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.

Read the full article.

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.

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Redeeming the Irredeemable

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.

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PLSA Corporate Governance Policy and Voting Guidelines 2019

Stock Market

Introduction

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.

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Audit Committees and Audit Quality: Guidance from IOSCO

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.

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Revised Guidance on Directors’ Remuneration Reporting

Coins and pen over chart

The GC 100 and Investor Group have updated their directors’ remuneration reporting guidance 2018 to reflect the changes to reporting requirements (under Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended)) introduced by the Companies (Miscellaneous Reporting) Regulations 2018.

The guidance seeks to facilitate the statutory disclosure regime and help companies to satisfy the prescribed reporting requirements. Before addressing the specific statutory provisions, the guidance includes a useful discussion around the concepts of flexibility, discretion and judgment. Given that the remuneration policy will need to endure for potentially 3 years, with different circumstances arising, these are key concepts that boards and investors will be keen to consider carefully.

Investment Association’s Principles of Remuneration for 2019 AGM Season

The Investment Association has published a revised version of its Principles of Remuneration for the 2019 AGM season, most of the changes reflecting the new UK Corporate Governance Code.

Colleagues in the Squire Patton Boggs Tax Strategy and Benefits practice group have posted this insight on their blog, Compensation And Benefits Global Insights.

New Emissions, Energy Consumption and Energy Efficiency Reporting for 2019

The government has published the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. The regulations amend the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 to require additional annual reporting on emissions, energy consumption and energy efficiency action by quoted companies, large unquoted companies and large LLPs.

The introduction of a new Streamlined Energy and Carbon Reporting framework, through company annual reports, will replace the reporting element of the existing UK-wide CRC Energy Efficiency Scheme.

The regulations will come into force on 1 April 2019 and have effect in respect of financial years beginning on or after 1 April 2019.

Detailed guidance on how to comply with the new obligations to disclose emissions, energy consumption and energy efficiency action in directors’ reports or energy and carbon reports as applicable is expected to be published by January 2019. This will build on the current guidance on mandatory greenhouse gas reporting.

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