John Heaton 961X460

Looking to the not-too-distant horizon

25 February 2013

Equiniti Consultant, John Heaton, discusses changes to proxy voting and meetings

Many of you will be in the throes of grappling with the new executive remuneration policy and implementation report, and the revised narrative reporting rules, in advance of your imminent annual report and AGM mailing. I do hope the prospect of a binding resolution on the remuneration policy is not causing you too many sleepless nights. You may have expected that, after last year, things would settle down, and there wouldn’t be too many changes coming up. That may be true for some of you whom new initiatives do not affect, but there will be quite a number of you who will be looking closely at current proposals.

Disregarding, for the time being, possible EU changes (to the Shareholder Rights Directive, investor cooperation and corporate governance, and share ownership) whose timing is very uncertain, there are new things coming out of the Financial Conduct Authority (FCA) which are already in place or imminent, and discussion on legislative changes from the Department of Business, Innovation and Science (BIS) which are starting. All of these will involve changes to proxy appointments and polls – the exclusion of some shareholders from voting on some resolutions.

The first change will impact a small number of AGMs this year. The FCA Handbook has recently been amended to reflect the 4th EU Capital Requirements Directive and restricts the vote of certain employee shareholders working for some financial institutions. The second FCA initiative is contained in the recently published paper, CP13/15 – Enhancing the effectiveness of the Listing Regime and further consultation. That confirms that the FCA has considered the responses to proposals published in a consultation which closed a year ago, and will proceed with dual voting for premium-listed companies with a ‘controlling shareholder’ (i.e. a company in which a shareholder, including ‘associates’ and others with whom it is acting ‘in concert’, owns or influences 30% of the shares or more). Such companies will be subject to certain provisions. Amongst these is that the resolution(s) (re-)electing independent directors will need to be approved by the shareholders as a whole and by a majority of independent shareholders of the listed company. This will present a number of challenges as part of the proxy appoint process and at the meeting to ensure that disallowed shareholders are excluded from voting on the second resolution(s). The FCA is consulting on a number of other related changes to the Listing Rules, including a similar regime for the cancellation of listings. The ICSA Registrars Group will respond by the deadline on the 5th February, and Equiniti and other members are engaging with the FCA to talk about the practical implications. However, the FCA has stated that they intend to make the amendments in mid-2014 and the dual voting provisions will come into force immediately and affect any notices of meetings mailed after the implementation date.

BIS is currently reviewing the progress of the Kay Review recommendations. Surprisingly, some might say, despite the fact that Professor Kay came to the conclusion that he did not support disenfranchising shareholders, who acquired their shares after a takeover or merger is announced, BIS have resurrected the idea and are currently reconsidering the pros and cons and how it might work in practice.

Clearly, these changes will not affect all companies, although here at Equiniti, we have identified over 20 with ‘controlling shareholders’ and a further 10 or so with substantial shareholders who, with currently unknown ‘associates’ or if further shares are added, could exceed the threshold. However, another topic under discussion could affect all clients.

The focus on effective shareholder governance and the beefed-up Stewardship Code mean that all parties in the investment chain could potentially be challenged as to how they exercise their responsibilities. There are a number of ways that the appointment of proxies by institutional investors could be monitored, which are being explored by the Shareholder Voting Working Group. This body was originally set up in 2003 under the chairmanship of Lord Myners and is currently chaired by David Jackson, the company secretary of BP plc. One line of thought being pursued is requesting vote confirmation from issuers (i.e. that the proxy instruction down the chain was converted into a vote in a poll at a meeting). Again, what this means in practice will be the subject of much further discussion but could impact us all. We will keep you informed - watch this space!

For further information on this topic, please contact your relationship manager.

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