Investment Association: Shareholder Priorities for 2020

In looking at shareholder priorities for the year ahead, the Investment Association (IA) has recently published a report which sets out the areas it believes investors will place greater importance on in terms of corporate delivery. These areas are:

  1. Responding to Climate Change.
  2. Audit Quality.
  3. Stakeholder Engagement and Employee Voice.
  4. Diversity.

Taking a look at each of the areas in turn, the following particular points are made:

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The Equal Pay Bill

Section 78 of the Equality Act 2010 (as amended by the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, which came into force on 6 April 2017) (“EA 2010“), currently governs how large private and voluntary sector employers (defined as those with 250 or more employees as at 5 April each year) report on and publish information relating to their gender pay gaps.

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Climate Change: Chapter Zero

The World Economic Forum under its Climate Governance Initiative has developed a set of principles for good board governance on climate change. It is also calling for global networks of directors to be forged to help establish these principles in practice and to drive forward action on the net zero carbon challenge.

In the UK, a network of chairs, audit chairs and other non-executive directors, named Chapter Zero,  was set up earlier this year and it’s membership (which is free) is predictably expanding given the centrality of climate related issues.

 

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.

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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.

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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: https://www.theqca.com/news/briefs/189376/new-qca-audit-committee-guide-published.thtml.

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.

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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:

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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:

https://www.freshlawblog.com/2019/05/01/uk-supreme-court-considering-parent-company-liability-for-environmental-harm-caused-by-overseas-subsidiaries/

 

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