The Collapse of Thomas Cook: BEIS Letter of Recommendations

On 4 November 2019, in the looming shadow of the collapse of Thomas Cook Group plc (“Thomas Cook”), the Business, Energy and Industrial Strategy (“BEIS”) Committee published a letter of recommendations to the Secretary of State for the Department of BEIS, Andrea Leadsom.

The letter follows BEIS’ inquiry into the collapse of Thomas Cook and the factors that led to the global travel group’s downfall and covers a range of recommendations relating to corporate governance, audit reform and executive pay and bonuses, including the following:

  • Executive remuneration – Recent guidance and reporting requirements have been introduced in both the UK Corporate Governance Code and the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019. However, BEIS noted that the code and guidance alone would not achieve change, and instead, a new and more powerful regulator should be introduced to replace the Financial Reporting Council (“FRC”).
  • Pensions – Changes to executive pension contributions include the recommendation in the UK Corporate Governance Code that “pension contribution rates for executive directors, or payments in lieu, should be aligned with those available to the workforce”. The recommended replacement to the FRC would be expected to have a role in regulating this. These suggested changes are consistent with the Investment Association’s announcement earlier this year that it will ‘red-top’ companies who pay newly-appointed directors pension contributions which are not aligned with “the majority of the workforce”.
  • Bonuses – Bonus scheme arrangements should always use pre-defined and non-ambiguous measures for executive bonuses, rather than measures that are open to interpretation or favourable adjustment.
  • Clawback – Enforceable clawback provisions for all future performance bonus arrangements should be included to ensure that in situations where large bonuses are paid and it is subsequently clear that the terms of the award were not met, it is possible to legally claw back the bonus.
  • The role of the board – BEIS emphasised the importance of diversity in board composition to ensure that decisions are sufficiently challenged and innovation is championed. They recommended that FTSE 100 companies be required by legislation to publish their workforce data, broken down by ethnicity and pay band and welcomed the Government’s consultation into this.
  • Goodwill – Further to the collapse of Carillion plc and Thomas Cook, where the accounting treatment of goodwill significantly impacted a company’s financial performance, a review of accounting practices relating to goodwill has been recommended.

Many of the recommendations re-emphasise points of concern previously raised by BEIS. The recommendations indicate what next steps the Government may take to help prevent a monumental collapse, such as Thomas Cook, from happening again and considerations companies should have when reflecting on the way in which businesses are run. In any event, the letter from BEIS is a clear statement and push to encourage the Government to take urgent steps “in order to mitigate against the worst impact of corporate failures on employees, consumers, suppliers and taxpayers”.

If these recommendations are actioned, we can expect to see further changes to corporate governance and increased reporting requirements as well as a new regulatory body replacing the FRC to police these obligations.

Corporate Governance: Revised UK Stewardship Code

On 24 October 2019, the Financial Reporting Council (FRC) published the UK Stewardship Code 2020 (2020 Code) which will take effect from 1 January 2020.

The FRC has described the new version as a ‘substantial and ambitious’ revision to the 2012 edition with high expectations of those investing money on behalf of UK savers and pensioners and a much greater focus on the activities and outcomes of stewardship, not just policy statements.

Continue Reading

Investment Association’s Statement on Executive Pensions for 2020 AGMs

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.

Continue Reading

QCA’s Updated Guidance for Audit Committees

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:

Towards a “Distribution Policy”

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.

Continue Reading

Directors’ Remuneration and Reporting

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:

Continue Reading

Parent Company Liability for Environmental Harm Caused by Overseas Subsidiaries

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:


Directors’ Remuneration – New Draft Regulations

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.

Continue Reading