October 28, 2021 | Editor: Henry Hofman
Hong Kong audit regulator is investigating Evergrande and PwC
Hong Kong’s Financial Reporting Council has launched an inquiry into Evergrande's accounts for 2020 and the first half of 2021, as well as an investigation into the audit of the firm’s 2020 accounts conducted by PwC. According to the regulator, as at the end of 2020 reported cash and cash equivalents amounted to RMB 159 billion, failing to cover the firm’s current liabilities of RMB 1,507 billion, in addition to the further borrowings of RMB 167 billion maturing in 2022. The regulator also noted that the accounts made no explicit statement about whether there were material going concern uncertainties either before or after the effects of mitigating plans that Evergrande said it had in place to manage potential impacts on cash flow. As Evergrande’s auditor PwC made no reference to such uncertainties in its report for 2020, the FRC will investigate if PwC failed to comply with auditing standards regarding going concern matters. Notably, cash-strapped Evergrande has been trying to divest some of its businesses to repay creditors, while seeking extensions or other arrangements from creditors. Nevertheless, offshore creditors are concerned over the firm’s ability to meet payments as well as a lack of transparency.
Asia Nikkei | FRC | Reuters (1) | Reuters (2) | Evergrande
Canadian National CEO to step down amid investor pressure
Canadian National Railway Co. has announced that CEO Jean-Jacques Ruest will retire effective as of the end of January 2022. The decision comes as the company is facing increased pressure from major shareholder TCI Fund Management, which has called for a board and management overhaul as part of a strategic proposal for the rail company. Owner of 5% of CN’s shares, TCI has nominated four independent directors to CN’s board and proposed that railroad industry veteran Jim Vena replace Ruest. TCI criticized the company’s board for having no “meaningful” railroad expertise and being responsible for multiple corporate governance failures, including the unsuccessful takeover bid for Kansas City Southern.
Market Watch | Bloomberg (1) | Bloomberg (2) | TCI Fund Management | Canadian National Railway
Indian regulator tightens RPTs rules
The Securities and Exchange Board of India (SEBI) has updated its rules governing related party transactions (RPTs), widening the scope of scrutiny and enhancing disclosure requirements. Effective from April 1, 2022, the definition of related parties and RPTs will expand to include, inter alia, all persons/entities in a promoter group, irrespective of their shareholdings, as well as non-promoter entities holding a minimum stake of 20% (falling to 10% as of April 2023) during the immediately preceding financial year. Furthermore, all RPTs will require the prior approval of the audit committee, and shareholders will have to approve material transactions with a threshold of the lower of INR 10 billion or 10% of the consolidated annual turnover of the listed entity.
Crown Resorts shareholder revolt
over executive pay
At the 2021 AGM, the shareholders of Australia’s Crown Resorts voted against the remuneration report for a second straight year but turned down a subsequent vote to dismiss the entire board. The remuneration report was opposed by 30.73% of the votes cast at the AGM, thus exceeding the 25% threshold required to count as a negative vote. Under Australia’s “two strikes” rule, if the remuneration report receives more than 25% dissent for two consecutive years, the shareholders are entitled to vote on whether the directors should stand for re- election in a so-called “spill resolution”. Notably, shareholders revolted over departing executives’ payments, including USD 3.35 million in termination benefits for former CEO Ken Barton.
News.com.au | Reuters | Crown Resorts (1) | Crown Resorts (1) | ABC
Governance in Brief – March 23, 2023
SVB Financial Group sued after the collapse of Silicon Valley bank unit SVB Financial Group, the parent company of Silicon Valley Bank, and two of its top executives, CEO Greg Becker and CFO Daniel Beck, are being sued by shareholders following the bank’s collapse. The lawsuit, filed by retail shareholder Chandra Vanipenta on behalf of a group of shareholders, accuses the bank and its two top executives of filing false and misleading financial reports.
Governance in Brief – March 16, 2023
Canada introduces climate reporting framework Canadian regulators have issued new guidance for the country's banks and insurance companies to better manage climate-related risks. The framework, which requires disclosure on governance, strategy, risk management, and metrics related to financial institutions’ greenhouse-gas emissions, was first drafted in 2022.
Governance in Brief – March 9, 2023
The U.S. Congress has passed a resolution repealing a Department of Labor (“DOL”) rule empowering retirement plan managers to consider climate change and ESG factors in their investment decisions. The rule, introduced by the Biden administration, falls under the Employee Retirement Income Security Act (“ERISA”), a federal law which sets protection standards for participants in private pension plans. Biden’s ruling entered into force in January this year, overturning prior Trump-era DOL rules that limited pension fund managers to restrict their investment strategies to “pecuniary factors.”
Governance in Brief – March 2, 2023
Indian regulator proposes enhancement to ESG disclosure rules India’s securities and market regulator SEBI has released a new ESG disclosure framework for public consultation. The proposed regulations impact India’s 1,000 largest companies by market capitalization, ESG funds and ESG ratings providers. For the largest companies, the regulator proposes areas of assurance of ESG disclosures and reporting and assurance of ESG footprint of the supply chain. The proposals expand on the 2021 Business Responsibility and Sustainability Report (“BRSR”) guidelines and propose mandatory assurance of certain KPIs under ESG disclosure. The KPIs contain intensity ratios such as GHG emissions, water consumption, and waste generation. For supply chain, SEBI will introduce a comply-or-explain approach for the top 250 companies starting in 2024, and assurance beginning in 2025. For ESG funds, SEBI proposes that at least 65% of AUM be invested in companies reporting on comprehensive BRSR and provide assurance on BRSR core disclosures. Under the proposed rules, ESG rating providers should also provide a “core ESG rating” based on assured information in addition to their own products.