Sunday, October 23, 2005


It's not a good day when you're about to open a new exchange that claims it will set the regional standard for tough regulation and The Economist writes of the chairman and the CEO, "Their explanations appear plausible, but the incident is embarrassing."

UPDATE: Be sure to look at the first comment on this post where the commenter has kindly provided the most recent Dow Jones report on the DIFX governance issues. International standards are very demanding.


Anonymous Anonymous said...

and again, published sunday

DUBAI — The Dubai International Financial Exchange declares that it wants standards comparable to those of leading international stock exchanges in New York, London and Hong Kong.

But the DIFX differs from those exchanges on several points, some of which go to the heart of board member William Miller's July 19 memo about corporate governance problems at the fledgling exchange.

The DIFX won't, for example, reveal the salary of Chief Executive Steffen Schubert. And DIFX Chairman Lynton Jones recently joined the exchange's remuneration committee, becoming one of three members.

By contrast, the New York, London and Hong Kong exchanges reveal the salaries — and bonuses and other compensation — of their chief executives on their Web sites.

The other exchanges also go far to curtail the chairman's power on remuneration, leaving him off those committees altogether or, as in New York, making him one of seven members and giving a second committee a role in the process.

And in all three cases, the chairman is a non-executive chairman, a point of contention at the DIFX, at least in Miller's view.

The depth of support on the DIFX board for Miller's position is hard to assess, even a month after the DIFX' September 26 launch.

The memo, seen and previously disclosed by Dow Jones Newswires, said Jones' actions, including a proposal to expand the board, "will create material risks for the DIFX launch."

Miller's worry was that the launch would suffer as a result. While the DIFX hasn't exactly been a roaring success in its first month, analysts doubt that has anything to do with corporate governance. In the memo, Miller wrote that Jones' was gradually taking powers that properly belong to the board, or in some cases belonged to independent directors. And he warned that if problems are not corrected, "the DIFX will not be accepted by the international trading community."

Miller's memo also went further, saying that Jones' actions to reshape the board may have been motivated by a desire to secure a contract extension for himself.

Jones declined to be interviewed for this article.

"The role of management, including de facto members of management, in usurping the role of the board and its committees is contrary to principles of good governance," Miller wrote.

The "de facto" reflects Miller's detailed case in the memo that Jones wasn't an independent director. Miller also wrote that board member Sameer al-Ansari challenged Jones' claim to independence, and his memo referred to "the proposition" that al-Ansari and Miller resign.

The memo doesn't say who made that proposition.

Al-Ansari has since left the board and wouldn't comment. Miller is still on the board.

In an interview for a previous article on governance, Jones said the DIFX attorney and the board identified him as an independent board member.

Because key participants in the exchange's governing body have been mostly silent, the details of the conflict are difficult to piece together. But the timing of changes indicates that Jones was reshaping the board and its nomination and remuneration committee at the time that Miller was challenging the chairman's actions. And at the same time that Miller said Al-Ansari was challenging Jones' independent status.

Miller complained in his memo that Jones sidestepped the nomination and remuneration committee during the process of selecting the six board members who joined September 1, increasing the board to 15 members from 10 while one new member replaced Al-Ansari.

"There has not been a board resolution authorizing Lynton to single-handedly assume the nomination and remuneration committee's duties," Miller wrote. But Jones, in the September interview, said the committee was "heavily involved."

The DIFX decided to expand the board to allow for the creation of the market oversight committee, a board body that will play a regulatory role for the exchange, he said.

"In order to recruit people to sit on this, we needed more board members," Jones said. "That's a perfectly normal way to proceed." The six new members included Sameh el-Torgoman, the former head of the Cairo stock exchange, who joined the market oversight committee along with existing board members Osama Elansari and George Moller, chief executive of Rabobank's fund management arm.

"You have to adapt to changes and make sure people are up to date with right skill sets. There will be further changes in the future," said Jones.

Miller's memo raised the possibility that Jones' motives were different.

"Lynton's contract is nearing its conclusion," he wrote, asking whether Jones' proposals for board changes involved a "danger of Lynton appearing to act in his own interest."

The DIFX wouldn't say how long Jones' present contract runs. It began in early September.

In addition to the new oversight committee, the nomination and remuneration committee received a wholesale revamping. Al-Ansari left the exchange, Miller was removed from the committee, and Michael Philipp, an executive at CSFB Europe, left the committee. — Dow Jones

9:38 AM  

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