Included in this issue: ICSA: Letter to the Prime Minister on Corporate Governance; PLSA Corporate Governance Policy and Voting Guidelines 2017; Duty to report on payment practices and performance: revised draft regulations and more... 

Corporate Governance

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

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

In light of the BEIS Green Paper, the ICSA, together with the Investment Association (IA) has also announced an 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.

Shareholder Engagement

PLSA Corporate Governance Policy and Voting Guidelines 2017

The Pensions and Lifetime Savings Association (PLSA) 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.

Payment Practices 

Duty to report on payment practices and performance: revised draft regulations

On 2 February 2017, revised drafts of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were published, together with explanatory memoranda.

The regulations apply to the financial periods of relevant "large" companies and partnerships beginning on or after 6 April 2017. For further detail, please read our overview of the regime.

Audit Tendering

FRC updates its notes on best practice

In light of the implementation of the EU Statutory Audit Regulation and Directive, the Financial Reporting Council (FRC) has published updated notes on best practice in conducting an audit tender with the aim of giving ideas to audit committees so that they, in turn, can conduct an effective tender process. The notes are based on discussions with audit committee chairs, investors and audit partners. The updated notes deal with, among other matters, the following issues:

  • the timing of tenders;
  • communication with investors before and on the conclusion of the tender process;
  • considerations for and the responsibilities of members of the audit committee in relation to the tender;
  • structuring and conducting the tender process;
  • how the decision is made and by whom, including negotiating the audit fee; and
  • managing any transition between auditors.
IA publish guidelines on audit tendering

The IA has also published guidelines on audit tenders, setting out the expectations of its members in relation to audit tenders by companies with securities admitted to the premium and standard segments of the Official List, trading on AIM, or the High Growth Segment of the Main Market. The guidelines repeat many of the FRC's recommendations and broadly deal with:

  • planning the tender – the IA support audit committee oversight of the tender process and encourage appropriate disclosures in an annual reports or via RNS announcements;
  • tender candidates – the IA believe that it is of critical importance to prioritise auditor selection and, in particular, audit quality, over the ability of the audit firm to provide other services. Investors want audit committees to be transparent on how they decided on candidates, especially if one of them is the incumbent;
  • the tender process – clear objectives should be set as to what the audit committee wants to achieve and is looking for in an auditor; and
  • the tender decision – following any tender, the audit committee should consider reporting on various issues including: the various stages in the tender process; how firms and their fees were assessed and why the appointed auditor was recommended; and the handover process.

Major Shareholder Notifications

ESMA publishes guide to major holdings notifications in the EEA

The European Securities and Markets Authority (ESMA) has published a practical guide to national rules across the EEA on major shareholding notifications. The guide is intended to help market participants navigate the different requirements across the EEA.

The guide contains a fact sheet which summarises the national requirements in relation to making and publishing notifications of major holdings as well information on rules and practices in table form to enable a comparison between the rules of different jurisdictions.

Key Contacts

Richard Preston

Richard Preston

Managing Associate, Corporate Finance
London, UK

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