Governance in Brief
July 18, 2019 | Editor: Martin Wennerström
India turns to corporate governance to strengthen tech sector
India is poised for a new overhaul of its corporate governance standards, as the country’s capital markets regulator approved a framework allowing tech companies to issue shares with superior voting rights (“SR shares”) – prohibited in India since July 2009. The Securities and Exchange Board of India (“SEBI”) proposed that only companies meeting enhanced corporate governance requirements be allowed to issue SR shares, with the latter converting into ordinary shares upon the fifth anniversary of the IPO, subject to extension. The announcement followed a public consultation launched in March 2019, which had revealed SEBI’s intention to bolster its tech sector’s growth by enabling founders to raise capital without diluting their control.
The development occurs on the heels of a corporate governance reform undertaken by India through the amendment of SEBI listing regulations on April 1, 2019, triggering SR share opponents to label SEBI’s latest move as a regression and voice concerns over minority shareholder rights. Dual-class shares have become top-of-mind in both Asia and the US, with Hong Kong and Singapore having allowed dual-class share structures in 2018, and Snap having become the first US company to float only non-voting stock in its March 2017 IPO.
Metro Bank troubles mount
As British lender Metro Bank continues to grapple with the fallout from the GBP 900 million accounting error that surfaced in January 2019, reports have emerged that executives are reportedly pushing for Chairman Vernon Hill to resign. The latter has long been under scrutiny over payments made by Metro Bank to his wife’s architecture firm InterArch, prompting the lender to vow in a May 2019 prospectus that it would transition to an alternative supplier by the end of 2020.
Notably, Hill was ousted in 2007 from another bank he founded, Commerce Bancorp, amidst a scandal involving the bank’s ties with his family. Metro Bank’s shares have plunged by over 70% since the accounting mistake’s revelation, forcing the lender to raise GBP 375 million in May 2019 by selling new stock for 500 pence a share – less than one third of its January 2019 market price.
Hudbay Minerals CEO steps down in echo of proxy fight
Canadian miner Hudbay Minerals announced on July 10, 2019 that CEO Alan Hair had stepped down after 20 years of service with the company. The development is widely perceived as a sequel to the proxy fight with activist investor Waterton Global Management Fund (“Waterton”), which had seemingly been settled at the May 2019 AGM.
The meeting saw Waterton – Hudbay’s second-largest shareholder with a 12.5% stake – succeed in appointing three of its nominees to the board and agreeing with the company that Chairman Alan Hibben step down at the 2020 AGM. Waterton nominee and former Lundin Mining CEO Peter Kukielski has taken over as the Toronto-based company’s interim CEO.
UK watchdog says audit quality in decline
The UK Financial Reporting Council (“FRC”) reported that its inspections for 2018/19 revealed that all the country’s top auditors failed to meet quality targets for the second year in a row. Whereas Grant Thornton and PwC were singled out by the regulator for a marked decline in the quality of their audits, the FRC noted that it had identified cases at all seven firms reviewed where the auditors “failed to challenge management sufficiently on judgmental issues.”
The watchdog announced it would heighten the audit quality requirements from 2020/21 onwards, marking the UK’s ongoing effort to overhaul the audit sector following the recent collapses of BHS, Carillion, and Patisserie Valerie.