Corporate Governance Inquiry: Are Employee Representatives Coming to the Boardroom?

Business people discussing strategy in boardroomThe 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.

Corporate Director Ban – Update

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.

iStock_000014463224_MediumThe 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.


Corporate Culture and the Role of Boards

Business people discussing strategy in boardroomColleagues 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.

Updated Directors’ Remuneration Reporting Guidance

Colleagues have published a new post, The Executive Remuneration Games: updated guidance on the Compensation and Benefits Global Insights blog.

iStock_000049398330_SmallThe 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.

Final Report on Boardroom Pay

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.


Employee/Consumer Representation On Company Boards ?

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.

Business people discussing strategy in boardroomThe 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?).

UK Share Plans Deadline

Colleagues have published a new post on our Compensation and Benefits Global Insights Blog entitled “Filing deadline for UK share plans is fast approaching!”

iStock_000046212782_SmallThis serves as a quick reminder that the deadline for making annual returns for UK share schemes relating to the 2015/2016 tax year is 6 July 2016. It also discusses some differences in treatment of tax-advantaged share schemes and non-tax-advantaged plans.

Capital Markets Union: a Step Closer

The EU Council has agreed a negotiating stance on proposed new rules on prospectuses for the issuing and offering of securities in the EU.

The proposed Regulation is an important step towards the creation of the capital markets union which is due to be fully functioning by the end of 2019. The draft regulation seeks to provide all types of issuers with disclosure rules that are tailored to their specific needs, whilst making the prospectus a more relevant tool for informing potential investors. It will also reduce divergences that have emerged in implementation by member states.

iStock_000055735570_SmallThe proposal establishes specific rules for companies already listed on a regulated market that wish to raise additional capital by means of a secondary issuance, as well as for SMEs.  With reduced paperwork and associated costs, it is likely SMEs may be encouraged to raise capital in the market.

The draft Regulation also sets out to achieve greater convergence between the prospectus rules and other disclosure rules.

Resolution for Disapplying Pre-Emption Rights

The Pre-Emption Group has published a monitoring report on the implementation of its 2015 Statement of Principles for disapplying pre-emption rights and a template resolution for disapplying pre-emption rights.

Ballot_Box-l-s[1]The monitoring report reveals that the 2015 Statement of Principles was generally adhered to but, having considered the views of investor representatives on best practice, the Pre-Emption Group decided to publish a template resolution for disapplying pre-emption rights to assist companies.

The template recommends issuers propose two separate resolutions:

  • The first resolution is to seek a five per cent disapplication to be used on an unrestricted basis.
  • The second resolution, which should only be put forward when appropriate, is to request authority to disapply pre-emption rights when the board considers the use to be for an acquisition or specified capital investment in accordance with the 2015 Statement of Principles.

Where the second resolution is proposed, companies should disclose the circumstances that led to its proposal and the consultation process undertaken.

The Pre-Emption Group encourages companies to use the template resolutions at their next general meeting but will be expected to use them for meetings held after 1 August 2016.