The Financial Stability Board (FSB) has published a thematic review of FSB members’ compliance with the G20/OECD principles of corporate governance for regulated financial institutions (across all sectors).
The Thematic Review on Corporate Governance review highlights some divergences across FSB members, and makes a number of recommendations.
Most of the identified divergences across countries are not very significant – perhaps the most noteworthy is that although the G20/OECD principles state that separation of the Board Chair and the CEO is good practice no such requirement or guideline exists in the US, Japan, Korea, Mexico or Spain.
The recommendations are also fairly low-key, although they may indicate where the FSB and some national supervisors may focus their efforts over the next year or so. Many of the recommendations are already standard practice in Ireland and are covered under the Central Bank’s statutory corporate governance codes for banks and insurance undertakings.
The recommendations include:
- Encouraging regulated financial institutions (“firms”) to adopt and to disclose codes of ethics or conduct.
- Introducing more specific requirements or guidelines on Board effectiveness reviews, succession planning and Board training.
- Encouraging firms to enhance the disclosure of their Board nomination and election processes, and the qualifications of their Board members.
- Focusing more on the duties, responsibilities and composition of Boards within group structures; the framework for related party transactions; and on the role and responsibilities of independent directors on the Board and Board committees.
- Improving firms’ disclosures on governance structures, voting arrangements, shareholder agreements and significant cross-shareholdings and cross-guarantees, and remuneration.
- Considering whether shareholders should be given the opportunity to vote on a firm’s remuneration policies and the total value of compensation for the Board and senior management.
- Considering whether supervisors need more specific intervention powers to address weaknesses in firms’ corporate governance.
- Clarifying how corporate governance requirements can be applied in a proportional manner. In Ireland the Central Bank statutory corporate governance codes distinguish between high impact firms under PRISM and other firms, applying a higher standard to banks and insurance undertakings with a high PRISM rating.
- Identifying and addressing gaps or inconsistencies in cases where corporate governance requirements and guidelines are contained in multiple sources (for example, in EU and national legislation, regulatory requirements, and voluntary codes of conduct for listed firms).
Although this thematic review contains no immediate or specific new requirements, it is interesting to see how corporate governance standards may converge in the future.