AMP Capital explained in its Corporate Governance Report for 2014 that companies are seeking to attract capital from an increasingly diverse group of international investors, so unsurprisingly, “issuers have sought to improve the attractiveness of their offering by introducing the corporate governance practices international investors appear to value”.
“It is recognised that well governed companies and countries have better relationships with their investors and stakeholders; as such they can generally access capital at a lower cost and operate at lower risk,” the firm said.
The report said that since the establishment of the Global Corporate Governance Forum by the World Bank and the OECD in 1999, more than 70 countries have now implemented corporate governance codes, with almost half of them having been developed with the Forum’s assistance.
According to the report, these codes have provided clearer guidance for financial and non-financial disclosure, fostered better engagement of minority shareholders, and clarified the respective roles of managers and directors.
One of the areas that has received specific attention, according to AMP Capital, is board independence and leadership.
The report gave the example of Hong Kong, where listing rules now include a mandatory requirement that at least three independent non-executive directors be on the board and at least one third of the board be independent.
“Rules around independence of board committees were also strengthened,” said the report.
The report also stated that in India, the new Companies Act 2013, which will soon replace the 1956 Companies Act, has “enhanced the definition of independent directors, enhanced the scope of related-party transactions, required auditor rotation, and introduced class action suits”.
“Interestingly, it is now also mandatory for profit-making Indian companies to spend on activities related to corporate and social responsibility”, AMP Capital said.
The report also mentioned the Minter Initiative, which came into effect early this year in Switzerland, giving shareholders “far-reaching influence over executive compensation and governance matters of publicly-traded Swiss companies”.
AMP Capital argued that while the release of governance rules and guidelines is positive, there is still “some way to go before they receive universal support and are put into practice”.
While some countries are ready to adopt higher standards, the report said regulators in South Korea assert that “tightening the country’s corporate governance regime would erode its global competitiveness”.
