The Investment Association (“IA”) has recently published a new statement relating to executive directors’ pension contributions. The guidance is the next step from the IA’s statement in February 2019 and Good Stewardship Guide 2019, which call for executive directors’ paid pension contributions to be in line with the majority of the workforce.
Audit committees are key to public confidence in a company’s financial reporting. The responsibilities of audit committees and importance of their composition and involvement was reinforced in 2014 by the Audit Regulation and Amending Directive.
On 12 September 2019, the Quoted Companies Alliance (QCA) published its new and updated Audit Committee Guide, which replaces the November 2014 version. The Guide is intended to assist audit committee members and audit committee chairs in their roles and sits alongside the QCA Corporate Governance Code.
Key changes to the Guide from the 2014 version include:
- The roles and responsibilities of the audit committee, its chair, the finance director and company secretary have been expanded. The guide also states that the company secretary should not be a member of the committee nor, unless impractical, the finance director.
- The risk management and internal control section of the Guide has been significantly extended. For example, it recognises the dynamic and evolving risk landscape and the need for companies to consider the risks of their extended business. It also encourages companies to monitor any threats and opportunities and their potential impact.
- The Guide includes additional guidance relating to new accounting policies, the payment of dividends and the audit opinion.
- Additional features of the audit committee report have been added, including information regarding auditor rotation, tendering, risk and control framework and the internal assurance or audit function.
- Appendix A of the Guide includes additional agenda items for month six of the financial year, relating to approving audit fees and non-audit service provision policy.
Members of the QCA can download the new guide from the QCA website for free: https://www.theqca.com/news/briefs/189376/new-qca-audit-committee-guide-published.thtml.
The Investment Association (“IA”) has published an interesting report following its investigation into dividend payment practices of UK listed companies. The research was carried out in response to the Department for Business, Energy and Industrial Strategy’s concern that an increasing number of companies are paying ordinary dividends without seeking shareholder approval, which undermines transparency and accountability to shareholders. This all comes off the back of the high-profile collapse of businesses such as Carillion and BHS and some companies’ short term focus at the expense of the long term sustainablity of the company.
The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 were published on 29 May 2019. The regulations amend the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 by implementing Articles 9a (Right to vote on the remuneration policy) and 9b (Information to be provided in and right to vote on the remuneration report) of the Shareholder Rights Directive, as inserted by the Shareholders Rights Directive II.
The regulations apply to quoted companies (ie companies on the Official List) and to unquoted traded companies (ie companies traded on a regulated market that are not quoted companies.) They do not apply to AIM companies.
The new requirements are as follows:
Colleagues in the Environmental, Safety and Health practice group have published an interesting post on the recent Vedanta Resources decision. In that case, the UK Supreme Court held that a claim for negligence and breach of statutory duty against a mining company based in Zambia and its English parent can be heard by the UK courts.
Click on this link to read more:
The draft Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 (Draft Regulations) have been published as part of the drive to encourage long-term shareholder engagement and to strengthen the governance and performance of traded companies. The Draft Regulations implement the following articles of the Shareholder Rights Directive II (2017/36/EU), which must be transposed into national law by 10 June 2019:
- Article 9a – the right to vote on a company’s remuneration policy; and
- Article 9b – the information to be provided in, and right to vote on, the remuneration report.
The Investment Association has announced that it will target pension perks and poor diversity in the 2019 AGM season.
The Investment Association has published guidelines concerning the redemption or cancellation of irredeemable preference shares. The aim of the guidelines, which are of general application to listed companies, is to promote market confidence in irredeemable preference shares as an asset class and avoid reputational risk for issuers.
The Pensions and Lifetime Savings Association (“PLSA”), representing the occupational pensions industry, has published guidance on market best practice to assist its members when exercising their vote at AGMs in 2019. The revised version of its Corporate Governance Policy and Voting Guidelines (“Guidance”) reflects the introduction of the 2018 UK Corporate Governance Code which applies to financial years beginning on or after 1 January 2019 (“Code”). Interestingly, the Guidance does not follow the format and order of a typical AGM agenda but instead highlights those issues which the PLSA believes are significant to investors. In particular, this change has resulted in greater prominence for resolutions regarding approval of the remuneration policy and remuneration report, and the principle of sustainability.
UK Corporate Governance Principles
Whilst the PLSA’s corporate governance principles remain largely unchanged, the Guidance includes the following additions:
- Companies should take capital structure decisions which balance the financing needs of the firm with the interests of broader stakeholders: a new principle which encompasses striking the right balance between dividend payments to shareholders and paying deficit repair contributions to any defined benefit pension scheme as well as undertaking share buybacks only when doing so is the best way to achieve long-term value.
- Pension schemes should consider explicitly setting out their expectations for outsourced engagement and stewardship activities in their contracts or mandates: a new principle which identifies that stewardship responsibilities remain when asset owners outsource engagement to asset managers and contracts should be set up to allow their service providers to be accountable. This principle recommends the International Corporate Governance Network’s Model Mandate as a starting point for ensuring this.
The International Organisation of Securities Commissions (IOSCO), being the leading international policy forum for securities regulators which focuses on the quality of financial reports and good corporate governance, has published a report on good practices for audit committees of listed companies in supporting external audit quality.
The report focuses on the importance of ensuring the quality of a company’s financial report, the independence of any external audit in achieving market confidence, transparency and effective functioning capital markets and the valuable role audit committees play in achieving this.