This issue covers the latest developments in relation to corporate governance, Equity Capital Markets, narrative reporting and company law.

Corporate governance

FRC publishes annual report on developments in corporate governance and stewardship

While compliance with the principles of the UK Corporate Governance Code (Governance Code) remains high according to the Financial Reporting Council's (FRC) annual review of governance and stewardship, boards which choose not to follow its provisions continue to provide poor quality explanations. Consequently, the FRC is calling for greater oversight powers to encourage more focussed reporting. While the FRC had intended to leave the Governance Code unaltered until 2019, the government's renewed focus on governance means that further changes will be proposed during 2017 together with guidance for nomination committees. For more information, please read our Governance & Compliance update.

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ICSA: Letter to the Prime Minister on Corporate Governance

Building on the publication by the Department of Business, Energy and Industrial Strategy's (BEIS) Green Paper on Corporate Governance (see our January edition of Corporate News), the ICSA, the International Corporate Governance Network, the Institute of Directors and the Trades Union Congress have sent a letter to the Prime Minister underscoring their view of the importance of section 172 of the Companies Act 2006 (duty to promote the success of the company) (2006 Act). They also strongly support the discussions around applying the principles of independence and transparency (which they believe have worked for public companies) to larger private companies and for instituting a mechanism allowing those whose interests should be protected by law to make a complaint and find some measure of redress if appropriate.

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ICSA and IA initiative to help boards take account of views of employees and other stakeholders

In light of the BEIS Green Paper on corporate governance, the ICSA and Investment Association (IA) have announced a joint initiative to tackle concerns that the voices of key groups such as employees, customers and suppliers are not being heard in boardrooms.

The two bodies will identify existing best practice and produce practical guidance to enhance understanding of the interests of employees and other stakeholders, in accordance with directors' duties under section 172 of the 2006 Act.

The guidance will identify different approaches to stakeholder engagement for companies to consider, summarising the issues to be addressed and the practical steps to be taken.

The guidance will cover:

  • the ways in which companies can identify non-executive directors with relevant stakeholder experience;
  • the processes by which boards can receive the views of their key stakeholders; and
  • how training and induction can be used to enhance directors’ understanding of their duties and the interests of, and impact on, different stakeholders.

The guidance, which will be published in the second quarter of 2017, will also set out options for companies to appropriately report how they have fulfilled their duties in this area.

Industrial strategy: BEIS Green Paper published

BEIS has published a Green Paper entitled 'Building our Industrial Strategy', the aim of which is to build on Britain's strengths and tackle its underlying economic weaknesses. This strategy is to be underpinned by ten 'strategic pillars' and the Green Paper sets out the government's proposals in each area.

The ten pillars identified are: investing in science, research and innovation; developing skills; upgrading infrastructure; supporting business growth and investment; improving procurement; encouraging trade and investment; delivering affordable energy; cultivating world leading sectors; driving growth across the whole country; and creating the right institutions to bring together sectors and places. The deadline for responding to the Green Paper is 17 April 2017.

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PLSA Corporate Governance Policy and Voting Guidelines 2017

The Pensions and Lifetime Savings Association has published a revised version of its Corporate Governance Policy and Voting Guidelines. Changes from the previous version of the Guidelines include:

  • increased emphasis on the need for directors to consider the interests of employees, customers, suppliers, society and the environment in addition to shareholders;
  • a recommendation that shareholders vote against the chair or, if different, the chair of the nomination committee if there is no evidence of sufficient focus on and achievement in relation to the promotion of diversity;
  • a further call from the PLSA (building on its "Where is the workforce in corporate reporting" (June 2015) publication) for companies to provide more detail in their annual report about their workforce and its contribution to the company's long-term success;
  • a recommendation that PLSA members who vote against a company's remuneration policy or report should, in most cases, also oppose the re-election of the remuneration committee chair as a director; and
  • a recommendation that pay policies should ensure that maximum pay-outs remain in line with the expectations of shareholders and other stakeholders, including workers and wider society and that remuneration committees should take a critical approach to pay increases and exert downward pressure on pay.

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Gender Pay Gap reporting

On 6 April 2017, new regulations come into force requiring all employers in the private and voluntary sectors with 250 or more employees to publish certain data outlining the differences in pay between their male and female employees. The information collected must be published annually and retained for a minimum of 3 years. For further details see our e-alert on Gender Pay Reporting.

Equity Capital Markets

MAR: ESMA updated Q&A

The European Securities and Markets Authority (ESMA) has published an updated version of its Q&A on the EU Market Abuse Regulation (No. 596/2014) (MAR). Changes since the last version include new questions and answers in which ESMA confirms:

  • the rules to be followed to calculate the price of options granted for free to managers or employees for the purpose of the notifications and disclosure of managers' transactions under Article 19 of MAR. ESMA confirms that the value of these transactions needs to be taken into account when calculating the cumulative amount of the transactions of a PDMR or a person closely associated with a PDMR, to assess whether the €5,000 threshold has been crossed, thereby triggering the duty to notify the FCA and issuer and disclose all subsequent transactions. Prevailing market practice is that most companies are ignoring the €5000 threshold and disclosing all PDMR transactions and those of persons closely associated with them;
  • that, for the purpose of the threshold calculation, the price to consider for the received options should be based on the economic value assigned to the options by the issuer when granting them; and
  • that, when a notification has to be made to the market, the price field for options granted for free to managers or employees is expected to be populated with "0" (zero). 

The Q&A on MAR also includes new questions and answers relating to investment recommendations.

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Narrative reporting

New ESMA Q&A on Alternative Performance Measures Guidelines

ESMA has also published a new Q&A document on its guidelines for issuers when presenting alternative performance measures (APMs) in publically available documents containing regulated information and in prospectuses. This is an update from the Guidelines published in October 2015 which applied to communications (including annual and half yearly results announcements) by listed companies from 3 July 2016.

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Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

These regulations were made on 19 December 2016 and implement part of the EU Non-Financial reporting Directive. They are in substantially the same form as the draft regulations published on 7 November 2016.

The regulations, which came into force on 26 December 2016 and apply in relation to the financial years of companies and qualifying partnerships beginning on or after 1 January 2017, require companies and groups of a certain size and which have more than 500 employees, to produce a non-financial statement as part of their annual report. For more details, please read our Governance and Compliance update.

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Company law

Avoiding disqualification: Competition advice for company directors

A 60-second summary has been produced by the Competition and Markets Authority containing advice for company directors on how they can avoid disqualification. The document provides key information on the role directors should play in helping their companies avoid breaking competition law and how they can test their company's compliance, as well as encourage and facilitate reporting.

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Key Contacts

Nicky Higginbottom

Nicky Higginbottom

Principal Knowledge Lawyer, Corporate
Leeds, UK

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