This week’s edition of Corporate highlights includes the Pension and Lifetime Savings Association’s updated edition of the Corporate Governance Policy and Voting Guidelines and its AGM Voting Review, and the setting up of a new industry group to develop corporate governance principles for large private companies.
Pensions and Lifetime Savings Association releases corporate governance policy and voting guidelines
The Pensions and Lifetime Savings Association (PLSA) has published its corporate governance policy and voting guidelines 2018. The guidelines provide its members with examples of good stewardship practice and recommendations for key votes at the annual general meetings of their investee companies, on subjects such as executive pay, the re-election of directors and the approval of the annual report. This year’s guidelines continue to relate to the current application of the UK Corporate Governance Code, rather than the reforms proposed by the Financial Reporting Council (FRC) in December 2017.
The 2018 Guidelines include an additional section on sustainability which recommends that, where shareholder attempts have failed to encourage companies in relevant sectors to provide a detailed risk assessment and response to the effect of climate change on their business, they should not support the re-election of the chair. This additional section follows on from work that the PLSA did in 2017, when it produced guidance for pension funds on the economic implications for climate change. The paper recommended that pension funds question their asset managers on how they are engaging with investee companies over the impact of climate change, including their use of votes at company AGMs.
For further information, see: LNB News 26/01/2018 89.
Pension and Lifetime Savings Association releases AGM voting review
The PLSA has also published its AGM voting review which examines AGM results for the FTSE All Share Index in 2017. The report examines the results and causes of shareholder dissent for FTSE 350 companies during 2017. The PLSA is concerned with the strategy, governance and culture of these companies, and shareholder votes at company AGMs are a useful indicator in this respect.
Overall, the AGM review shows relatively steady levels of shareholder dissent at company AGMs for the past two years, with roughly one fifth of companies (56 of the FTSE 250 and 17 of the FTSE 100) experiencing significant dissent (of at least 20% of the AGM votes) over at least one resolution at their AGM. Over the longer term, the report reveals a fall in shareholder dissent since its peak in the aftermath of the financial crisis and the subsequent focus on governance that it entailed.
Executive remuneration-related resolutions are the most common source of dissent; it is therefore unsurprising that patterns of remuneration-related dissent mirror patterns of dissent overall. Alongside remuneration-related resolutions, the election and re-election of directors are the resolutions most likely to attract shareholder dissent at AGMs.
For key findings and further information, see: LNB News 29/01/2018 139.
Industry group set up to develop corporate governance principles for large private companies
The government has announced that it has appointed James Wates CBE as the chair of a new industry group to lead a ‘step change in the way large private companies are run’. He will work with the Financial Reporting Council, the Institute of Directors, the Trades Union Congress and others to draw up ‘the UK’s first-ever set of guiding principles for large private companies’.
The development of a voluntary set of principles for large private companies was one of the recommendations included in the government’s response to its green paper on corporate governance in August 2017. Other measures that are expected include secondary legislation requiring large private companies to disclose their corporate governance arrangements in their directors’ report and on their website.
The aim of the appointment is to ensure large private companies are transparent and accountable, ‘addressing concerns that a minority of companies are falling short of the high standards that we expect’. James Wates has extensive experience in the private sector, including as chairman of the Wates Group, a large construction firm.
See: LNB News 30/01/2018 107.
Equity capital markets
ESMA draws issuers’ attention to IAS requirements following new US tax legislation
The European Securities and Markets Authority (ESMA) has responded to concerns expressed by EU issuers about accounting for the effects of the US Tax Cuts and Jobs Act in their IFRS financial statements. The Act, which makes significant changes to US tax laws, became effective on 1 January 2018.
In order to avoid the risk of inconsistent application of IFRS in the EU, ESMA has made a public statement reminding issuers of their obligations under IAS 12 Income Taxes. Under IFRS there is no relief from these requirements, even to deal with circumstances in which complex legislation is substantively enacted shortly before the year-end.
Together with national competent authorities, ESMA confirms that it will monitor the level of transparency that issuers provide in their financial statements about accounting for the effects of the Act and changes in estimates resulting from its implementation.
For further information, see: LNB News 26/01/2018 100.
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New and updated content
New practice note
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Dates for your diary
|1 February 2018||Institutional Shareholder Services (ISS) published its 2018 benchmark policy updates on 16 November 2017. The updated policies will generally be applied for shareholder meetings on or after 1 February 2018. The principal change is the introduction of a new policy to deal with the evolving practice of virtual shareholder meetings, but other changes concern the policies on director overboarding, audit and remuneration committee composition, threshold levels for long-term incentive plans (LTIPs) and share issuances without pre-emption rights.
For further information, see: LNB News 17/11/2017 94.
|1 February 2018||Responses are sought by 1 February 2018 on proposed minor changes to the Listing Rules (LRs) and Disclosure Guidance and Transparency Rules (DTRs) as set out in FCA CP17/39 Quarterly Consultation Paper.
The changes in the LRs clarify the meaning of Premium Listing Principle 6 in the LRs. The changes in the DTRs clarify where the diversity report may be located under corporate governance reporting requirements.
For further information, see: LNB News 01/12/2017 129.
|2 February 2018||The Equality and Human Rights Commission has published its draft enforcement strategy for the gender pay gap reporting regulations, which warn that non-compliant firms could face unlimited fines and convictions. The enforcement strategy is open for consultation until 2 February 2018.
The strategy explains that the Commission may investigate suspected breaches of the regulations by private and voluntary sector employers and offer them the opportunity to enter into a formal agreement to comply as an alternative to continuing with the investigation. Such agreements can themselves be enforced if not complied with.
Public sector employers in England must publish the required information by 30 March 2018. Private and voluntary sector employers with 250 or more employees must report the required pay gap information by 4 April 2018.
For further information, see: LNB News 20/12/2017 50.
|No later than 13 February 2018||Dickinson v NAL Realisations (Staffordshire) Ltd and another: Hearing of appeal in the Court of Appeal to be heard by this date.
In the previous judgment, the Chancery Division held that, among other things, the claimant’s claim to recover sums which he alleged were due to him and secured by a debenture over a company that was in liquidation would not succeed, where certain transactions had allegedly been made at an undervalue. The court held that a share buyback had been void.
Appeal Tracker: Dickinson v NAL Realisations (Staffordshire) Ltd and another: LNB News 17/03/2017 95