Case Law

ECJ ruling on holiday pay

The European Court of Justice has ruled that workers who are denied the right to take paid annual leave are entitled to bring claims in respect of accrued but untaken leave. There is no requirement on them to take the leave on an unpaid basis in order to bring a claim. For further information, please read this update from our Employment team.

Market Abuse Regulation – Compliance in Practice

ESMA updates MAR Q&As

The European Securities and Markets Authority (ESMA) has published further updates to its Q&A on the EU Market Abuse Regulation (MAR). A new Q&A (question 10) relates to Insider lists and clarifies that persons who act on behalf or account of an issuer and who come into possession of inside information have their own duty, distinct from that of an issuer, to keep an insider list. Conversely, where a third party keeps an insider list on behalf of an issuer, the issuer remains primarily responsible for it.

New questions 7.8 and 7.9 also deal with the issue of trading by PDMR during a closed period and the need to consider if doing so might constitute insider dealing and, therefore, market abuse.

Number of "persons closely associated" with a PDMR potentially increased by updated ESMA Q&A

In July 2017, the ESMA issued the sixth version of its MAR Q&A in which it provided (at question 7) guidance on the definition of a "person closely associated" with a person discharging managerial responsibilities (PDMR). The City of London Law Society and Law Society Company Law Committees' Joint Working Parties (JWP) on Market Abuse, Share Plans and Takeovers Code has recently updated its own MAR Q&A to reflect ESMA's guidance. In short, all issuers and their PDMR should revisit their PCA analysis in light of ESMA's guidance. For further information, please read our Governance & Compliance update.

Narrative Financial Reporting

FRC Thematic Reviews – Report of Findings

The Financial Reporting Council (FRC) has published reports sharing its detailed findings from three targeted thematic reviews. The findings, to which companies may wish to refer when preparing their Annual Reports, aim to help improve the quality of reporting in acknowledged areas of difficulty: judgments and estimates, pension disclosures and alternative performance measures.

What do companies’ annual reports tell us about their workers?

The Pensions and Lifetime Savings Association (PLSA) has published a new report which focuses on the FTSE 100's employment models and working practices. It highlights the substantial variations in the quality of reporting and a considerable lack of clarity on workforce related issues. The report is based on the framework set out in the PLSA's 2016 stewardship toolkit.

The report examined how companies report on their workforce in general terms, noting that only 43% link to how employees add value to company strategy. The report focused, in particular, on the disclosure of workforce composition, pay and stability and the manner and extent of employee engagement. For a summary of the findings – click here.

FRC Lab report on risk and viability reporting

The FRC Financial Reporting Lab has published a report which examines the views of companies and investors on the key attributes of principal risk and viability reporting. It also provides illustrative examples of reporting favoured by investors. The report builds on a series of reports which started with a focus on business model reporting and takes into account the views of companies (ranging in size from FTSE 100 to AIM) and the investment community.

The report:

  • poses a series of questions for companies to reflect on when making and testing their principal risk and viability statement disclosures;
  • sets out the attributes of good principal risk reporting; and
  • highlights the two-stage nature of the process in developing a viability statement comprising, first, an assessment of the company's prospects taking into account current position, a robust assessment of principal risks and its business model and, second, an assessment of its viability taking into account stress and sensitivity analysis, linkage to principal risks, qualifications and assumptions and level of reasonable expectation.

AGMs – Market trends

Lexis publish review of 2017 AGM season

Lexis Market Tracker’s latest trend report "AGM season 2017" analyses the latest market practice and trends emerging from the FTSE 350 2017 AGMs and includes comments from a number of Addleshaw Goddard's Governance & Compliance team as well as Peter Swabey from ICSA: The Governance Institute. For a summary of the findings and to download the report – click here.

Corporate Governance and Executive Remuneration

ISS 2018 Proxy Voting Guidelines updated

Institutional Shareholder Services has updated its UK benchmark proxy voting policies for 2018. A new policy on virtual meetings has been added, broadly along the lines proposed in its October consultation, stating that ISS will generally recommend voting FOR proposals allowing for the convening of hybrid shareholder meetings if it is clear that it is not the intention to hold virtual-only AGMs, but AGAINST proposals allowing for the convening of virtual-only shareholder meetings. Given that many companies had one eye on potential cost savings of virtual-only meetings, this is unlikely to be welcomed by those that undertook changes to their constitutions in the 2017 AGM season to enable such meetings.

Other amendments include changes to policies on over-boarding (which are mainly clarificatory but which may impact on the re-election of certain chairs), clarification that audit and remuneration committee members should be independent, threshold vesting levels for LTIPs (where a 25% vesting threshold may be considered to be inappropriate) and share issuances without pre-emption rights (i.e. cash-box placings). The new policies will be applied to shareholder meetings taking place on or after 1 February 2018.

Hampton-Alexander Review supplementary report on gender balance in FTSE leadership

The Hampton-Alexander Review has published a supplementary report on gender balance in FTSE leadership teams. For further information, please read our Governance & Compliance update.

Investment Association principles of remuneration for 2018

The IA has published a revised version of its principles of remuneration for 2018 and, in advance of the 2018 AGM season, highlighted certain items of focus. It also sets out the circumstances in which investors will vote against the re-election of the Rem Com chair including at the AGM following a company failing to get majority support for a remuneration resolution.