PIRC has updated its UK Shareholder Voting Guidelines, replacing the version published in April 2015. The Guidelines represent the PIRC’s independent judgement of good corporate practice on issues such as board structure, remuneration policy and management of social and environmental issues and are applied to all listed companies that the PIRC covers on the UK market, including those incorporated outside the UK.
Key changes to the 2016 Guidelines include the following:
- Shareholder rights: (a) PIRC recommends that shareowners should remain objective in exercising their votes following any consultation by the company issued as part of its dialogue with investors; (b) PIRC does not see that any compelling case was publicly made for shareholders to reduce their pre-emption rights to the extent provided for in the revised Pre-Emption Group statement of principles and confirms that it will continue to be guided by previous institutional guidelines and will not support new 10% disapplication authorities unless the board has made a clear, cogent and compelling case why the 10% level is appropriate for the company; (c) PIRC recommends voting against future share buyback authorities unless the board has made a clear, cogent and compelling case demonstrating how the authority benefits long-term shareholders and that the directors are not conflicted in recommending the authority; (d) in a new section on response to a “significant” vote, PIRC notes that where a company has received a significant proportion of votes cast against a management proposed resolution, the company should provide a statement within its RNS announcement; and (e) PIRC has revised and updated the factors that it considers in evaluating mergers and acquisitions and in determining its voting recommendations. In particular, PIRC will not support transactions with insufficient independent oversight, where directors are compromised by remuneration arrangements or other conflicts of interest, shareholder rights are materially compromised or shareholders are treated inequitably;
- Auditors: (a) PIRC will normally recommend opposing the re-election of an auditor with a tenure exceeding ten years and abstaining re-election where tenure exceeds five years; and (b) in relation to the provision of non-audit services by audit firms, PIRC recommends abstaining where non-audit fees are between 25% and 50% of audit fees and opposing if non-audit fees exceed 50% of audit fees for either the year under review or the previous three years;
- The Board: (a) PIRC clarifies that consideration of the independence of a senior independent director (SID) is based on its own assessment of independence otherwise PIRC does not have confidence that the elected SID will be able to fulfil their duties; and (b) PIRC supports the Davies Review recommendation of 33% of board positions in FTSE 350 companies to be held by women by 2020 (rather than the previous target of 25%) and expects companies to report on targets and attempts to address gender inequality if PIRC deems there to be evidence of gender disparity in the workforce and the gender balance on the board;
- Renumeration of directors: (a) PIRC considers the provision of remuneration consultancy by audit firms to be wholly unacceptable; (b) whilst noting that remuneration committee members should not be executive directors of other UK listed companies, in 2016 PIRC will abstain on the election of such directors who sit on the remuneration committee; (c) PIRC expects the remuneration committee to forbid using upside discretion when determining directors’ severance payments under different incentive schemes; and (d) in relation to the disclosure of compensation payments for loss of office in the company’s remuneration report, PIRC expects any “good leaver” status applied to a director to be utilised cautiously and justified in the context of the company; and
- Investment companies: PIRC clarifies its position on a continuation vote on investment trusts and approval of dividend policy.