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Regulatory Changes

Publicis-Omnicom $34.1bn deal falls through after a year in the works

Publicis and Omnicom have backed out of a £35.1bn deal that would have catapulted the nascent company to the forefront of the advertising world. Executives allege that the deal fell through because prolonged negotiations started harming both companies. Questions remain, however, about how both companies will fare without the merger.

Though the deal had been in its final stages as early as last July, a number of snags have prevented it actually being closed in the months since. “The challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups and their employees, clients and shareholders,” said the executives of both companies in a joint statement. “We have thus jointly decided to proceed along our independent paths.”

[I]n the meantime, the real winner has been WPP, the British ad company growing faster than any other

Though both Publicis and Omnicom are two of the biggest players in the market, the global advertising industry has been evolving rapidly with the rise of new media platforms. The merger was initially proposed as a way to drive change in the companies, and allow them to compete in the new marketplace more effectively. However, as the deal falls through, these challenges remain, and it is unclear how Publicis and Omnicom will address them going forward.

The proposed merger would have created a new company, with ownership split evenly between Publicis and Omnicom. For the first 30 months, Maurice Levy, currently the CEO for Publicis, would have acted as CEO. It was widely touted as a merger of equals, which would have helped the companies save close to $500m through synergies.

The main issue with the merger was tax arrangements; when the deal was first proposed the company was looking to establish a tax-residency in Britain, while it would remain based in the Netherlands. But this arrangement proved controversial and parties could not come to an agreement. In the meantime, both were losing clients and money as the costs of the merger mounted.

The two companies now will likely have to regroup and devise alternative strategies to return to their positions at the top of the advertising game. In the meantime, the real winner has been WPP, the British ad company growing faster than any other. “There were big tax issues we were told and also a lot of what is called social issues,” said WPP boss Martin Sorrell, to CNBC. “It was turning into a bit of a soap opera because both companies in their Q1 statements were saying they were good on their own. I think this deal was driven by ego issues and emotional issues, I think both CEOs wanted to try and dislodge WPP from its number one perch and so it was emotional and egotistical. It was also a case of eyes being bigger than your tummy”.

Tech giants reach agreement with US over transparency in data-collection

Amid unrelenting controversy over online data collected by governments, the US has reached an agreement with top tech companies that will allow online users to see how their information has been shared with government agencies.

The deal follows an unprecedented lawsuit filed by Facebook, Google, Yahoo, Microsoft and LinkedIn, in which companies called for greater transparency in the sharing of data. Under the new agreement, the companies will be able to disclose to users how many information requests they receive from government agencies per year, and how many user accounts have been affected by these requests.

Under the new agreement, the companies will be able to disclose to users how many information requests they receive from government agencies per year

Since Edward Snowden leaked details about the US government’s data collection activities, tech companies have been under the spotlight to disclose how much information the National Security Agency (NSA) has had access to and how this has affected users.

“We’re pleased the Department of Justice has agreed that we and other providers can disclose this information,” a representative of the five companies involved in the suit told the FT. “While this is a very positive step, we’ll continue to address all of the reforms we believe are needed. We filed our lawsuits because we believe that the public has a right to know about the volume and types of national security requests we receive.”

The Department of Justice communicated the decision in a letter issued to the plaintiffs detailing how the information may be released to users. According to the agreement, the companies will be able to reveal the number of data requests received, within ranges. The option will be given to disclose the number of “national security letters” and specific court orders within bands of 1000. The alternative is to reveal in bunches of 250 all the national security requests together.

“While this aggregate data was properly classified until today, the office of the Director of National Intelligence, in consultation with other departments and agencies, has determined that the public interest in disclosing this information now outweighs the national security concerns that required its classification,” the Justice Department said in a statement.

The agreement has been largely welcomed by commentators, who have hailed it as a victory for transparency. However, some have suggested the new arrangement is merely a first step and that Congress should go much further in demanding information about the government’s data-gathering practises.

China orders major banks to increase disclosure

On January 8 the China Banking Regulatory Commission (CBRC) ordered major Mainland banks to disclose information on 12 key indicators outlined by the Basel Committee. The new rules apply to commercial banks whose assets exceeded 1.6trn yuan at the end of last year, as well as those labelled global systemically important banks (G-SIBs). The new rules signal an effort on the part of Chinese authorities to curb concerns surrounding rising national debt, and an attempt to reduce the overall percentage of non-performing loans. Put crudely, the rules – which have come into immediate effect – look to improve governance and transparency for a banking sector that has too often fallen foul of a bad reputation.

The new rules signal an effort on the part of Chinese authorities to curb concerns surrounding rising national debt

“In recent years, the scale, interconnectedness, and complexity of Chinese banks has continuously increased, and it is necessary to implement higher standards for banks whose degree of systemic importance is relatively large,” wrote the CBRC on its website, January 8.

The 12 key indicators include the disclosure of cross-border assets and liabilities, off-sheet assets, liability claims relating to financial institutions, available trading assets, assets available for sale, and outstanding over-the-counter derivatives, to name a few. Whereas the vast majority of the new CBRC measures will require little change, given that many are already disclosed by those affected, some will force certain banks to instigate fundamental changes to their disclosure policies and improve upon their transparency by quite extraordinary degrees.

According to the new rules, the banks must disclose the relevant information either within four months of their accounting year ending or no later than the end of July.

After having lent out vast sums of money in order to maintain China’s sky-high GDP growth, some fear that certain unwise and ultimately unrecoverable investments may be being hidden. The CBRC’s newly enforced rules, however, will ensure that regulatory authorities can keep a close watch on the country’s leading banks and protect against bad loans.

Russia’s new regulatory body set to bolster corporate governance

A new centralisation of Russia’s regulatory bodies could lead to greater transparency and better governance in a country beset by corruption. In September last year, the Bank of Russia Financial Markets Service assumed control of all financial regulations within the country, from securities to pensions and insurance.

The move is aimed at encouraging Russian investors to place their money in the country’s stock markets and reassure pessimistic investors that there is proper oversight throughout Russia’s key industries. According to Sergey Shvetsov, who has been placed in charge of the new regulatory body, Russians have only invested nine percent of their savings in the stock market, far less than the roughly 40 percent seen in the US.

The move is aimed at encouraging Russian investors to place their money in the country’s stock markets

Shvetsov says that boosting those figures is one of his primary goals, and it can be done through improving corporate governance. “We have funding available from Russian citizens. What we need to do is increase the level of corporate governance to build confidence in the markets,” he told InstitutionalInvestor.com.

The process of catching up with the rest of the developed world in terms of governance standards will not be quick, however, and Shvetsov says that support from the government is vital in helping it happen. “I believe that in three to five years Russian markets will gravitate to world norms. But for the next one or two years, we will need support from the government and investors.”

One of the main areas of change is regulating publicly listed companies that are mostly owned by single shareholders. Such a situation is prevalent in Russia and often leads to minority shareholders being totally ignored in the decision making process.

There are also plans to help foreign investors entering Russian markets. While many see great opportunities in lots of the country’s industries, they are often scared off by the assumption that corruption is rife throughout Russia. Trading Russian equities will therefore be increasingly possible for foreign investors through the Euroclear settlement system. Further advancements in this area will hopefully be confirmed by the middle of this year, says Shvetsov.

M&S ends 90-year partnership with PwC

High-street chain Marks & Spencer announced yesterday that it would be changing its auditors to Deloitte, bringing to an end its partnership with rival firm PwC that has lasted since 1926.

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FRC report reveals highs and lows of UK governance

The FRC has released its annual report detailing the ways in which reform has shaped UK corporate governance and of how existing standards can be improved upon. The report is the first since the FRC’s eight regulatory bodies were united as one, the first to be formally presented to parliament, and the last under the Chairmanship of Baroness Hogg.

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British banks’ comedy of terrors

The devil is always in the details. And the greatest devils of our economic age lurk in the details of how officials regard the capital – the equity funding – of our largest banks. Government officials have identified far too closely with the distorted, self-interested worldview of global banking executives. The result is great peril for the rest of us.

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Hedge fund group sues Cayman Islands over corporate governance reform

The Cayman Islands are home to over 9,400 hedge funds, harbouring assets estimated to be worth close to $2.2trn. It has long been a popular investment destination, but over recent years, local government has faced calls from the international community to modernise its regulation, and in particular, make it more transparent. But a fiduciary services company based in the island has taken legal steps against the Cayman Islands Monetary Authority to prevent the regulator from legislating on any transparency or corporate governance reforms.

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We, the corporations?

You would think that 600,000 comments on a petition would be sufficient to bring an issue to the top of the US Securities and Exchange Commission’s agenda. But public opinion does not seem to matter if the issue is mandatory disclosure of political spending by corporations.

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ASEAN governance framework established

The review was conducted in Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, and was part of a wider initiative to promote the region as an asset class. The OECD Principles of Corporate Governance were used as the main frame of reference in the scorecard’s design, which tested ASEAN plcs based upon the rights and roles they give shareholders, corporate transparency and board responsibility. An additional level reviewed each firm’s bonus offerings and penalties. The review was carried out by independent corporate governance consultants throughout the region.

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The many faces of auditing

Both mandatory and discretionary, auditing comes in many guises

1 Integrated

A necessary undertaking for public companies, an integrated audit entails the auditing of both financial statements and internal control over financial reporting. Necessarily conducted by an external auditor, integrated audits are advantageous in that they encourage a holistic approach to the internal auditing process.

2 Performance

Conducted by either an asset manager or an outside firm, a performance audit verifies performance figures with those demonstrated to the public. Beneficial in that a performance audit allows an accurate insight into a firm’s returns.

3 Quality

Quality audits entail the systematic examination of a quality system, undertaken by either an internal or external quality auditor. Quality audits are integral in determining compliance with a defined quality system process and are a necessary requirement in maintaining the ISO quality system standard.

4 Regular health checks

Regular health check audits are carried out for purposes in understanding the present state of a specific project. Primarily conducted by an independent party, regular health checks are intended to further increase productivity or otherwise effectiveness.

5 Energy

Energy audits consist of an inspection, survey and analysis of energy consumption. Largely intended for the bettering of energy conservation, input is often sought to be reduced though without the hindering of subsequent output. Energy audits are largely meant for reducing overheads.

6 Regulatory

Otherwise termed financial, regulatory audits are intended for assessing the legality of processes pertaining to financial operations. Encompassing management, collections and expenditure, regulatory audits seek to determine a true and fair representation of policy and financial management.

Community spirit

Research has shown that companies giving back to the communities in which they work tend to enjoy better long-term results

1 IBM

An organisation famed for valuing innovation and entrepreneurship, IBM helps its employees to give back to the community in the way they best see fit. IBM distributes Activity Kits, each one designed around different volunteering opportunities. For those who want to use their expertise to help educate others, there are kits advising on how to conduct workshops for adults who want to get into the industries IBM operates in. Employees wanting to inspire future generation can use kits to engage children in workshops that see students make anything from paper dog houses to solar-powered model cars. Or those who prefer a more hands-on approach they can volunteer to help in disaster zones.

2 Ford

According to Henry Ford, “A business that makes nothing but money is a poor business”. This inspired Ford’s Accelerated Action Day in 2012, which saw more than 600 employees in American branches step away from their desks to work in local community projects, supported by various charities. Volunteers were dispatched to shelters, schools and family centres, helping to clean, paint and build in their on-going renovation missions. Projects included renovating shelter rooms for the Salvation Army’s centre in Detroit, building houses with Habitat for Humanity and creating therapy rooms for children with the First Step Domestic Violence Program.

3 JP Morgan

JP Morgan engages in many community projects globally, but recent years have seen emphasise focused on improving education on both sides of the Atlantic. Last year they helped to fund Achieve Together, a drive to recruit and inspire good teachers in disadvantaged areas of the UK. The first phase of the programme will roll out later this year, estimating to help 8,000 pupils. 2010 saw the firm launch a $325m initiative to support publically-funded schools in the US. The company granted $50m to community-development financial institutions to support new schools, as well as helping to tackle the financial problems of schools that already have a strong academic track record to keep them afloat.

4 Coca-Cola

5by20 is Coca-Cola’s initiative to empower five million female entrepreneurs worldwide by 2020. The multinational aims to focus its efforts on the small businesses across the world, currently focusing on Brazil, South Africa, the Philippines and India, by providing training with financial resources and mentors to women looking to get ahead in business. Since launching the program in 2010, Coca-Cola claim to have economically enabled more than 131,000 women. As part of the program, a new initiative in Kenya has helped female farmers grow mangoes for locally sold fruit juices, which has in turn helped create sustainable livelihoods around the farms.

5 Johnson and Johnson

As part of Johnson and Johnson’s No More Tears brand’s 50th anniversary, its Clean Water Initiative was launched as a combined effort with non-profit charity Water for People. Operating under the slogan “Because every baby deserves clean water”, the program has aided small, rural communities in ten of world’s poorest countries, including Malawi and West Bengal to tackle water contamination. The charity not only educates communities but also installs sanitation facilities in schools to provide clean water to hundreds of thousands of children.

Corporate Governance Report interviews international migration expert Sophie Barrett-Brown on the value of immigrants to UK corporations

Keeping up with UK immigration rules | Sophie Barrett-Brown| Video

Corporate Governance Report interviews international migration expert Sophie Barrett-Brown on the value of immigrants to UK corporations

Corporate Governance Report interviews international migration expert Sophie Barrett-Brown on the value of immigrants to UK corporations

The value of immigrants to the UK economy | Video

Corporate Governance Report interviews international migration expert Sophie Barrett-Brown on the value of immigrants to UK corporations

Corporate Governance Report interviews CapitaLand CFO Arthur Lang on the impact of corporate governance on Asia's real estate industry and investment

Arthur Lang: How corporate governance has affected Asia’s real estate market | CapitaLand | Video

Corporate Governance Report interviews CapitaLand CFO Arthur Lang on the impact of corporate governance on Asia’s real estate industry and investment

News

Mandatory auditor rotation unnecessary, says Canadian business institute

Calls to make rotation of auditing firm’s compulsory are rejected by Canada’s Institute of Corporate Directors

New union group pledges to ‘tackle corporate responsibility’

The Trade Union Share Owners group will put union values at the heart of corporate governance through the Trade Union Voting and Engagement Guidelines

Ecobank accused of fraudulent governance

The African bank is under investigation by the SEC following allegations of fraud by a suspended company executive

Highest paid CEOs, 2012

The world’s top jobs command the world’s top remunerations, so long as they’re well earned

Attitudes shift towards sustainability reporting

Increased scrutiny from investors and social media means companies are starting to take sustainability reporting more seriously

Redefining corporate responsibility: award winners 2013

Organisations are seeking to correct past workplace models, taking stock and embarking upon a new age of responsibility. Here, the Corporate Governance Report celebrates those firms carrying the governance torch

Nigeria to implement corporate governance code by 2014

New code will centralise corporate governance practices and ascribe penalties for lack of compliance

Strategic CSR stops small companies being overshadowed

The 2013 Ethics and Leadership Conference has highlighted the need for companies within the same industry to group together to exercise their corporate social responsibility

Just how flexible is the UK employment market?

Government declares that “firms have a duty to hire Britons” but what are the implications for employers?

Fed Res enhances internal auditing standards

The US Federal Reserve is strongly encouraging banks to consider their internal auditing strategies to avoid regulatory intervention

Aviva’s failure to meet objectives reflected in slashed dividends

Despite job cuts and a vast disposal programme, the insurance firm’s executives have seen a pay freeze, dividends slashed and shares crashing resulting from a £3.1bn loss after tax

Shareholders sue CEO after Walgreens is slapped with $80m DEA fine

The largest drug retailer in the US has hit back at its board members. Chairman James Skinner and CEO Gregory Wasson have been sued by shareholders who blame them for exercising poor corporate oversight regarding the distribution of prescription painkillers like Oxycodone