Corporate governance rules get tougher

EVEN though the oil and gas industry ranks highly for transparency in corporate reporting, there are efforts underway to make regulations more uniform across the globe.
Corporate governance rules get tougher Corporate governance rules get tougher Corporate governance rules get tougher Corporate governance rules get tougher Corporate governance rules get tougher


Staff Reporter

This week marked the second anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

While the legislation was aimed at bringing an end to the era of “too big to fail” banks, it included key provisions that many say would help the poor in resource-rich countries.

The law, which primarily addresses corporate governance issues in the US, also includes a provision called the Cardin-Lugar amendment. That applies to companies – both American and internationally-based but US-listed – engaged in the commercial extractive industries including oil and gas.

It requires companies to report to the Securities and Exchange Commission the payments they make to governments in countries where they operate. This, proponents of the measure believe, will show how much money from natural resources is given to governments around the world.

Authors of the provision senators Benjamin Cardin and Richard Lugar say such transparency would “empower the citizens to hold their governments to account for the decisions made by their governments in the management of valuable oil, gas and mineral resources and revenues”.

Taken further, many say it could also provide greater price stability for these crucial resources by providing more information about the global commodities market.

Well over a year after the amendment was passed, the SEC announced in July that it would release implementation regulations later this month.

But the measure has its detractors and typical Washington lobbying could likely dilute the efficacy of the amendment.

The American Petroleum Institute, which includes members such as ExxonMobil, Chevron, Shell and BP, has threatened a lawsuit against the SEC.

Many say the competitiveness of American and European companies will be eroded in the markets.

Some opponents are asking the SEC to exclude countries such as China, Angola, Cameroon and Qatar, where such disclosure of information regarding payments is prohibited.

There is, however, scant evidence of any specific prohibitions in these countries.

Interestingly, these regulations apply to other extractive industries such as mining but lobbying from that sector has been muted.

What is more, the European Union is moving towards similar legislation, which would cover public oil firms, mining companies and other companies listed on European bourses.

The European Commission last year adopted the amendments, which mirror the US Dodd-Frank legislation, and the Parliament will vote on these proposals later this year.

Analysts say that with increased global oil and gas mergers and acquisitions activities underway, a more uniform approach will bring about a level playing field.

However, despite the increased focus on corporate governance, the extractive industries appear well represented in the transparency index.

In a recent ranking by Transparency International of 105 of the world’s largest companies, which together exceed $US11 trillion in value, Norway’s Statoil and the UK’s BG Group took two of the top five spots.

Statoil scored 8.3 on a scale of 0 to 10 and was the only company to report its payments to the government in Libya.

Seventeen of the 105 companies in TI’s listing represent the oil and gas industry and 10 of the oil and gas companies earned scores above the midpoint of 5. While the group of top 10 oil and gas companies included US majors such as Exxon and Chevron and Occidental Petroleum, the majority of the oilies are based in Europe.

This article first appeared in ILN's sister publication

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