Senior managers at Citigroup are pushing forward a drive to improve the company’s ethics and integrity whilst the DTI on March 17 published a white paper for consultation, setting out its proposals for a Company Law Reform Bill.
SEC GRANTS EU REPRIEVE
US stock market regulator the Securities and Exchange Commission agreed early April to grant foreign businesses a year’s reprieve from complying with internal controls requirements of the Sarbanes-Oxley Act. Companies now have until fiscal years ending after July 15, 2006, to implement Sarbanes-Oxley’s section 404 – the provision compelling companies to provide an evaluation that their financial reporting controls are effective. The CBI had estimated as many as 60 companies would have de-listed. Contact SEC 00 1 202 942 0020 ( http://www.sec.gov)
PRESSURE ON EXECUTIVE PAY
Media interest and sceptical investors have put pressure on salaries of top executives, according to Mercer Human Resource Consulting. A survey of 38 large companies found that bonuses fell from 49% of salary in 2003 to 39% last year, while the number of firms deferring a proportion of bonus payouts rose to one in four. A Mercer executive commented on the increasing pressure to keep executive pay increases in line with rises for other employees. Contact Mercer Human Resource Consulting 020 7222 9121 ( http://www.mercerhr.com)
CITIGROUP CINEMA
Senior managers at Citigroup are pushing forward a drive to improve the company’s ethics and integrity, following trading incidents that have damaged relations with regulators. CEO Chuck Prince in February announced a five-point plan to prevent further regulatory and legal problems, including an overhaul of pay and performance appraisals and the introduction of an ‘ethics hotline’ for employees. Employees are also being shown a 25-minute film, The Story of Citigroup, which highlights 200 years of the company’s history, as a way to build a more unified culture from the disparate businesses the group has been built from. Contact Citigroup 00 1 718 248 9613 ( http://www.citigroup.com)
DUAL ROLE DUEL
Peter Brabeck, chief executive of the world’s biggest food group Nestlé, suffered a blow to his reputation mid-April after a surprisingly high proportion the Swiss group’s shareholders voted against plans for him to assume the chairmanship alongside his current role. At the annual shareholders’ meeting April 14, nearly 36% of the shares represented supported a motion by an institutional shareholders’ group to prevent Brabeck adopting the dual role.
After the vote, Brabeck congratulated shareholders in reaching a decision: “The dogmatic approach to corporate governance issues would have meant a long-term competitive disadvantage for Nestlé. He assured them that the board would reflect on the decision and re-examine its governance practices.
Opposition to the board’s plans had been mounted by activist investor Ethos, a small Swiss institutional shareholder, which had gathered enough support from other institutions to overcome Nestlé’s high barriers to introducing motions at the AGM.
The Department of Trade and Industry on March 17 published a white paper for consultation, setting out its proposals for a Company Law Reform Bill. As well as spelling out the explicit duties of company directors, it is proposed that the bill will also require directors, in fulfilling their duty to “promote the success of the company for the benefit of the members as a whole”, to take account of both long- and short-term consequences, as well as the interests of employees, customers, suppliers, the community and the environment. Contact DTI 020 7215 5000 ( http://www.dti.gov.uk/cld
Corporate manslaughter bill introduced
Home Secretary Charles Clarke set out in late March new laws to prosecute companies and organisations whose gross failure at senior management level results in a fatality.
The draft bill effectively updates the existing law, making corporate killing a criminal offence when someone has been killed because the senior management of a company “has grossly failed to take reasonable care for the safety of employees or others”.
The government said the law tackles a key shortcoming of existing legislation: the need to show that a single individual at the very top of a company is personally guilty of manslaughter before the company can be prosecuted.
The government said the offence will mean that courts can look at a wider range of management conduct than at present. It focuses on the working practices of the organisation, as set by senior managers, rather than limiting investigations to questions of individual gross negligence by company bosses.
The new offence will be linked to the standards required under existing health and safety laws. The criminal liability of individual directors will not be affected by the proposals. Because corporate manslaughter is an offence committed by organisations rather than individuals, companies will face an unlimited fine and directors will not face jail. The draft bill has been put out for consultation until June 12 and is expected to lay the foundation for legislation in the next Parliament if Labour wins the next election.
Employer groups and union cautiously welcomed the bill. But concerns remained on both sides that the new law will not go far enough.
The CBI said there needs to be more clarity about who is regarded as senior management, while the Trades Union Congress complained that managers will face an unlimited fine rather than jail.
Human Rights charity The Centre for Corporate Accountability cautiously welcomed the Bill, but criticised it for failing to consider the criminal liability of directors.
Little noticed in the dog days of the last Parliament were two draft bills that will significantly clarify the responsibility of company directors. The corporate manslaughter bill has been a long time in consultation, though the unions remain disappointed it does not create a duty to promote health and safety. But it does make it easier to prosecute individual directors, which should concentrate their minds on the 300 or so people who die at work. Almost as long gestating has been the next instalment of company law reform. Presented as deregulation, it is the first-ever statutory definition of the duty of company directors. The primary duty remains to shareholders as a whole, so this certainly isn’t revolutionary stakeholder democracy. But now (where relevant and reasonably practical), directors can explicitly think long as well as short term and can consider the interests of employees, the impact on the community and the environment.
This codifies rather than changes the current law, but it makes explicit the duty of directors to consider wider consequences, where it is in the long-term interest of shareholders and, of course, relevant and reasonably practical. This is the win-win case for CSR written into law. It is a highly significant development in personalising for directors what is too often seen as a theoretical, optional ‘do-gooding’ concept, to be dealt with exclusively by their CSR department.
Corporate Citizenship Briefing, issue no: 81 – April, 2005
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