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Is There 'Post-Brexit ' Corporate Governance Now ?

Posted on July 13, 2017 at 6:20 PM

Brexit has changed everything, and it hasn't even happened yet.

But what does it hold in store for a dedication to the pursuit of best corporate governance, particularly with a Prime Minister who started out by claiming a great commitment on that front even before she took office ? (The link is to my coverage at the time on Forbes).

Today on Forbes I covered the announcement by the UK financial watchdog, the Financial Conduct Authority (FCA) about proposed changes regarding premium listings, with clear implications for Saudi Aramco as it looks to make a decision for its IPO late next year.

A more concise explanation in truth of the changes and how they would work to attract the world's biggest flotation is here, by Ian King of Sky News, who also mentions some City reaction. And I have some reaction to add.

The first unsolicited and immediate reaction in my inbox came from Ashurst, the international law firm.

Commenting on the FCA's consultation on proposals to create a new premium listing category for sovereign-controlled companies, Nicholas Holmes, equity capital markets partner at law firm Ashurst, said:

"The declared basis of the proposed dilution of the regime (that applies to shareholder controlled companies when they seek a premium listing) is the claim that sovereign owners have different motivations from private sector individuals or companies. This may be true, but it is not necessarily the case that these motivations are any less in need of proper control and scrutiny. The risk is a dilution of the premium listing brand."

Hard on its heels was Royal London Asset Management (RLAM) which manages £104.5bn of assets, including over £20bn in UK listed equities.

“It looks like the FCA is consulting on amending the existing listing rules to accommodate the peculiarities of one company, which is not a very effective strategy for regulating the market as a whole. If the proposals in this consultation document are implemented, it will be bad news for London and will reverse the progress we have made in recent years to uphold strong governance and protect minority shareholders.

In our view, the listing rules should apply for any premium listing, regardless of whether the controlling investor is a private individual, a consortium or a sovereign state” said Ashley Hamilton Claxton, Corporate Governance Manager at RLAM.

And this, from ShareAction, the activist group promoting responsible investment:

“We will be taking the opportunity to provide feedback on the UKLA’s new proposal for listing of state owned entities. Our initial reaction is that investors and savers should be nervous about any dilution of existing protections which were specifically introduced to avoid a repetition of the governance issues associated with BUMI and ENRC. We will also be pushing the major index providers to carefully consider how to respond to this proposal. The FTSE 100 includes a range of multinational businesses who meet high governance standards – there is no reason why this should be diluted by technical changes in the premium listing with potential implications for passive investors. As a financial centre, London must be careful not to have unintended consequences and damage its own reputation for high governance standards”.

And from Chris Hodge, an independent governance consultant now but previously with the Financial Reporting Council. Please note he was getting on a plane when communicating with me briefly and had not read the original material but had read my piece and the FCA press release.

"The argument from the FCA really amounts to 'this is a special case.' And maybe it is. But if we find that the London Stock Exchange is no longer attracting overseas issues for primary listings because of Brexit, will this turn out to be the first of a steady series of 'special cases' ?" said Mr Hodge.

The cumulative effect of that, he suggested,could be to take us closer to the current UK Chancellor of the Exchequer, Philip Hammond's 'low-cost, low-regulation if we have to' vision for the London market.

Food for thought ?

Ah, yes. Perhaps soon 'Brexit' will have 'unintended consequences' as a tautological twin phrase in the dictionary.

Categories: Governance, Scrutiny, Accountability