April 3, 2018

Responsible Investor – Are Global Governance Practices Converging?

New report on the topic identifies regional developments on corporate governance.

By Paul Hodgson

France, Japan, and Saudi Arabia, are all experiencing a rise in scrutiny of corporate governance, according to a new report, 2018 Global Trends in Corporate Governance, published by Farient Advisors in conjunction with the Global Governance and Executive Compensation Group (GECN). These three countries were only added this year to the survey, which looks at three major categories of governance: executive pay, board structure and composition, and shareholder rights.

Developments in these three countries include, in France, possible mandatory Say on Pay. In Japan, the adoption of corporate governance code, introduced in 2015, is glacial, but the report says the number of actually independent directors is climbing. In Saudi Arabia, in March 2017, the Saudi Capital Market Authority (CMA) approved new corporate governance regulations for companies listed on the Saudi exchange, Tadawul. These rules “strengthen oversight by the CMA, enhance shareholder rights, clarify board, committee, and executive roles, and increase disclosure requirements.” It is likely Saudi is strengthening its governance requirements, says the report, because of its intention to list Saudi Aramco, the sovereign oil company, on a foreign exchange. Other countries where governance is on the move include Australia, whose Banking Executives Accountability Regime is an example of government response to poor corporate conduct in that sector.

The report does not attempt to cover each of its subject areas comprehensively, but rather picks those areas that are most in flux. It notes that regulations generally “lead the change process” regarding executive pay, and gives the example of Say on Pay – although these vary considerably from country to country. “Belgium and India have the broadest range of requirements, followed by Australia, France and the UK, while Brazil, Mexico, and Singapore have fewer.” The survey adds that more than a quarter of the countries included do not have Say on Pay votes, but that there are internal debates about whether they have any impact on executive pay. Countries without Say on Pay include China, Mexico, Hong Kong, Saudi Arabia, Singapore and South Africa. As these markets open up to outside capital, however – and this is a general conclusion of the report – the increased desire on the part of these shareholders to be able to evaluate pay programmes and overall corporate governance will begin to influence practice and regulations.

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