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EQ Bulletin November

EQ Bulletin – November 2020

Thursday, 5 November 2020

Welcome to our monthly bulletin of what’s happening within the regulatory environment that impacts the share registration and employee share plans space.

It has been an interesting month with challenging Brexit talks, an intense US presidential election and new lockdown rules. As the changing COVID-19 restrictions continue to impact much of the UK, we hope this finds you all safe and well. At EQ, we will continue to monitor developments to ensure the safety of our colleagues and the protection of service delivery to you.

Paul Matthews (1) Paul Matthews CEO - EQ Boardroom

Despite the challenging environment, we’ve had a busy month hosting our first fully virtual EQ Conference. The conference covered a variety of topics within the share registration, corporate governance and employee share plans industries. With over 800 attendees, and some fantastic feedback we’re pleased you found these webinars valuable. You can find more information about the conference and how to access the webinars on-demand later in the Bulletin.

Out in the industry we explore the Financial Reporting Lab’s guidance on s172 reporting, and review a recent report from the Investment Association on how companies are aligning executive and workforce pension contributions.

As always if you have any questions on the content of this month’s bulletin, please contact your Relationship Manager.

Articles in this Edition cover:

Help for companies with drafting their section 172 statement

The Financial Reporting Lab (the Lab) has published hints and tips for companies when preparing their section 172 statements. The tips suggest companies should:

  • Be specific and avoid box-ticking
  • Explain why particular stakeholders are identified as key, why the engagement methods used were effective and key decisions taken in light of engagement and feedback given
  • Discuss how stakeholders are considered strategically and affect the development of strategy
  • Provide information on difficulties encountered in balancing different considerations such as decisions that may benefit one stakeholder group over another and short-term versus long-term benefits
  • Disclose how the board challenges and oversees engagement with stakeholders, how issues are escalated to the board and any training provided on stakeholder issues
  • Include material KPIs on key stakeholders
  • Disclose consequences and planned actions as a result of feedback received

 In respect of the presentation of section 172 statements the FRC recommends companies should:

  • Consider the best location for the statement which needs to reflect the strategic link and other stakeholder reporting
  • Ensure the statement is clearly visible and listed in the contents page
  • Use cross-referencing to expand on areas but should not use cross-referencing to make the statement a list of links
  • Include case studies of the decisions taken by the board

The Lab highlights that it is important to have a process in place to prepare and draft the statement early to ensure that decisions and stakeholder engagements are captured. Also, having board templates, papers and minutes that support the board to consider stakeholder issues is important.

S172 statement

Radical overhaul of corporate reporting is proposed by the FRC

The Financial Reporting Council (FRC) has published a discussion paper proposing a radical overhaul of corporate reporting.  This is to address criticism that annual reports are too long and information difficult to locate.

The report proposes that reporting would be based on a principles-based framework with three core reports – the Business Report, full Financial Statements, and a new Public Interest Report. The FRC proposals include using technology to improve accessibility and having a flexible model that can change quickly depending on needs.

The proposed Business Report is envisaged as a concise Strategic Report, including financial and non-financial information. Alongside this would be a series of network reports accessible on a standalone basis. The Public Interest report would provide information to allow users to understand how the company views its obligations in respect of the wider public interest, including obligations to stakeholders.

The FRC asks for comments from companies, investors and other interested parties on a set of 12 discussion areas by 5 February 2021.

FRC Paper

Reporting in times of uncertainty

The FRC’s Financial Reporting Lab (the Lab) has published guidance on two important areas for 2020 reporting in light of the Covid-19 pandemic. These follow on from guidance published by the Lab earlier in the year. 

The first report (“Resources, Actions and the Future”) highlights that the information needs of investors have remained consistent and considers the three key areas in terms of what companies have already reported, recent developments in reporting and looking forward.

  1. Resources - Companies continue to provide information regarding their cash balance and liquidity. Looking forward to an understanding of a company’s evolving cash position is important.  Companies should also consider providing disclosures on liquidity, covenants and headroom.
  2. Actions – Disclosures in this area have shifted to actions taken by companies to ‘restart’ operations and updates are being provided on specific areas of business. Reporting on actions in relation to different stakeholder groups and the impact on them would be welcomed.
  3. The Future – Disclosures on future prospects are generally found in going concern and viability statements including scenario-based disclosures. Identified areas of interest to investors include management’s view of the company’s future and prospects in the context of actions taken, information by geographical location and opportunities that may exist for the company.

The second report (“Going concern, Risk and Viability”) focuses again on what companies have already reported, recent developments and future reporting. 

  1. Going concern and viability - The majority of companies are providing information about the different scenarios considered; however, investors would like to see companies provide an update about the status of the scenarios identified. There is much less information provided in interim and quarterly reports and the FRC state that it would be useful for companies to provide a detailed update any time that they report to the market.
  2. Risk reporting – Disclosing the effects of the pandemic on a company’s other risks rather than just identifying Covid-19 as a risk is preferred. Providing information on understanding the impacts, actions and mitigations at a component risk level is important to investors.

FRC Report - Resources, action, the future

FRC Report - Going concern, risk and viability

UK Government proposes reforms to Modern Slavery reporting

The Government has published its response to proposed changes to Modern Slavery reporting following the consultation into transparency in supply chains which closed in September 2019.

Proposals by the Government include:

  • Mandating the areas that modern slavery statements must cover
  • Reviewing possible expansion of reporting areas
  • Publishing updated guidance for companies, including best practice examples
  • Mandating companies to publish their statement on the Government-run reporting service
  • Introduction of a single reporting deadline of 30 September
  • Development of enforcement options to ensure compliance
  • A requirement for Group modern slavery statements to include the entities covered

The changes will be introduced when parliamentary time allows.

Government response

Progress in hitting gender diversity targets

The Hampton-Alexander Review has announced recent progress in hitting gender diversity targets:

  • Women make up more than a third of board members across the FTSE 350 for the first time with the representation of women rising by 3.8% over the last year
  • The number of all-male FTSE 250 boards is down from 152 in 2011 to one. Only 18 FTSE 250 boards now have only one female board member.
  • However, over four in 10 FTSE 350 companies have failed to reach the target of 33% female representation on their board

Further information is available from:

FTSE Women Leaders press releases

Government press release

The Investment Association call for improved ethnic diversity reporting

The Investment Association (IA) have issued a press release stating that investment managers are calling for greater transparency on ethnic diversity on boards noting that almost three-quarters of FTSE 100 companies failed to report on ethnic make-up.  The lack of information makes it difficult to monitor progress against the Parker Review target and to hold boards to account.  The IA notes that 29 red-tops were issued to FTSE 350 companies for lack of board diversity in the last year.

IA press release

IA reports progress in aligning executive and workforce pension contributions

The Investment Association (IA) has published information on developments in executive pension payments collated during the 2020 AGM season.  The highlights are:

  • 98% of FTSE 100 companies reviewed have either aligned pension contributions for new directors with that of the workforce or have committed to doing so.
  • 14 FTSE 100 companies have reduced pension contributions for existing directors, and 43 have committed to reducing contributions in future years. Six companies were increasing workforce pension contributions to help alignment.
  • The IA red-topped ten FTSE 100 companies for having at least one director receiving a pension contribution of 25% or more with no commitment to align this by 2022.

IA press release

London Stock Exchange ends temporary dividend timetable measures

The London Stock Exchange (LSE) has issued a Stock Exchange Notice (N16/20) to notify companies that the temporary measures put in place to extend the allowable dividend payment period to 60 days, will end with effect from 2 November 2020.  The standard 30 business day period from the record date in which the dividend should be paid will apply from this date. The 2021 Dividend Procedure Timetable is also now available on the LSE’s website.

London Stock Exchange notice

Companies House publish 2020 – 2025 strategy following government reform proposals

Companies House has published a new strategy for 2020-25 following the publication of the government’s response to corporate transparency and register reform consultation.  Companies House states that this will see the biggest changes to the organisation since it was set up in 1844.  The six identified goals for the next five years are set out as:

  • providing registers and data which inspire trust and confidence
  • maximising the value of registers to the UK economy
  • combating economic crime through active use of analysis and intelligence
  • providing excellent services and giving a great user experience
  • ensuring culture enables Companies House employees to flourish and drive high performance
  • delivering value through efficient use of resources

Companies House announcement

EQ Conference on-demand

In October we hosted our first-ever virtual Conference, with nine webinars delivered by 27 speakers across one week. In case you missed it, all webinars are now available on-demand here.

From hosting a successful hybrid AGM to launching global free share awards, these webinars dive into the latest insights from share registration, corporate governance and employee share plans.

Thank you to those who joined us; all of your questions, views and energy truly made the week a success.

EQ Conference on-demand