Pressure Points - consultation

The Pressure Points consultation paper was published in December 2005 at a transatlantic roundtable in Washington DC.

• Download the paper (PDF 142kb/15 pages)

Pressure Points highlights 21 questions representing some of the most challenging aspects of cross-border corporate governance and is relevant to boards, investors, the accountancy profession and policy makers.

It summarises the pressures and opportunities arising from the increassingly international capital flows and integration of capital markets. It focuses on how policy makers encourage business and investor confidence through regulatory and other means; how companies are directed and controlled; and how disclosure and reporting requirements are framed and enforced.

In identifying differences between US and UK corporate governance systems, the intention is not to decide which system, if either, is better. The differences are rooted in history, culture and legal foundations which help shape the behaviour and expectations of market participants. Instead, Pressure Points aims to generate discussion and broaden debate on the differences between US and UK corporate governance systems to promote understanding of pressures and opportunities that arise in increasingly international capital markets.

The ICAEW welcomes dialogue between US and UK counterparts around corporate governance.

The questions from this paper can be broken down into the following areas

Policy dialogue questions

The Pressure Points consultation identifies the following questions which form the basis of dialogue in corporate governance around policy issues at transatlantic roundtables:

• How can the exchange of information and co-operation between policy makers be encouraged to mitigate regulatory conflict and overload?
• Is there a danger of regulation affecting the long-term attractiveness of US securities markets to non-US companies?
• What are the benefits and disadvantages of both a shareholder-led and a regulator-led approach to corporate governance?
• In a takeover, should the law enable directors as fiduciaries to pursue a corporate interest that differs from that of current shareholders?

Investment dialogue questions

The Pressure Points consultation identifies the following questions which form the basis of dialogue in corporate governance around share-ownership issues at transatlantic roundtables:

• How does shareholder oversight and engagement actually improve the corporate governance and performance of companies in both markets?
• To what extent should shareholders be empowered to participate directly in fundamental decisions affecting companies and hold directors to account?
• How effective are shareholder proposals as a means of influencing the governance of companies?
• To what extent should shareholders be afforded powers to influence or determine the composition of boards?
• Do pre-emption rights adversely affect competitiveness and are shareholders deterred from investing if a company does not provide such rights?

Business dialogue questions

The Pressure Points consultation identifies the following questions which form the basis of dialogue in corporate governance around business issues at transatlantic roundtables:

• How does the Business Judgment Rule impact upon the ability of US directors to discharge their fiduciary duties and is there any substantive difference from the position in the UK?
• How do differences in the relative roles and proportions of non-executive directors and executive directors in the US and the UK impact on company performance?
• What are the key benefits and/or disadvantages of either separating or combining the positions of the Chairman and CEO?
• Are independence criteria for directors different in substance between the US and the UK?
• To what extent is it seen as feasible or desirable in the US and the UK for levels of compensation to be influenced by investors or regulated by governments?
• Is company performance enhanced if non-executive directors are compensated with stock options or basic pay structures?

Accounting dialogue questions

The Pressure Points consultation identifies the following questions which form the basis of dialogue in corporate governance around accounting issues at transatlantic roundtables:

• To what extent will new US requirements on disclosure controls increase the demands placed on non-SEC registrants?
• Is complete convergence between US GAAP and IFRS possible or will US standards always need to be different to reflect the US legal environment?
• To what extent does quarterly reporting either improve market efficiency or encourage short-termism and compromise reporting quality?
• How are US auditing standards likely to influence the development of principle-based ISAs?
• Is it realistic to expect non-financial disclosure to evolve beyond current US practice? What are the practical implications of differing external auditor reporting lines and how do the roles of audit committees in the US and UK differ?

To discuss the Pressure Points , email: corporategovernance@icaew.com or telephone +44 (0) 207 920 8714.