Corporate governance gets more transparent worldwide

With trillions of dollars in capital sailing the globe in search of investments, the shareholders' crusade for more open, well-run companies is gaining strength across many major and emerging markets.

In what some call a worldwide corporate-governance movement, shareholders are pushing for stronger corporate-governance laws, teaming with investors from different countries and negotiating behind the scenes with businesses.

In earlier years, it was hard for shareholders to dig up details from thousands of global companies on their finances, their directors, executives' pay packages and other information critical to making investment moves.

"We've seen some dramatic changes," says Stanley Dubiel, head of governance research at RiskMetrics Group, the largest U.S.-based proxy research firm, with offices in 50 countries. "There's a strong desire on the part of many companies to attract capital from international investors."

Those investors carry a lot of weight. Pension funds and other large institutional investors oversaw $142 trillion in assets in 2006, reports the Organization for Economic Co-operation and Development.

More of those funds — led by Calpers (California Public Employees' Retirement System) and TIAA-CREF in the USA and the Hermes pension fund in the United Kingdom — are wielding their financial clout in the name of shareholders.

Dozens of countries are developing systems of watchdog corporate-governance and shareholder activism, with some modeling themselves after U.S. and United Kingdom governance practices or the Sarbanes-Oxley Act, the U.S. anti-fraud law passed after the Enron accounting scandal six years ago led to the demise of the company.

South Africa, Italy and Japan, for instance, have recently beefed up their corporate-governance codes to strengthen shareholders' oversight of corporate boards, pay practices, accounting and auditing policies and other watchdog issues.

While corporate-governance experts say there's still a long way to go, activist investors appear to be making progress globally on key issues, from clearer financial disclosure to winning a greater voice for shareholders in determining executives' pay packages.

Shareholders make gains

In the United Kingdom, shareholders gained clout in policymaking with passage of the landmark Companies Act of 2006, which went into force last year. Among other provisions: Severance pay for a director needs approval by shareholders if it's more than twice the director's annual salary.

In Australia, where investors gained the right to cast advisory votes on executive pay practices in 2005, shareholders of the country's top 200 companies tallied a record 22% dissenting votes against company pay proposals and other resolutions last year, RiskMetrics Group reports.

Last June, in a big leap forward for the European Union, the European Commission signed new rules that require even the most secretive of publicly traded companies to communicate more openly with shareholders. Companies must allow electronic voting, notify investors of annual meetings and answer shareholders' questions.

"For many countries, corporate governance is at the top of their business agenda," says Anne Simpson, executive director of the International Corporate Governance Network (ICGN), a London-based group of large investors in 30 countries with $20 trillion in assets. "The conduct of companies is everyone's concern."

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