Colleagues have published an interesting post on the Compensation and Benefits Global Insights blog on the Department for Business, Energy and Industrial Strategy’s green paper on the reform of corporate governance published yesterday. Please read more.
The Parker Review Committee has published a consultation version of a report into the ethnic diversity of UK boards. The report finds that ethnic minority representation on the boards of FTSE 100 companies is disproportionately low, representing only 8% of the total director population compared to constituting 14% of the UK population.
The report includes several recommendations which are intended to:
- Increase the ethnic diversity of FTSE 100 and FTSE 250 boards.
- Ensure that FTSE 100 and FTSE 250 companies develop mechanisms to identify, develop and promote people of colour so that they have a pipeline of board capable candidates.
- Enhance transparency by way of the disclosure in annual reports of companies’ diversity policies and compliance with board composition recommendations.
A specific recommendation is that each FTSE 100 board should have at least one director of colour by 2021, and each FTSE 250 board should have at least one director of colour by 2024.
Comments on the consultation version of the report are requested by 28 February 2017 and a report containing the final recommendations and findings of the review will be published thereafter.
The European Securities and Market Authority has published its final guidelines on the steps and the records that a person receiving a market sounding will have to consider and implement according to Article 11(11) of the Market Abuse Regulation (EU) No 596/2014 (MAR).
A market sounding is the disclosure of information to one or more potential investors, prior to an announcement, in order to gauge their interest in a possible transaction.
The guidelines detail:
- the factors that recipients of market soundings are to take into account when information is disclosed to them in order for them to assess whether the information amounts to inside information;
- the steps that such persons are to take if inside information has been disclosed to them; and
- the records that such persons are to maintain in order to demonstrate that they have complied with MAR.
The guidelines are strong on the need for training and compliance with pre-established reporting procedures yet also emphasise the need for these to be appropriate and proportionate to the recipients’ scale, size and nature of their business activity.
Records will need to be kept in a durable medium for at least 5 years.
The guidelines apply from 20 December 2016.
A number of themes trailed in Theresa May’s first speech after securing the Conservative nomination, were repeated at last week’s Conservative Party conference in Birmingham. The new Government reiterated its intention to occupy the centre ground of British politics and the delivery of this political objective will undoubtedly have implications for corporate Britain – in the words of the Prime Minister “ a change has got to come.”
At the moment we are short on detail, but the Government has promised to publish plans later this year to have consumers and workers represented on company boards of directors. Speech soundbites also focussed on executive pay, the taxation of international business and the payment of excessive dividends, together with a more general promise to protect and enhance workers’ rights.
How all this will play out remains to be seen, but it is clear that worker representation on company boards will be at the forefront of the changes with specific proposals scheduled to appear in the next few months. Whilst we don’t know what these will look like, given that 19 out of 28 EU member states have some form of worker representation there are plenty of examples that could be followed. Obviously there are many issues that will need to be worked through (such as, how to reconcile worker representation with the existing statutory duties of directors and requirements of the UK Corporate Governance Code), however, the momentum that has developed makes it hard to see how anything other than significant change will result.
At the moment commentary appears to be focussing on what this will mean for our larger listed companies, which are already subject to extensive governance requirements (although not worker representation). However, nothing in Theresa May’s speech drew any distinction between companies that are publicly listed and those that are owner managed or private equity backed. Indeed, her speech contained a number of thinly veiled references to BHS in relation to some of the behaviours she is seeking to regulate, so she may not be as adverse as some may think to the TUC’s recently stated position that companies with 250 or more employees should be covered.
A Conservative Government promising to protect and enhance workers’ rights and adopt continental models of corporate governance – strange times indeed!
The Business, Innovation and Skills House of Commons Select Committee has launched an inquiry on corporate governance, focusing on directors’ duties, executive pay and the composition of boards. Interestingly, the inquiry raises the question, “Should there be worker representation on boards and/or remuneration committees?”. This echoes Theresa May’s speech on 11 July when she said “…and we’re going to have not just consumers represented on company boards, but employees as well.”. Is this a sign of things to come?
Submissions are requested by 26 October 2016.
The Companies Act 2006 currently allows companies to appoint a corporate director as long as at least one of the directors is an individual. However, the Small Business, Enterprise and Employment Act 2015 will change that, such that only a natural person may be appointed as a director of a company unless the appointment falls within one of the exceptions provided for by regulations.
The rationale for the ban on the use of corporate directors is found in the Government’s campaign to increase corporate transparency. The new regime was expected to come into force in October.
However, and without publicising the fact, the Companies House website now says: “You won’t be able to appoint corporate directors, although there are some limited exceptions. The detail of these exceptions are still under development. Any further information including a date for implementation will be provided on GOV.UK as soon as it’s available.”
It is hoped that this delay will afford an opportunity for the Department for Business, Energy and Industrial Strategy to review the scope of the ban and the proposals for possible exceptions to it.
Colleagues have published a post, Culture Club: FRC strengthens link between company values and executive remuneration on the Compensation and Benefits: Global Insights blog. The FRC Report, entitled “Corporate Culture and the Role of Boards“, covers many aspects of the actions and behaviours of a company in establishing, communicating and maintaining its culture and values. The post explores the topic of executive remuneration and incentives.
The FRC will be monitoring reporting on culture by companies and investors over the next year. The FRC will also use the report and feedback when it reviews its Guidance on Board Effectiveness in 2017.
Colleagues have published a new post, The Executive Remuneration Games: updated guidance on the Compensation and Benefits Global Insights blog.
The post looks at the GC100 and Investor Group’s recently published updated directors’ remuneration reporting guidance. This reflects the changes in practice since their original guidance in 2013 and the voting patterns of the 2016 AGM season. The large majority of the FTSE100 will be putting new remuneration policies to a shareholder vote next year on the expiry of the 3-year policies they put in place in 2014. The amended guidance should (hopefully!) help companies avoid the negative shareholder votes that were so in evidence this AGM season.
Colleagues have published a post on the Compensation and Benefits Global Insights blog regarding the Executive Remuneration Working Group’s (ERWG) much-anticipated final report on simplifying and re-aligning executive pay in the UK. The ERWG hopes that this report will have a major influence on how executive remuneration in FTSE companies is structured. Read more here.
If Theresa May does go ahead and impose employee/consumer representation on company boards, there are likely to be unintended knock-on consequences. In particular, it is likely to inhibit open discussion at board level because it is difficult to see an employee representative being able to withhold all board information from the employee constituency that they represent. That it turn may undermine the role and contribution of the other non-executives, which undermines the efforts made to bolster their role over the last decade or more.
The most significant change is likely to come in the way that boards interact with the rest of the day to day governance structure of the company. Many (most?) quoted companies already have a significant management/executive committee operating below the board (the members of which include the executive directors and other senior executives). This is likely to become an important part of the new regime to ensure that effective governance continues. At the moment, we suspect that in practice the remit of the executive/management committee may be a little vague or imprecise. However, under the new regime this remit would become a cornerstone of the governance structure of the company and would need to be crystal clear in order to maintain the authority of the board. This could effectively overturn the current unitary board system in favour of a two-tier system closer to that used elsewhere in Europe (moving us closer to Europe despite Brexit?).