There have been a number of recent publications in these areas.
PLSA Corporate Governance Policy and Voting Guidelines 2015/16
These were published in December by the Pensions and Lifetime Savings Association (previously the NAPF) and update the 2014 version in a number of ways to reflect current market practice. These are mainly of interest to premium listed companies and other companies that voluntarily comply with the UK Corporate Governance Code as they are the PLSA's interpretation of the Code intended to assist investors.
The changes include:
- Ensuring directors have sufficient time to fulfil their role properly – the guidelines note that shareholders need to be mindful of the time commitment that non-executive directors are able to give, particularly when concurrent directorships are held. It suggests that where someone holds more than four directorships in complex companies this might be enough to warrant a vote against re-election. If a director chairs a number of key committees an even stricter approach may be warranted, particularly in heavily regulated industries.
- The issuance of new shares under the Pre-Emption Principles – the PLSA supports the limits set out in the Pre-emption Group's Statement of Principles issued in April 2015 (see our newsletter article for further information). But the guidelines also include a requirement that companies should clearly signal their intention to undertake a non-pre-emptive share issue at the earliest opportunity. Companies should keep shareholders informed and engage in meaningful dialogue. Shareholders should consider each case made for a non-pre-emptive share issue on its merits and decide each case using their usual investment criteria
- New detailed voting guidelines on shareholder resolutions - and an emphasis on the need for management to be available to engage with shareholders to make sure the rationale and merits of a resolution are understood
- Reporting on strategic risk - an emphasis is put on the need for a company to articulate clearly in the strategic report how the company's key tangible and intangible assets are used to create sustainable value creation.
FRC seeks to improve reporting by signatories to the Stewardship Code
The Financial Reporting Council (FRC) has announced that it will introduce public tiering of signatories to the Stewardship Code in July this year in an attempt to improve reporting against its principles. The FRC introduced the Stewardship Code in 2010 which sets out a number of areas of good practice to which investors should inspire and operates on a comply or explain basis.
There will be two tiers. Tier 1 where signatories are meeting reporting expectations in relation to stewardship activities. The FRC intends to look particularly at conflicts of interest disclosures, evidence of engagement and approach to resourcing and integration of stewardship. Tier 2 will be those signatories not meeting reporting expectations.
Firms will be contacted with feedback before the assessment is made public to give them the opportunity to improve.
Directors' remuneration – GC100 and Investor Group 2015 Statement
In September 2013 the GC100 and Investor Group (the Group) published guidance to assist remuneration committees with the new remuneration reporting requirements that came in on 1 October that year. Supplementary guidance and clarification to promote best practice reporting was published in 2014.
In its 2015 Statement the Group has announced that having reviewed the 2014 guidance in light of the 2015 AGM season and other relevant developments that no changes are necessary and the guidance remains effective.
The Group has undertaken, however, to do a full review of the IGC Guidance and publish an update during 2016.
The full statement can be read here.
FRC report 'Clear & Concise: Developments in Narrative Reporting' published
The FRC has published this report which provides an overview of recent developments in narrative reporting and includes a number of practical tools to help companies achieve clear and concise reporting. It also includes a study looking at the effect of the introduction of the Strategic Report and the FRC's Guidance on the Strategic Report.
The FRC concludes that both have had a positive effect on the quality of corporate reporting with companies providing more relevant, entity-specific and useful information in their strategic reports. In due course the Strategic Report guidance will be updated to reflect the findings of the study and to take account of the UK's implementation of the EU's Non–Financial Reporting Directive.
European Commission consultation on guidelines for reporting non-financial information
The Non-Financial Reporting Directive came into force on 14 December 2014 and will require large public-interest entities with more than 500 employees to publish an annual non-financial statement containing information relating to the environment, social and employee matters, respect for human rights, anti-corruption and bribery matters. Public-interest entities include companies listed on EU markets, some unlisted companies such as insurance companies, credit institutions and others designated as such by Member States because of their activities, size or number of employees.
The Directive states that the Commission must prepare non-binding guidelines on methodology for reporting non-financial information and so in January the European Commission published a consultation document to collect information and views from stakeholders on what the guidelines should contain. The Commission is seeking views, via an online questionnaire on a number or areas, including:
- whether the guidelines should set out general principles and key ideas or detailed solutions, including on specific sectoral issues
- how the guidelines should approach key performance indicators
- how the guidelines should relate to other European and international frameworks
- whether the guidelines should provide more clarity on what companies should disclose as regards board diversity.
The consultation closes on 15 April and the Directive provides that the guidelines must be published by 6 December 2016.
The Consultation Document can be viewed here.
FRC Developments in Corporate Governance and Stewardship 2015 Report
The FRC has published its annual report looking at the quality of corporate governance in the UK by those companies that have to comply with the UK Corporate Governance Code and the Stewardship Code.
The report concludes that the overall quality of corporate governance in the UK remains high. There has been an improvement in the quality of explanations indicating a more thoughtful approach to governance. There have also been signs of improved engagement and better dialogue between large companies and investment managers but inconsistent reporting against the Stewardship Code's principles. This is to be addressed by the FRC through the proposal to tier signatories (see above) to promote better engagement.
Some key points made include:
- the FRC does not intend to make any substantial changes to the Code before 2019 save for minor changes needed as a result of the EU Statutory Audit Directive and Regulation
- 90 per cent of the FTSE 350 comply with all but 1 or 2 provisions of the Code
- although good progress has been made on reporting boardroom gender diversity very few companies address the broader diversity issues of race and experience
- in the FTSE 100 longer share retention periods in relation to remuneration are being seen
- audit committee reports have improved with 72 per cent of FTSE 350 companies giving more detailed descriptions of the work they do compared to 65 per cent in 2015
- 2015 saw an increase in shareholder voting activities at companies meetings with 73 per cent voter turnout in the UK.