question We Face: Can Corporations Be Managed for the Long Term Unless Their Powerful Electorates Also Act and Think Long Term? 66 Business Lawyer 1 (Nov. 2010).
A recent and groundbreaking decision of the European Court of Human Rights (ECHR) in Strasburg might shatter the entire structure of the Italian and European regulation of market abuse (insider trading and market manipulations). The case is “Grand Stevens and others v. Italy”, and was decided on March 4, 2014.
The facts can be briefly summarized as follows. In 2005, the corporations that controlled the car manufacturer Fiat, renegotiated a financial contract (equity swap) with Merrill Lynch. One of the goals of the agreement was to maintain control over Fiat without being required to launch a mandatory tender offer. Consob, the Italian securities and exchange commission, initiated an administrative action against the corporation and some of its managers and consultants, accusing them of not having properly disclosed the renegotiation of the contract to the market. The procedure resulted in heavy financial fines (for some individuals, up to 5 million euro), and additional measures prohibiting some of the people involved from serving as corporate directors and practicing law. At the same time, a criminal investigation was launched for the same facts. It is not necessary here to discuss the merits of the controversy, it is sufficient to mention that the sanctioned parties challenged the sanctions in Italian courts, but did not prevail.
There has been no shortage of press coverage about the lack of employment diversity in the financial services sector. Now, both the US Congress and the European Union have taken action in an attempt to remedy historical practices. The increased focus on the adequacy of an institution’s diversity and inclusion initiatives warrants their reexamination in light of regulatory developments and evolving best practices.
Background—The Statutory Requirements of Section 342 of Dodd-Frank
Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Section 342”) was adopted to help correct racial and gender imbalances at financial institutions and their regulators by prescribing inclusion requirements at the specified US government agencies that regulate the financial services sector, entities that contract with the agencies and the private businesses they regulate. Congresswoman Maxine Waters of California, the author of Section 342, noted that “many industries lack the inclusion and participation” of minorities and women, with none “more egregiously … than the financial services sector.” Section 342 provides the opportunity to “not only give oversight to diversity, but to help the Agencies understand how to do outreach [and] how to appeal to different communities.”
EU proposal for a regulation on structural measures improving the resilience of EU credit institutions
1. On 29 January 2014 the European Commission published a proposal for a regulation of the European Parliament and of the Council “on structural measures improving the resilience of EU credit institutions”. This proposed legislation is the EU’s equivalent of Volcker and Vickers. It was initiated by the Liikanen report published on 2 October 2012 but the legislative proposal departs in a number of ways from the report’s conclusions. There are two significant departures: the legislative proposal contains a Volcker-style prohibition, which also departs from the individual EU Member States’ approach, and, although the proposal contains provisions which mirror the Vickers “ring-fencing” approach they are not, in direct contradiction to Liikanen’s recommendation, mandatory.