Global Governance Principles (“the Principles”) are the primary standard asserted by International Corporate Governance Network (“ICGN”) to which all companies should aspire. The Principles describe the responsibility of boards and shareholders respectively and aim to improve the dialogue between the two parties. It applies to public listed companies and also non-listed companies which would like to adopt high standards of corporate governance practice. As there is a growing concern of good corporate governance practice worldwide from time to time, ICGN revisited and amended the Principles in June 2014. In this newsletter, we will talk about the amendments to the Principles.
Amendments to the Principles
The part of institutional investors is a newly specified section to the Principles. Institutional investors are organizations that have large amounts of funds to invest and put much of these funds into company shares. They include pension funds, insurance companies, collective investment institutions and private equity funds. They play an important role in corporate governance of a company. To take a balance between institutional investors and corporate governance, the newly added section briefly describes the responsibilities, leadership and independence, capacity, conflicts of interest, remuneration, monitoring, engagement and voting of the institutional investors as follows:
Institutional investors have the duties and responsibilities to deliver value by promoting and safeguarding the interests of beneficiaries over an appropriate time horizons. In addition, they should adopt a policy to guide their approaches to stewardship and voting, and engage as appropriate in the development of relevant public policy and good practice standards;
Leadership and Independence:
Institutional investors should be led by board or other governance structures that act independently, promoting beneficiaries’ interests as the primary obligation;
Institutional investors should be led by governing bodies and staff with appropriate capacity and experience to oversee effectively and manage all relevant activities for the interests of beneficiaries;
Conflicts of Interest:
Institutional investors should have robust policies to clarify, minimize and help manage conflicts of interests to ensure that they maintain focus on promoting beneficiaries’ interests;
Fee and remuneration structures that provide appropriate alignment over relevant time horizons should be set for the institutional investors to reinforce their obligation on acting for the interests of beneficiaries;
Regularly monitor on investee companies for assessing their individual circumstances, performance and long-term potential and consider whether there is value in intervening performed by institutional investors to encourage change ;
Institutional investors should engage intelligently and proactively as appropriate with investee companies so as to preserve or enhance the value for beneficiaries; and
Institutional investors should seek to vote shares held and make informed and independent voting decisions at investee companies, applying due care, diligence and judgment. Regular disclosures of their voting activity should be made.
In the wake of various corporate collapses and financial scandals in recent years, institutional investors become more proactive in trying to ensure that the companies in which they invest deliver the best available shareholder values. We believe the corporate governance of the companies would be improved if institutional investors follow the amendments made on the Principles appropriately and timely.
If there are any aspects which we may assist, please do not hesitate to contact our partner in charge Mr. Roy Lo at 3583 8048 (firstname.lastname@example.org) or our Risk Manager Ms. Gloria So at 3583 8517 (email@example.com).
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