Included in this issue: Register of beneficial owners of overseas entities to go live by early 2021, PLSA Corporate Governance Policy and Voting Guidelines 2018, PLSA releases AGM voting review and more...

Narrative Reporting

Narrative reporting: government response to Taylor Review of Modern Working Practices 

The government has published its response to "Good Work: the Taylor Review of Modern Working Practices". For an overview of the content of the Taylor Review, published in July 2017 – click here.

The government's response highlights various issues which need to be addressed including in relation to:

  • growth in productivity;
  • real wage growth, particularly for the self-employed;
  • income security, especially for those that work flexibly; 
  • regional imbalances as regards wages and employment rates; and
  • general disparities in the labour market including in relation to gender, ethnicity and age.

The government believes that an effective corporate governance framework is essential if UK companies are to retain the trust of their workforce, investors and the public, hence the content of the Corporate Governance Reform Green Paper which seeks to strengthen several aspects of this framework to "ensure stronger and more visible board engagement with the workforce and other stakeholders". The Review went further in recommending the introduction of a duty on employers to report (and bring to the attention of the workforce) certain information on workforce structure. It also called on the government to require companies of a certain size to: make public their model of employment and use of agency services beyond a certain threshold; report on how many requests were received (and agreed to) from zero hours contract workers for fixed hours after a certain period; and, in the same way, report on how many requests for permanent positions they received from agency workers and subsequently agreed to.

The government believes that many of its proposed reforms, particularly as regards stronger reporting of how directors have discharged their s.172 Companies Act 2006 duty, will meet these ends. Companies will need to be more specific about how their directors have, in complying with these duties, taken account of wider matters including the interests of employees, fostering relationships with suppliers (including self-employed contractors) and the importance of maintaining a reputation for high standards of business conduct. It is felt that this should drive greater transparency about workforce structures, particularly where these are an important aspect of a company's business model. 

The government also proposes:

  • working with the Financial Reporting Council to consider how guidance on the content of annual reports can be revised to encourage companies to provide a fuller explanation of their workforce model and practices; and
  • reviewing the impact of current corporate governance reforms on reporting practice. If there is no change, the government will take further action, which could include a new requirement to publish a "People Report". This could bring together a range of existing employee-related reporting requirements including gender pay gap and diversity data, along with additional specific metrics relating to workforce structure. The government notes the additional burdens that this would place on business, and is currently of the view that more comprehensive reporting under the existing and forthcoming legal framework is preferable. However, it is seeking views on the potential value of such a report, to inform any future action.

Company Law

Register of beneficial owners of overseas entities to go live by early 2021

As previously reported, the government intends to establish a public register of beneficial ownership of overseas legal entities that own or buy property in the UK, or that participate in central government contracts. The government's UK Anti-corruption Strategy 2017-2022 identified this as one of the six priorities for the period to 2022. BEIS has now confirmed the government's intention to produce a draft bill in the summer of 2018 with a view to the register going live in early 2021.

The aim of the register is to prevent the use of shell companies to launder illicit proceeds by helping law enforcement agencies track criminal funds. In addition, the register should provide the government with greater transparency on overseas companies seeking public contracts. 

Corporate Governance

PLSA Corporate Governance Policy and Voting Guidelines 2018

The Pensions and Lifetime Savings Association (PLSA) has published the latest version of its Corporate Governance Policy and Voting Guidelines. Principal changes include:

  • In relation to auditor appointment (section 6), where an auditor has been in place for more than 20 years, a vote against the audit committee chair and auditor should be considered.

A vote against the re-election of the chair of the audit committee, the re-appointment of the auditor and/or the remuneration of the auditor should be considered where non-audit fees paid to the auditor exceed 50% of the audit fee in consecutive years without an adequate explanation being provided.

  • The addition of a new section on sustainability (section 13), which emphasises the importance of positive relations with key stakeholders to a company's long-term performance and highlights climate change as a key sustainability issue. Shareholders should consider voting against the annual report and accounts or the re-election of the chair where they believe that key stakeholder relationships are being neglected and the board is not adhering to the spirit of requirements to have concern for stakeholder constituencies.

A vote against the re-election of the chair should also be considered where shareholder attempts have failed to encourage companies in sectors affected by climate change to provide a detailed risk assessment and response to the effect of climate change on their business.

PLSA releases AGM voting review

The PLSA's review of the most recent AGM voting season reveals that shareholder dissent at FTSE 350 AGMs has remained at relatively similar levels over the past two years with approximately one-fifth of companies experiencing a vote of 20% or more on one item of business.

Government investigates whether share buybacks used to inflate executive pay

The Department of Business, Energy and Industrial Strategy has asked PwC and the London Business School to undertake research to understand whether some companies are repurchasing their own shares to artificially inflate executive pay, how companies use share buybacks, and whether action is needed to prevent buybacks from being misused. The findings are expected to be published later in 2018.

Key Contacts

Richard Preston

Richard Preston

Managing Associate, Corporate Finance
London, UK

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