Industry update
Georgeson’s 2017 Proxy Season Review
Each year Georgeson publishes an annual review of the European AGM season, containing a comprehensive analysis of trends witnessed in the following major markets: UK, France, the Netherlands, Germany, Switzerland, Italy and Spain and also a review of the Danish AGM season (found here).
They are presenting a thorough analysis of the markets where they have a widespread client base, and where they are privileged to work closely with many of the leading issuers. Their local client support, thorough investor engagement and deep market expertise allow them to highlight the issues and trends which will be of interest to both companies and investors.
As the leading global proxy solicitor, shareholder engagement firm and corporate governance advisor, they work hard to ensure that their clients understand the critical issues, trends and personalities which affect and motivate their shareholders. They hope that the report will give you greater insight into these markets both in terms of the general trends and of the particular issues that have arisen during the last AGM season. Georgeson remains available to help clients with any more specific queries. For any support needed at general meetings, they can apply their market intelligence, which will help avoid any possible pitfalls raised both by local developments and complex international trends that can affect a dispersed shareholder base
Corporate Governance Guidance
The Institute of Chartered Secretaries and Administrators (ICSA) and the Investment Association (IA) have published joint guidance (found here) designed to help Directors of UK companies to ensure that they understand the views of key stakeholders including their employees and factor such views into their decision making.The guidance which is going to be reviewed in 2018 to reflect new reporting requirements and the UK government's proposals on the reform of Corporate Governance was initially launched in January 2017 with the view to help boards address concerns that groups of stakeholders such as employees, customers and suppliers were not being adequately considered.
The guidance discusses steps that can be taken by boards to understand and assess the impact of the company on their key stakeholders, and provides illustrative examples of how some companies have engaged with these audiences. There are ten core principles which follow seven themes:
- Directors' Duties – This theme looks at section 172 of the Companies Act 2006;
- Stakeholder Identification – This theme looks at identification and regular review of key stakeholders, which would usually include employees, customers, suppliers, providers of financial capital and the wider community in which they operate;
- Board Composition – This theme looks at how boards can and should consider if their boardroom has the necessary experience and understanding following them identifying what stakeholder experience is needed;
- Induction and training of Directors – This theme looks at how the Chairman supported by the Company Secretary should continually review the induction and training Directors receive on stakeholder related matters;
- Engagement Mechanics – This theme looks at the appropriate engagement and that it is kept under regular review, which must be co-ordinated at executive level or below, but with board approval;
- Take account of impact decisions have on stakeholders – This theme looks at how best to ensure the board’s decision-making processes give sufficient thought to the impact on stakeholders.
- Reporting & Feedback – This theme looks at how the board can report their engagement and the impact on decisions to shareholders.
Listing Rules
The FCA amended the Listing Rules (Appendix 1.1) to take account of the updated UK Corporate Governance Code following their quarterly consultation in March 2017 (found here). These changes came into force on the 13 September 2017 and are designed to ensure that companies are reporting on the most recent version of the Code.
The latest edition of the code updated in April 2016 made changes to the following provisions;
- Audit committees shall have competence relevant to the sector in which the company operates (C3.1);
- Remove the provision for FTSE350 companies to put external audit contract out to tender at least every 10 years (C3.7); and
- Enhancing the description of the audit committee's responsibilities to take account of the need to provide advance notice of an external audit retender.
MAR Q&A
The European Securities & Markets Authority (ESMA) have published an updated edition of its Q&As on the Market Abuse Regulation (found here). This update contains new Q&As together with an update to a pre-existing Q&A for the following areas;
- Insider Lists (new - Q10.1 & Q10.2)
Under Article 18 of MAR advisers or any other persons acting on behalf of an issuer that has access to inside information relating to the issuer are required to maintain an insider list and provide it to the FCA upon request. It is the duty of the advisers to maintain their own lists and not that of the issuer.
- Market sounding regime (new - Q9.1)
- Prevention & detection of market abuse (updated - Q6.1)
This update confirms that non-financial firms who trade on their own account in financial instruments as part of their business activities can be considered to be within the scope of Article 16(2) and will therefore need to have systems and procedures to detect and report suspicious orders or transactions.
Primary Market Bulletin
The FCA has published their latest Primary Market Bulletin (found here) and topics covered include;
- Changes to the UKLA Guidance Notes - These include the final form changes to its notes on Shareholder notification obligations under DTR 5 and a reminder that the UKLA is consulting on further changes to the Guidance Notes (found here) with the consultation being open until 11 October 2017.
- Reviewing of documents - As of 4 September 2017, any documents submitted to the UKLA for review will be handled by the Electronic Submission System (ESS), all comments on documents will be via the system, and responses will also have to be submitted via the system.
- Segregation of Duties - The bulletin also highlights that the UKLA has been split into two departments, one covering Primary Market oversight and the other covering listing transactions.
Productivity Action Plan
The Investment Association (IA) has published an update on their Productivity Action Plan (found here) which was published in March 2016 and sought to enhance UK productivity by improving focus on long-term investment and investor stewardship though a number of recommendations.
The key points within the update are;
- Quarterly Reporting
IA has called for companies to end both quarterly reporting and the issuance of short-term earnings guidance so that they can instead focus on reporting on strategic drivers of growth and value creation. The IA has found that 43 FTSE 100 and 167 FTSE 250 companies no longer issue quarterly reports, and the IA have said their governance research arm will ask companies who continue to issue such reports, how they are relevant to their long-term strategy.
- Long Term Reporting Guidance
IA published its guidance on long-term reporting in May 2017 and the Action Plan update reiterates that the IA encourages companies to adopt the guidance at the earliest opportunity and that they will monitor adoption when it next analyses annual reports.
- Pre-Emption Group Statement of Principles
The IA has endorsed the Group's Statement of Principles and their template resolutions published in May 2016. They intended to write to companies who do not comply with the Principles, or have not adopted the template resolutions.
- Directors Remuneration
The IA notes that since the publication of the Executive Remuneration Working Group's final report in July 2016, it has gained significant traction and that it has since carried out over 200 consultations with companies regarding their remuneration policies.
Corporate Crime
Guidance on the new corporate offences of failure to prevent the facilitation of UK and foreign tax evasion has been published by HM Revenue & Customs (HMRC) and can be found here. These offences as introduced under the Criminal Finances Act 2017 came into force on 30 September 2017.
The Guidance explains the new offences and is intended to help companies and partnerships to understand the types of processes and procedures that need to be put into place to prevent people from criminally facilitating tax evasion.
Global News
Australian Anti-Money Laundering & Counter Terrorist Financing Bill
An amendment bill to the pre-existing 2006 Act (found here) has been introduced to the Australian Parliament. The bill seeks to introduce a range of amendments including new enforcement powers for AUSTRAC.
Hong Kong Listing Regulation
The Securities & Futures Commission (SFC) and The Stock Exchange of Hong Kong (SEHK) have published their conclusions to the joint consultation on proposed enhancements to the SEHK's decision making and governance structure for listing regulation (found here).
They have amongst other things concluded that;
- A new listing panel will be established as an advisory, consultative and steering body to initiate and centralise discussion on listing policy;
- SFC to continue with its approach of having direct presence in more serious listing matters that fall within the scope of the stock market listing rules;
- SEHK to remain primary front-line regulator and continue to be primary point of contact for all listing applications unless concerns are raised by the SFC who will cease to review and comment on listing applications once deemed there are no concerns.
Audit Firm Rotation
From 2023 a mandatory rotation of audit firms will be introduced in South Africa following the Independent Regulatory Board for Auditors review of voting trends (found here) which has seen a "visible trend towards voting against the reappointment of auditors".
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Georgeson market update
Georgeson is a leading Corporate Governance advisory and Shareholder Engagement company, and part of the Computershare group
UK Activism
Takeover Panel Tighten Rules
Reuters reports that Britain's Takeover Panel seeks to tighten rules on deals:
"Britain's Takeover Panel wants to introduce a series of changes to its rules to help protect those involved with businesses that are being targeted by potential purchasers. Bidders will need to state their ultimate plans for the merged entity and the repercussions of the deal for the various stakeholders at a much earlier date, in conjunction with their intention to make a firm bid, according to the proposals from the Panel's Code Committee. Buyers will also need to spell out what will happen to the target's headquarters and research & development (R&D) operations and whether its entire workforce will be impacted, with potential changes to the mix of skilled and unskilled workers and full time versus part time staff. Such plans - whether they remain post-offer intentions or legally binding undertakings - will need to be published in a separate report as part of Britain's effort to make bidders accountable for what they promise."
The consultation (found here) closed on 31 October 2017
Register of Interests
The Financial Times reports that UK accounting regulator to publish register of interests:
"Financial Reporting Council moves to address concerns about its independence."
Who Won the Battle?
Bloomberg Businessweek reports about Who Won the Battle Over Executive Pay?:
"Protests about bosses being paid too much are starting to have an impact, in Britain at least. Companies from drugmaker AstraZeneca Plc to Wm Morrison Supermarkets Plc have all faced shareholder uprisings over excessive compensation. In an election year, Prime Minister Theresa May added to the pressure, lambasting the gap between the pay of top execs and ordinary workers. A look at the data shows business is starting to heed these warnings: the median compensation of a FTSE 100 CEO fell 7 percent in 2016. For the 24 companies that disclosed figures for 2017, it's down 22 percent, according to data compiled by Bloomberg.
International Activism
An Activists Latest Tactic
Bloomberg Businessweek reports about An Activists Investor's Latest Tactic: Playing Nice
"As Nelson Peltz, founder of Trian Fund Management, angles for a seat on Procter & Gamble Co.'s board, he's pledging to back social, environmental, and governance issues in ways that may appeal to the consumer-products giant's institutional investors."
Proxy Advisor Buyout
Reuters reports that Genstar Capital to buy proxy advisory firm ISS for $720 million:
"U.S. private equity firm Genstar Capital said on Thursday it would buy shareholder advisory firm Institutional Shareholder Services Inc (ISS) from Vestar Capital Partners for $720 million. ISS will continue to operate independently after the deal closes in the fourth quarter, Genstar said in a statement. Bought by private equity firm Vestar Capital in 2014, ISS has 900 employees covering 40,000 shareholder meetings of publicly traded companies every year, offering recommendations on everything from votes on executive pay to a company's bylaws."
Voting Policy Survey
ISS has announced the Results of 2018 Benchmark Voting Policy Survey
"This year, survey topics were split into two parts, with an initial, high-level survey covering a small number of fundamental and high-profile topics, including: "one-share, one vote;" pay ratio disclosures; the use of virtual meetings; and board gender diversity."
Rebellion stepped up
The Financial Times reports that Big Investors step up rebellion at company meetings:
"Eighteen out of 20 asset managers cast fewer votes in favour of management this year"
Registry round-up archive
Take a look at our previous editions of the Registry round-up.