Roundtable: Corporate Governance 2010

Who’s Who Legal: What regulatory changes specific to corporate governance have been introduced in your jurisdiction since our last edition in 2009? What trends do you see in your practice going forward?

Juan Javier Negri: It is essential to keep in mind that in many countries having small or limited capital markets, most corporate entities are created solely with the purpose of limiting businessmen’s liability, and not as a vehicle to tap the markets. Therefore, the need to issue and apply corporate governance rules is only applicable to publicly traded corporations, and often these are few and/or small. No comparison can be made with the situation in countries such as the US. Having said that, the efforts of the Argentine equivalent of the SEC, the Comisión Nacional de Valores (CNV) to impose reasonable corporate governance principles on Argentine corporations are noteworthy. Listed companies are now required to “comply or explain” whether they are applying non-mandatory governance practices. In some cases, however, the text of the relevant regulations appears not to have taken into account the Argentine domestic market, and seem to have been issued without due consideration to local practices.

Jon Webster: The Australian Securities Exchange (ASX) has recently proposed a number of amendments to its Corporate Governance Principles and Recommendations. The Principles and Recommendations are guidelines and are not mandatory. However, to the extent they are not complied with, listed companies and trusts must explain their reasons in their annual reports. A key recommendation is that ASX-listed entities establish a remuneration committee made up of non-executive directors in an effort to reduce perceptions of conflicts of interest. A further recommendation is the introduction of a requirement that listed entities adopt and disclose a securities trading policy that specifies periods of the year when trading is prohibited for key management personnel (ie, market-sensitive periods such as between the close of books and the release of half-year or full-year financial results). The ASX has also recommended that ASX-listed entities disclose their achievements in gender diversity in their annual reports.

In addition, the Australian government plans to introduce legislation in 2011 to implement most of the reforms proposed by the Productivity Commission’s recent report on executive remuneration in Australia. The Commission’s recommendations include the introduction of a “two strikes” policy under which a remuneration report that receives a no vote of 25 per cent or more at two successive annual shareholder meetings would result in a resolution for the re-election of the directors who signed the directors’ report.

Willem Calkoen: On 8 December 2009 the house of representatives accepted a new bill making it possible for companies to optionally choose a one-tier board as an alternative to the Dutch traditional two-tier board. The one-tier board will also be possible for a “structure regime” company. On 9 December 2008 the Frijns committee renewed the Tabaksblat Code of 2004. Much has stayed the same. What is novel in this code is that the management board must submit drafts of ethical regulations to the supervisory board.

Clients' Needs

Who’s Who Legal: How has the global financial crisis and increased regulatory scrutiny affected clients’ corporate governance needs? How has this affected your practice?

Jon Webster: The global financial crisis appears to have led to increased scrutiny by regulatory authorities such as the Australian Securities and Investments Commission (ASIC). ASIC has been particularly concerned to ensure that ASX-listed entities comply with their continuous disclosure obligations. Under ASX Listing Rule 3.1, listed entities are required to make immediate announcements once they become aware of information that may have a material effect on the price or value of their securities. Accordingly, one effect on our clients of this increased regulatory scrutiny is that greater attention has been paid to the timing of announcements.

Juan Javier Negri: Corporate governance rules in Argentina are used solely in connection with listed companies. The CNV, on some ocasions, has issued regulations which do not appear to take into account the limitations, usage of trade and size of the Argentine corporate environment. Law firms have frequently been requested to advise to what extent those regulations are actually applicable and how application of cumbersome rules can be avoided.

Willem Calkoen: Because of the financial crisis there is a new Code for Banks written by the Maas Committee. A salient aspect is a clawback clause on bonuses if the results turn out badly. There is not yet any extra supervision by the Dutch Central Bank.

Law Firm Issues

Who’s Who Legal: To what extent is corporate governance a “stand-alone” practice within your firm? Are clients now increasingly using in-house counsel for their own governance issues?

Willem Calkoen: In our firm, and in most Dutch firms, corporate groups have always dealt with corporate governance. We have always seen corporate governance as part of corporate law. Many universities now have special international corporate governance professors. Geert Raaijmakers is a part-time professor in international corporate governance and an active partner in the corporate group of NautaDutilh.

Juan Javier Negri: Corporate governance matters are relevant only to listed companies in Argentina. In turn, due to the small size of the local capital markets, few corporations are affected. Thus, corporate governance is part of a larger corporate law practice and not a stand-alone practice. However, for those domestic clients having large non-Argentine controlling shareholders, corporate governance principles are relevant regardless of the existence of local regulations and a consequence of self-imposed regulations in foreign jurisdictions. Therefore, we are asked more frequently how to adapt those self-imposed regulations to Argentine subsidiaries rather that how to apply local principles (which, in many cases, are not mandatory).

Jon Webster: Corporate governance work is largely handled by our corporate department, typically by the mergers and acquisitions, and equity and capital markets practice groups. In-house counsel and company secretariat teams play a significant role in the management of particular corporate governance issues, such as advising on the drafting annual reports as required by the ASX listing rules. Our firm is often engaged to deal with enquiries from regulatory authorities (such as the ASX and ASIC) and the drafting of corporate governance policies, for example board charters and securities trading policies, before they are put to a company’s board of directors.

We also provide our clients with significant corporate governance advice on the implementation of procedures to ensure they remain in compliance with antitrust legislation.