On 6 February 2009, the National Association of Pension Funds (NAPF) published changes to its Corporate Governance Policy and Voting Guidelines. The guidelines are designed to assist shareholders and others in interpreting provisions of the Combined Code when considering how to vote at company meetings. Key areas covered by the amendments to the guidelines include:

  • Separation of the roles of chairman and CEO – NAPF states that investors may consider withholding their vote or voting against the chairman if the roles of chairman and CEO have been combined for more than one year;
  • Continued material non-compliance with the Combined Code without adequate explanation – in light of its view that the chairman is ultimately responsible for maintaining and overseeing a strong governance policy, NAPF states that investors may withhold their vote or vote against the re-election of the chairman if there has been continued material non-compliance with the Combined Code;
  • Non-executive directors and independence – NAPF states that where a non-executive director has served for over nine years concurrently with an executive director, that director should no longer be deemed to be independent and should no longer serve on those committees which should consist solely of independent non-executive directors;
  • Remuneration – NAPF states that its members can be expected to focus on companies' application of a few principles in light of the current economic crisis. Executive pay policy should be clearly aligned with the pay policies of the company as a whole. For executive directors: base pay increases should be capped at inflation unless there are sound and compelling reasons for a different approach; bonuses should be aligned with profits, so if profits fall then bonuses should also fall and the bonus opportunity should not normally be greater than in 2007/8; and NAPF expects that while earnings per share (but not total shareholder return) performance targets will be reduced, the scale of awards will also be reduced;
  • Non-audit fees – NAPF states that while the use of auditors for non-audit work can be justified in some circumstances on grounds of cost and expertise, more use should be made of third parties. Unless there are exceptional circumstances, NAPF therefore propose a non-audit fee cap of 100% of audit fees;
  • Borrowing limits – NAPF states that investors should consider voting against any proposed changes to articles of association which propose a material increase (e.g. 30%) in borrowing powers or which do not impose a limit on borrowing powers;
  • Section 95 authorities for AIM companies – NAPF's current guidance for AIM companies states that investors should vote against resolutions seeking section 95 authority that are not consistent with the Pre-Emption Principles (e.g. resolutions that seek to disapply pre-emption rights on issues of more than 5% of share capital). However, NAPF proposes to amend this guidance by increasing the threshold to 10% of issued share capital for AIM companies only; and
  • Rule 9 waivers – NAPF states that its members would normally vote against a resolution to waive the requirement to make a mandatory offer under Rule 9 of the City Code on Takeovers and Mergers.

View the amendments to the NAPF Corporate Governance Policy and Voting Guidelines (3 page pdf).

View the November 2007 NAPF Corporate Governance Policy and Voting Guidelines (40 page pdf).

View the March 2007 NAPF Corporate Governance Policy and Voting Guidelines for AIM Companies (11 page pdf).