Public Register of Shareholder Dissent

At the request of the Department for Business, Energy & Industrial Strategy, the Investment Association (IA) has launched a public register of FTSE All-Share companies showing occasions where these companies have experienced substantial shareholder dissent i.e. where companies have received votes of 20% or more against any resolution or which have withdrawn a resolution before their AGM.

The purpose of the register is to identify companies who receive a high vote against or withdraw a resolution, and to understand the process used by those companies to identify and address their shareholders’ concerns. The register also publishes links to any public statements made by those companies on how they are addressing those concerns.

In the period from 1 January to 15 December 2017:

  • 22% of FTSE All-Share companies featured on the register.
  • Pay-related resolutions featured most commonly on the register (38%) followed by re-election of director resolutions (32%).
  • 31% of companies on the register published a statement explaining how they are adressing shareholder dissatisfaction.

 The register represents a substantial piece in the move towards greater transparency and accountability in corporate governance by putting companies under close scrutiny by investors, the media and the wider public in general.

Proposed New Corporate Governance Requirement for AIM Companies

The London Stock Exchange has published a feedback statement to its July 2017 discussion paper, together with a consultation on proposed changes to the AIM Rules.

Of note is the change regarding corporate governance.

The LSE is proposing to remove the option for an AIM company to state that it has not adopted a corporate governance code and instead to require AIM companies to state in their AIM Rule 26 disclosures, which recognised industry code of corporate governance it has adopted and to comply or explain against its chosen code. The LSE expects companies to provide meaningful information to investors to enable them to understand an AIM company’s approach to governance. The LSE acknowledges that there may be specific reasons why a company may choose not to comply and explaining this to investors should facilitate meaningful dialogue between investors and the company.

The LSE is not proposing to require companies to update the disclosure annually. However, the information must be kept up to date and the last date on which it was updated should be included in the disclosure. It will be the company’s responsibility to ensure that the information is kept up to date, not the nominated advisers’.

The LSE also considered feedback on the composition of the board of AIM companies. Whilst the LSE does not propose to introduce mandatory board composition requirements, it would normally expect the board to include a Chairperson, Finance Director and Non-Executive Directors.

Responses on the consultation should be sent to the LSE on or before 29 January 2018. It is anticipated that the amended AIM Rule 26 will be effective from 30 June 2018 so as to give AIM companies and their nominated advisers sufficient time to prepare for the proposed changes.

 

Changes to the Takeover Code

The Takeover Panel has published details of amendments to the Takeover Code, effective from 8 January.

When a firm intention to make an offer is announced, the announcement will need to include a new requirement, namely the offeror’s intention with regard to the business, employees and pension scheme(s) of the offeree company.

The notes to the new requirement expain that the offeror must state:

  1. “its intentions with regard to the future business of the offeree company, including its intentions for any research and development functions of the offeree company;
  2. its intentions with regard to the continued employment of the employees and management of the offeree company and of its subsidiaries, including any material change in the conditions of employment or in the balance of the skills and functions of the employees and management;
  3. its strategic plans for the offeree company, and their likely repercussions on employment and on the locations of the offeree company’s places of business, including on the location of the offeree company’s headquarters and headquarters functions;
  4. its intentions with regard to employer contributions into the offeree company’s pension scheme(s) (including with regard to current arrangements for the funding of any scheme deficit), the accrual of benefits for existing members, and the admission of new members;
  5. its intentions with regard to any redeployment of the fixed assets of the offeree company; and
  6. its intentions with regard to the maintenance of any existing trading facilities for the relevant securities of the offeree company.”

Equally, where the offeror has no intention of making any changes in relation to the above matters it will be required to make a statement to that effect.

Consultation on Changes to the UK Corporate Governance Code

Colleagues in Squire Patton Boggs have added an interesting post on the Compensation and Benefits Global Insights blog. It looks at the FRC’s consultation on proposed changes to the UK Corporate Governance Code, with emphasis on remuneration and benefits.

Responses to the consultation need to be in by 28 February 2018 with the final revised Code being published in early summer 2018 and coming into force for accounting periods beginning on or after 1 January 2019.

AIMing for SME Growth Market Status

The London Stock Exchange has applied to the Financial Conduct Authority for AIM to be registered as a SME Growth Market on 3 January 2018.

This new designation is being brought about by the Markets in Financial Instrument Directive (“MiFID II”) as part of the European Commissions’ capital markets plan.

As a consequence, minor amendments will need to be made to AIM Rule 26 regarding company information disclosures that are required to be freely available on its website. Essentially, the following information will need to remain on a company’s website for the longer period of 5 years:

  • annual accounts and all half-yearly, quarterly or similar reports,
  • regulatory notifications containing inside information
  • any prospectus published on or after 3 January 2018.

The 5 year requirement will not be retrospective for disclosures made prior to 3 January 2018.

The AIM Rules will also see a new definition of “SME growth market”.

ISS 2018 Proxy Voting Guidelines Updates

At the end of October we reported on the Institutional Shareholder Services’ (“ISS”) consultation on hybrid and virtual-only shareholders’ meetings. The ISS has now published its updated 2018 Proxy Voting Guidelines, effective for meetings on or after 1 February 2018.

As expected, the guidelines support hybrid shareholder meetings and reject vitual-only meetings. By way of a reminder, hybrid meetings refer to in-person, physical meetings in which shareholders are permitted to participate online. Virtual-only meetings refer to meetings where there is no physical meeting and participation is exclusively through online technology.

Other updates include the following:

Overboarding: For chairmen, a negative recommendation would first be applied towards non-executive positions held but the chair position would be targeted where the chairman is being elected as chairman for the first time or holds three or more chair positions or where the chairman holds an outside executive position.

Audit and Remuneration Committee Composition: The guidelines reiterate the UK Corporate Governance Code which requires that the audit and remuneration committees should comprise only independent directors.

Threshold Vesting Levels for Long-Term Incentive Plans: The guidance states that threshold vesting should generally be no higher than 25 percent. However, as much as 25 percent may be considered inappropriate if LTIP grants represent large multiples of salary. When analysing LTIP award vesting levels, other issues will be taken into account, such as how challenging the threshold targets are, the positioning of salaries and remuneration levels in general.

Share Issuances without Pre-emption Rights: The guidelines have been amended to specifically refer to a cash-box structure as being an abuse of the authority to disapply pre-emption rights approved at the previous AGM.

 

Investment Association Updates its 2018 Principles of Remuneration

Colleagues have published a new post on their blog, “Compensation and Benefits Global Insights”. The post considers the Investment Association’s annual letter to Remuneration Committee Chairs and their updated Principles of Remuneration. The post also notes that many companies will need to take action before their 2018 AGM.

ISS Consults on Hybrid and Virtual-Only Shareholder Meetings

The Institutional Shareholder Services (“ISS”) has published a consultation document seeking views on certain of its proposed benchmark voting policies for 2018. Of relevance in the UK and Europe is the “UK/Ireland Policy and European Policy – Virtual/Hybrid Shareholder Meeting Proposals”.

As the title suggests, ISS is considering (i) “hybrid” meetings, that is where shareholders can attend a physical meeting of the company in person or elect to participate online; and (ii) “virtual-only” meetings, that is where shaeholder meetings are held entirely through online participation with no corresponding physical meeting taking place.

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The Stakeholder Voice in Board Decision Making

The Institute of Chartered Secretaries and Administrators (ICSA) and the Investment Association (IA) have published guidance entitled “The Stakeholder Voice in Board Decision Making; Strengthening the business, promoting long-term success”. This guidance is aimed at the boards of all companies, whether listed or privately owned and regardless of sector or size.

The guidance acknowledges that whilst companies may have certain stakeholders in common (such as employees, customers, suppliers, shareholders and lenders) their stakeholders will vary according to, amongst other things, the size, industry and location of the specific business. For that reason, the guidance does not seek to set out a comprehensive range of approaches but rather concentrates on 10 core principles that should guide boards’ strategic decision making.

The core principles are set out below verbatim:

  • “Boards should identify, and keep under regular review, who they consider their key stakeholders to be and why.
  • Boards should determine which stakeholders they need to engage with directly, as opposed to relying solely on information from management.
  • When evaluating their composition and effectiveness, boards should identify what stakeholder expertise is needed in the boardroom and decide whether they have, or would benefit from, directors with directly relevant experience or understanding.
  • When recruiting any director, the nomination committee should take the stakeholder perspective into account when deciding on the recruitment process and the selection criteria.
  • The chairman – supported by the company secretary – should keep under review the adequacy of the training received by all directors on stakeholder-related matters, and the induction received by new directors, particularly those without previous board experience.
  • The chairman – supported by the board, management and the company secretary – should determine how best to ensure that the board’s decision-making processes give sufficient consideration to key stakeholders.
  • Boards should ensure that appropriate engagement with key stakeholders is taking place and that this is kept under regular review.
  • In designing engagement mechanisms, companies should consider what would be most effective and convenient for the stakeholders, not just the company.
  • The board should report to its shareholders on how it has taken the impact on key stakeholders into account when making decisions.
  • The board should provide feedback to those stakeholders with whom it has engaged, which should be tailored to the different stakeholder groups.”

The Government has recently announced a raft of corporate governance reforms and the Financial Reporting Council will be consulting on the development of a new UK Corporate Governance Code with an intended implementation date for company reporting years commencing after June 2018. In light of these developments, ICSA and the IA will update this guidance, if necessary, but in any event will review the guidance in the second half of 2019 to measure it against companies’ experience of applying the guidance.

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