Who's Who Legal brings together four of the leading practitioners in the world to discuss key issues facing lawyers today.
Rajah & Tann LLP
Who’s Who Legal: What kind of impact is the new global regulatory regime concerning financial institutions having on your practice, and how are clients responding to the change in compliance culture?
David Quigg: In New Zealand we are finding a raft of new legislative and regulatory requirements being introduced for financial institutions. Clients are finding it difficult to keep up with the various versions of proposed changes to be made, and then the speed of introduction once enacted. It is increasingly accepted that the smaller players will find it difficult, and expensive, to remain compliant and competitive.
Carlos Mello: Despite the fact that the Brazilian Central Bank has already announced a couple of suggested changes in regulations to deal with the new global regulatory regime concerning financial institutions (mainly Basel Accord N. 3), there has not been a significant amount of work required from our bank clients in connection with such measures.
Maximilian Schiessl: The new regulatory requirements have a major impact on both banks and insurance companies. While compensation issues have been the major focus of the public debate in Germany, the capital requirements and solvency issues have a much bigger impact and will significantly change the way our clients conduct their business. It may result in them focusing on less capital-intensive activities.
Kala Anandarajah: Singapore has been no different to the rest of the world in reviewing and introducing regulatory changes relating to governance matters, not least relating to remuneration concerns. The Singapore financial institutions, and in particular the banks and insurance companies, have seen more rigid requirements introduced. On this, in December 2010 the Monetary Authority of Singapore issued the “Guidelines on corporate governance for banks, financial holding companies and direct insurers which are incorporated in Singapore”, along with the substantial amendments that were made to the Banking Regulations and the Insurance Regulations. The focus has been on the board, risk management, accountability, integrity, and culture, among various other concerns. One little talked about but interesting, and in my view, welcome change is the requirement that a director will not be considered independent if he has sat on the board for a continuous period of nine years. Additionally, in February 2010, the Monetary Authority of Singapore, which has ultimate oversight of corporate governance regulations not just for the financial sector but also for all listed companies, established a Corporate Governance Council to see how best improvements could be made to the Code of Corporate Governance introduced in 2001 and amended in 2007.The Council is expected to release its report for consultation in the coming months. Some of us believe that the code is in for a major change.
Who’s Who Legal: Many lawyers described last year as the ‘year of the crisis’, as shareholder activism; data loss issues, product recalls and natural resources disasters dominated the media. What are the current governance issues affecting your clients this year?
Carlos Mello: Shareholder activism is one of the key current governance issues in Brazil. Clients, especially foreign corporations that were very active during the privatisation years and ended up buying the control of large Brazilian publicly held corporations, are facing a growing level of severity on some of their actions on controlling shareholders. In this sense, debates are taking place in the Brazilian Securities and Exchange Commission and in the financial community on issues such as conflict interest and exploitation of particular benefits by controlling shareholders. In its last decision, the Brazilian Securities and Exchange Commission adopted the formal concept of conflict interest by which the shareholder must, within any conflict of interest with the company, refrain from voting in the relevant resolution (eg, the refraining of the controlling shareholder in the approval of related parties agreements).
Additionally, governance rules applying to Brazilian corporations listed on the different levels of corporate governance of BM & Bovespa are being modernised with a view towards adding new protective and disclosure rules to benefit minority shareholders.
Maximilian Schiessl: Shareholder activism has been an issue in Germany for a long time but is not a major issue at the moment as hedge funds are less active than in prior years. Compliance matters continue to be very important as there is a growing debate about directors’ liability. The ‘hottest’ political issue is diversity, as leading politicians demand a quota for women serving on boards of public companies.
Kala Anandarajah: While shareholder activism and women serving on boards are frequently raised topics of interest, I personally do not see these as the most evident of recent trends. What is perhaps of greater importance is the fact that directors – and independent directors at that – are facing greater regulatory scrutiny. The role of independent directors, while not significantly enhanced in recent years, has nevertheless come under the microscope. Critically, the oversight role of the independent directors and how that role should extend, to what degree of scrutiny must decisions being made at the board be questioned, and how involved must he or she be insofar as regards disclosures made by listed companies as more and more are discussed in the press, is a trend that we see as well. A recent Singapore case that imposed a criminal sanction of a jail term on an independent director, in particular, has raised concerns. There are several other issues that continue to hog the limelight, including how to deal with foreign companies listing across different jurisdictions.
Who’s Who Legal: What is your firm doing to provide clients with added value? Have expectations from clients changed over the past 12 months? How is the legal market evolving to match clients’ needs?
David Quigg: In New Zealand clients are looking for competitive pricing and over the last 12 months there has been even more demand for that. As financial pressure on corporation increases, clients are looking for innovative assistance. The legal market has moved to meet the demand and we suspect it has increased the ‘winners and losers’ lists.
Carlos Mello: Since Brazil suffered less with the crisis compared to other countries, our clients are more prepared to take advantage of existing opportunities, both internally and abroad. Internally, for an example, in Brazil the FIFA World Cup in 2014 and the Olympic Games in 2016 are increasing a new market for projects regarding the infrastructure and energy sectors. On the other hand, Brazilian clients are seeking more and more for legal advice on the acquisition of assets worldwide.
Maximilian Schiessl: Clients are looking for the highest quality available when it comes to advice on governance issues. It is increasingly important that lawyers who advise on capital markets and M&A transactions have corporate governance know-how as well, in order to advise clients on the governance issues connected with these transactions, which in Germany include dealing with the co-determination of employees and unions which are represented in the supervisory board.
Kala Anandarajah: Clients expect business-savvy responses as to how to achieve a state where good governance prevails in an environment where the twin goals of shareholder value enhancement and profit maximisation are achieved. As Singapore is at the crossroads of ASEAN, if not Asia as a whole, the demands are not just Singapore-centric, but as to whether the same standards can be achieved across the multiple jurisdictions in Asia. Clients, particularly the multinational corporations, recognise that it is difficult; but yet are constrained by home country laws, which set high standards. Additionally, governance concerns creep into almost every facet of the business structure and ensuring that we as legal advisers are able to structure and comply has become even more critical. I see governance being of huge importance even in the competition and antitrust work that I do.
Who’s Who Legal: What are the challenges that corporate governance lawyers have faced in your jurisdiction and how have you dealt with them?
David Quigg: Again in New Zealand the biggest challenge for corporate governance lawyers is keeping client aware of both implemented and proposed legislative changes and recent New Zealand (and Australian) court cases. In the last 12 months there have been a raft of changes and cases.
Carlos Mello: The legal market is more sophisticated and the clients are competing for selected deals. Thereby increasing the quality of the legal work but also increasing the need for more aggressive fee arrangements with selected clients.
Maximilian Schiessl: The increasing importance of governance, compensation and compliance issues result in an increasing involvement of outside counsel in these areas. This includes training for board members, preparation of board and shareholder meetings and regular reviews of governance, compliance and compensation systems. Furthermore, it is crucial for governance lawyers to engage in the current political debate both in their scholarly work and in the public.
Kala Anandarajah: The key challenge remains finding, or rather matching, good independent directors with companies that require them the most. Companies still tend to shy away from bringing onto their boards people they are not entirely familiar with. This is a challenge that has seen, and continues to see, a multi-prong approach to resolution; and only time will tell how it will turn out. Another critical challenge is convincing directors that they do require training. By training, I do not refer to classroom sessions or certification; but rather to dialogue sessions and various update discussions that can be undertaken every quarter or half-year, so that the director is kept abreast of accounting, legal, economic and business issues in the industry that could affect the direction the company intends to take. While Singapore has seen an increasing number of directors taking training seriously, there needs to be more interest. Some cite the existence of family-owned and government entities as presenting challenges to corporate governance, but these are not top priority as many such companies are fairly well run.