Toshiba Listing Tests Ability of Tokyo Stock Exchange to Protect Investors

The Nikkei Asian Review writes that the recent decision to allow Toshiba to continue to be listed on the Tokyo Stock Exchange — by a single vote — raises questions about its ability to protect investors.

The TSE’s philosophy on how to handle corporate wrongdoing has changed considerably over the past 15 years. When Seibu Holdings unit Seibu Railway and cosmetics maker Kanebo were kicked out in 2004 and 2005, punishment was seen as the best way to protect the principles of the market, and delisting was often the first response to severe infractions. But shareholders did not take kindly to the strategy. On top of a sliding stock price, delistings robbed them of the opportunity to trade their shares at all, the argument went.

The exchange now does all it can to avoid giving companies the boot, instead supporting their rehabilitation. The “securities on alert” system was introduced in 2007 as a means of enforcing regulations without imposing undue harm on shareholders, giving companies a period of time to turn themselves around under the bourse’s supervision — 18 months, under the latest rules.

While the designation limits such activities as fundraising, shareholders can continue to trade. Major companies with the resources to make improvements “hardly ever end up delisting,” a former Financial Services Agency official said.

Toshiba pushed limits of TSE’s rehab regime

Improving Corporate Governance and a Strong Free Press are Essential for Emerging Economies

At the Dubai Global Financial Forum, Arif Naqvi, who heads the region’s largest private equity firm, Abraaj, said that the term “emerging markets” (EM) should be replaced by “global growth market.” But he emphasized that:

“The only sense in which they [emerging markets] are still emerging is in terms of governance and transparency,” he declared.

He explained that corruption, lack of transparency and a general refusal to “play the game” by EM corporates had affected the view of western and other investors, and resulted in lower valuations, higher risk assessments and a reluctance to commit capital on the part of big western investors used to their own, generally much higher, standards of governance.

Some experts now argue that governance, or rather the lack of it, is a far more important investment criterion than geography or industrial sector. A well-run, transparent company will always carry an investment premium for big western investors, regardless of where it happens to be in the world, or what business it is in.

Executives of EM companies regularly pay lip-service to the need for better governance, and in some cases actually implement policies — codes for financial reporting, remuneration and recruitment — that might facilitate it.
Corporate governance, or lack of it, may be a better guide in determining what constitutes an emerging market rather than geographical location in the modern investment world.

But the problem stubbornly remains, and the most significant factor that remains behind virtually all cases of the EM discount is simple: Government control and interference.

Emerging media necessary to help ensure global standards of corporate governance

Multinational Organizations Best Address the Five Biggest Economic Challenges

Kalin Anev Janse, secretary general and a member of the management board of the European Stability Mechanism (the eurozone’s lender of last resort), considers five major challenges and why international organizations offer the best hope for managing them.

The Brexit vote and the U.S. presidential election outcome signal dramatic changes in cooperation globally and a push for more protectionism. In practice, these votes called into question the multilateral institutions and international collaboration among countries that embody that cooperation.

Janse says the five major challenges are: income inequality, protectionism, migration, technology replacing jobs, and social media and the “post-truth world.”

In my view, Europe can offer lessons in regional integration that are relevant for other parts of the world. Among others, my institution – the European Stability Mechanism (ESM) – is a product of European cooperation in response to the financial and economic crisis. As the largest and most active regional financing arrangement, the ESM works closely with its peers in other regions of the world.

Beyond Europe, the continued rise of Asian economies, as well as those in Latin America, present new opportunities for strengthening international cooperation in many of the areas I have mentioned, including finance, infrastructure, energy, education, climate change and others.

‘Poison pill’ stops the presses on boardroom coup attempt at Johnston Press

A discredited US-created management entrenchment provision is being used in the UK.

An attempted boardroom coup at Johnston Press has been thwarted by a controversial “poison pill” defence that could hand control of the newspaper publisher to its lenders.

Christen Ager-Hanssen, the activist shareholder plotting to oust chairman Camilla Rhodes and the company’s senior management, has been forced to delay a call for an Extraordinary General Meeting after advisers discovered the tripwire in bond documents.

This weekend Mr Ager-Hanssen was in talks with lawyers at the City firm Mishcon de Reya on how to circumvent the mechanism, known as a “dead hand proxy put,” in preparation for a new attack.

Johnston Press inserted the dead hand proxy put into its bondholder agreements when it last refinanced its £220m debt pile three years ago. Such terms can secure lower interest rates but can also trigger a default if shareholders step in to appoint new directors.

In the US, the Fried, Frank law firm says about these provisions:

Judicial concern about proxy puts in debt is based on their inherent potential entrenchment effect, because a triggering of the put could make a change in control of the board more costly—as the debt (and, through cross-acceleration provisions, possibly all of the
company’s debt) could be required to be refinanced if the put were triggered. Proxy puts with a dead hand feature are more inherently entrenching than non-dead hand proxy puts as they disable a board
from approving a dissident slate to avoid the put being triggered.

Source: ‘Poison pill’ stops the presses on boardroom coup attempt at Johnston Press

Fighting Short-Termism with Worker Power – Roosevelt Institute

In a new paper, Susan R. Holmberg asks:

“Can Germany’s co-determination system fix American corporate governance?” Prioritizing immediate increases in share price and payouts at the expense of long-term business investment and growth—a behavior we refer to as short-termism—has driven the inequality crisis in America and weakened our economy. By comparing the German stakeholder system of co-determination to corporate governance in the U.S., we find that emboldening workers with legitimate stakeholder power can help hold back the forces of short-termism.

Workers especially, who are investing in companies with their own labor on a daily basis, have a legitimate claim as corporate stakeholders, and it will serve companies, and society more broadly, if we—on the left at least—felt empowered enough to stake this claim.

Source: Fighting Short-Termism with Worker Power – Roosevelt Institute

Monsanto banned from European parliament | Environment | The Guardian

Monsanto lobbyists have been banned from entering the European parliament after the multinational refused to attend a parliamentary hearing into allegations of regulatory interference.It is the first time MEPs have used new rules to withdraw parliamentary access for firms that ignore a summons to attend parliamentary inquiries or hearings.

Monsanto officials will now be unable to meet MEPs, attend committee meetings or use digital resources on parliament premises in Brussels or Strasbourg.While a formal process still needs to be worked through, a spokesman for the parliament’s president Antonio Tajani said that the leaders of all major parliamentary blocks had backed the ban in a vote this morning.

“One has to assume it is effective immediately,” he said.MEPs had been incensed at a Monsanto decision to shun a hearing organised by the environment and agriculture committees, with academics, regulators and campaigners, on 11 October.The meeting is expected to hear allegations that Monsanto unduly influenced regulatory studies into the safety of glyphosate, a key ingredient in its best-selling RoundUp weedkiller.

Source: Monsanto banned from European parliament | Environment | The Guardian

The Mixed Results of A Korean Governance “Reform”

Does a company still deserve a good governance grade if shareholder-friendly reforms also help the chairman cement his power and drive out rivals? South Korea’s fifth-largest family-owned conglomerate, which has $100 billion of assets, won approval from shareholders Tuesday to restructure most of its sprawling business under one holding company….Governance proponents are probably cheering Lotte’s moves, which take the candy-to-chemicals conglomerate’s cross shareholdings to 18 from 67. (Lotte’s chemical and hotel operations remain excluded from the holding company).

But Shelly Banjo argues that this is the right move for the wrong reasons, and it will consolidate the power of the insiders, the family who controls the company with 42.7 percent of the stock.

Source: Lotte’s Colored Lens – Bloomberg Gadfly

Firms facing revolt over executive pay to be named on public register | Business | The Guardian

A new register naming firms that find themselves under shareholder pressure over executive pay is to be launched later this year as part of government plans aimed at curbing boardroom excess and increasing transparency.In what was described by the government as a world first, the new register will name firms where a fifth of investors have objected to proposed executive annual pay packages.

However, the unveiling of the policy marks a retreat from the much more radical approach which had originally been touted by Theresa May in the form of promises to increase the frequency of binding shareholder votes on corporate pay policies. The policies of listed British companies are currently subject to a binding vote every three years.

Source: Firms facing revolt over executive pay to be named on public register | Business | The Guardian

Investor activism is surging in continental Europe

Leave it to the Americans to besiege European companies in August, when the entire continent is on holiday. It emerged this month that Corvex Management, an American hedge fund, had built up a $400m position in Danone, a French food giant. AkzoNobel, a Dutch paints-and-chemicals firm which has been under heavy fire from Elliott Advisors, a subsidiary of another American activist fund, agreed to appoint three new directors to its board. An even bigger skirmish is under way in Switzerland, where Third Point, an American fund run by Daniel Loeb, is seeking to shake up Nestlé, the world’s biggest food company. Ulf Mark Schneider, Nestlé’s new boss, is under pressure to present bold plans to investors in September.

Such tussles used to be relatively rare in Europe. But shareholder activism is on the rise, with restive investors demanding corporate overhauls. Armand Grumberg, a mergers lawyer in Paris, last year counted 70 such campaigns in continental Europe. He expects this year to be even livelier. “It is the new normal,” he says.

The surge in activism has several causes. As American activist funds jostle to find targets at home, some are seeking less well-trodden hunting grounds abroad. Relatively cheap European firms are tempting prey. Many Americans also see continental models of corporate governance as ripe for disruption. Americans (and Britons) think that boards must prioritise shareholders’ interests; Europeans, backed by courts, insist boards should also take the interests of staff, creditors and suppliers into account.

Source: Investor activism is surging in continental Europe

Danone can stomach new activist investor – Breakingviews

Carol Ryan writes approvingly about a small stake by an activist investor in a previously entrenched French company:

Danone can stomach a new activist investor. A stake reportedly taken by U.S. hedge fund Corvex Management in the French yoghurt maker may be small, but would bring welcome pressure on management to meet its new margin target. Danone was once shielded from a Pepsi bid by the French state. If new investors bring good ideas and discipline, such defences won’t be necessary.

Keith Meister, the founder of Corvex and previous right-hand man of activist Carl Icahn, owns approximately 0.8 percent of Danone’s share capital, according to Bloomberg. The bite-size holding means Corvex is in no position to make aggressive demands, such as its ongoing attempt to derail a merger between chemicals groups Clariant and Huntsman.

Still, Meister’s arrival steps up pressure on Danone Chief Executive Emmanuel Faber to make the $53 billion dairy group more efficient….Some needling might be useful at a company that has previously disappointed investors with poor execution.

Danone has become emblematic of impregnable French companies ever since the French government scuppered reported interest from Pepsi back in 2005, making the yoghurt maker appear takeover-proof….

Were Corvex to bring useful ideas and discipline, it would make Danone more efficient, more profitable and more expensive to a would-be buyer. That’s a far more reliable form of takeover defence.

Source: Danone can stomach new activist investor – Breakingviews