European Share Owner Reforms Move Forward

The UK's Financial Reporting Council, the independent body charged with the oversight of financial reporting standards and corporate governance has moved forward with its plans to reform the UK's corporate governance frameworkd.

Gone will be the confusing "Combined Code" (a historical legacy of layers of reform) and in comes ”The UK Corporate Governance Code”. Assuming all goes well with the consultation it will apply to all "Premium Listing" issuers, regardless of their domicile.

What about shareholders, what's on the agenda for them? Here are just some of the points:

>> Either annual re-election of the chairman or all directors
>> Closer links between executive pay, risk management and non-market metrics i.e. a switch from TSR/EPS to strategic metrics or potentially ESG metrics such as health & safety standards, CO2 emissions etc
>> External board evaluation every 3 years
>> A code of conduct for shareholders - possibly embedded in an ongoing regulatory obligation
>> Best practice principles on dialogue and engagement

As before, the Code will be a "Comply or Explain" model rather than a prescriptive set of rules. Controversially, the FRC is considering introducing many of the Banking-related reforms propsed by Sir David Walker in his recent Treasury-sponsored independent review of Banks and other financial institutions. This will not sit well with many issuers who had hoped to escape with a lighter touch.

The informal Institutional Shareholders' Committee (ISC), the previous author of a code of conduct for investors will see their propsals swept up into a consultation of its own. Concerns about conflicts of interest and lack of transparency in the funding and principles of the ISC has seen the UK government ask the FRC to take ownership of the Shareholder Code which will be now be open to ALL stakeholders, not just the members of the constituent trade association investment committees.

The proposed UK Corporate Governance Code is now open to consultation and the FRC is keen to hear from ALL shareholders, irrespective of their location. To find out more visit: http://www.frc.org.uk/press/pub2175.html

According to the World Federation of Stock Exchanges, the UK market is the largest single national stock market in the world after the US & Japan,. If you are invested globally, the governance of companies quoted in the London market should be of significant interest, if not to you, then at the very least your fund managers. Some questions you might want to ask: do your fund managers have a governance policy for the UK & Europe? Are they participating in the reform process? Why are European markets different from the US? What influence to global governance standards have in the US? Why is co-operation between the US and UK so important.

If you have any questions just send me a message.