Investing in companies in some countries becomes a gamble if you can't get information or influence operations. Sue Copeman says shareholders are pressing for change.

Investing in companies in some countries becomes a gamble if you can't get information or influence operations. Sue Copeman says shareholders are pressing for change.A key factor in companies being accountable to their owners is the process by which shareholders vote. With ownership spreading widely across national frontiers, investors are increasingly focussing on their ability and right to vote across borders. Barriers in terms of cost, logistics, regulation and law can produce problems, such as unfair voting practices, insufficient notice of meetings and non-disclosure of proxy voting results.

The International Corporate Governance Network (ICGN) is pressing for change in some countries. Having adopted a set of eleven ICGN share voting principles (ISVP), it hopes to see these implemented in key markets around the world by July 2001. ICGN believes the share vote is an asset to be used to protect and further the shareholders's interest.

Voting can positiviely influence an investee company's performance. It is also a legitimate tool to convey support or warnings to management. Company boards, particularly those heading firms with internationally diverses shareholders, risk becoming remote from their owners' interests if investors based outside the home market have difficulty in voting. An economy as a whole may suffer from a competitive disadvantage in attempting to attract international equity capital - at a time when global investment is being sought after as never before. The problem is not confined to developing markets. Some practices in mature economies give rise to concern.

  • An Australian joint parliamentary committee has recommended repealing several 1998 corporation law reforms. If adopted, one effect would be to reduce the notice period for annual meetings, making it more difficult for investors to vote.

  • In France, legal interpretations of statutes governing share voting this year have severely constricted shareowner access to voting rights, particularly for non-resident investors.

  • The New York Stock Exchange and Nasdaq currently allow proxy voting practices whereby brokers can vote on certain corporate annual general meeting resolutions without obtaining shareholders' instructions first. Some institutional investors are seeking a better solution to corporations' concerns about meeting quorum thresholds.

    Influence and impact
    ICGN's members are individuals. Many represent major institutional investors. And their influence is proving considerable in bridging the gap between corporate management and shareholders, and in raising the profile of corporate governance. For example, although the network has a minimal infrastructure, a key event is its annual conference. Says the director of the policy unit of the Institute of Chartered Secretaries & Administrators (ICSA), London, "When we hold our conference in a particular country, it has a significant impact. We involve senior members of the business community, stock exchanges and government. And companies are impressed when they realise that something like $6 trillion of investment is represented in a single room." Indeed, in August 2000, ICGN members were estimated to hold total assets amounting to some US$10 trillion.

    The Japanese problem
    So far, annual conferences have taken place in the USA and Europe. Next year, the ICGN will meet in Tokyo -and anticipates interest from a large

    number of Japanese companies. The location is a strategic choice. The Japanese government has reportedly begun a thorough review of legislation affecting corporate governance. The concept is little understood. Most companies have large boards made up of employees and are more inclined to operate for the benefit of their workers rather than shareholders. There is little involvement of independent directors. Understandably, ICGN plans to monitor developments there closely to ensure that corporate governance protections of shareowners are not diluted. On the positive side, the internet and e-mail should help company/investor relationships considerably by providing a fast and effective means of communication. There is clearly some way to go. However, in the UK, provisions under the Electronic Communications Act 2000 are now being introduced.

    Shareholder rights are just one of the corporate governance issues that ICGN addresses. It made a significant contribution to formulating the Organisation for Economic Cooperation and Development (OECD) principles of corporate governance. It welcomed these as "a remarkable convergence on corporate governance common ground among diverse interests, practices and cultures".

    Practical guidance
    ICGN stresses that, along with traditional financial criteria, the governance profile of a corporation is now an essential factor that investors take into consideration when deciding how to allocate their investment capital. The OECD principles highlight elements that ICGN investing members take into account when making asset allocation and investment decisions. Although it considers the OECD principles the necessary bedrock of good corporate governance, ICGN believes that amplifications are required to give them sufficient force. In particular, it suggests that companies around the world deserve clear, concrete guidance on how to best implement the principles.

    Practical guidance can help boards meet real-world expectations so that they may operate most efficiently, and, in particular, compete for scarce investment capital effectively. ICGN contends that if investors and managers succeed in establishing productive communication on issues, they will have enhanced prospects for economic prosperity, fuller employment, better wages, and greater shareholder wealth. It says that it is in companies' best interests to adhere to these recommendations even in the absence of any domestic legal requirements.

    A working kit of principles
    ICGN has distilled the most significant points in its statement on the OECD principles into a short-form roster of corporate governance tenets - a "working kit"- that reflects the viewpoints of ICGN members. While UK companies have made significant strides in terms of corporate governance, the full effects of the Turnbull guidelines have yet to emerge. Meanwhile, there is a danger that boards may pay so much attention to corporate governance that they takes their eyes off the business. Corporate governance should not take up a disproportionate amount of board time. They need to get the balance right.
    Sue Copeman is editor, Strategic Risk. ICGN, founded in 1995 at the instigation of major institutional investors, represents investors, companies, financial intermediaries, academics and other parties interested in the development of global corporate governance practices

    ICGN's working kit of corporate governance criteria
    ICGN's working kit includes statements on:

  • shareholder returns
  • operating performance
  • corporate objective
  • corporate citizenship
  • communications and reporting
  • corporate governance voting rights
  • implementation corporate boards
  • corporate remuneration policies
  • strategic focus

  • The 11-13 July 2001 ICGN Conference in Tokyo will be organised by a Japanese nanagement team, led by Nobuo Tateishi, OMRON Corp chairman, advised and assisted by Ariyoshi Okumura, in co-operation with the Tokyo Stock Exchange and the Japan Corporate Governance Forum, as well as with ICGN co-chairmen, Peter Clapman in New York and Andre Baladi in Geneva.