Looking to the future and the changing landscape of UK corporate governance
‘Looking to the future and the changing landscape of UK corporate governance’ was the theme of the Share Registration conference and we were fortunate enough to have a panel consisting of government, regulators and investors, who were happy to provide their views.
The discussions centred mainly on corporate governance in a post Brexit Britain, and although lively and thought provoking it came a matter of days before the government confirmed that Article 50 will be triggered by March 31 2017 and announced plans to repeal the 1972 European Communities Act (ECA). The Act gives direct effect to all EU law within the UK and the introduction of a new Bill to repeal it will mean the Act ceases to apply from the day of Brexit. At the same time the new Bill will convert existing EU law into UK domestic law, while allowing parliament to amend, repeal or improve any aspects they deem fit after appropriate scrutiny and debate.
This answers one of the key Brexit questions of what will happen to EU laws on Brexit.
Officials in the newly formed Department for Business, Energy and Industrial Strategy (BEIS) have also now been able to confirm that work on dematerialisation will continue, even in the light of exit from the EU and we are working closely with them to develop the best approach. A public consultation is expected next year.
We have also been in discussion with many of our clients on how best to comply with the new requirements under MAR, something that continues to prove a challenge to many businesses. Having to identify and establish new processes around disclosure procedures, the share dealing code, insiders and Persons Discharging Managerial Responsibilities (PDMRs) without clear guidance was never going to be easy, hopefully we now have a far better idea as to what is required and what is acceptable practice.
We took the opportunity to put a number of questions to the audience at our share registration conference and these were the headlines. The majority of companies updated their disclosure procedures and also took the decision to treat the interim results as Inside Information. As opposed to blanket insider lists it is preferred to maintain separate ones for individuals on permanent, project or on a one-off confidential basis. NEDs were considered in a combination of Project, PDMRs and Permanent Insiders, and in general very few employees were designated as PDMRs. It was interesting to note that it is almost always the company secretariat that takes responsibility of notifying the Financial Conduct Authority (FCA) and that this burden has led to more manpower and/or a new or expanded IT solution.
For an overview of the conference and a summary of the key messages, click here
A warning signal from the Investment Association
Our July Roundup referred to the draft resolution templates published by the Pre-Emption Group.
The Investment Association (IA) has now updated its share capital management guidelines in support of the Pre-Emption Group’s template resolutions, which expects any company seeking a 10% disapplication of pre-emption rights to use.
The IA will, through its research arm the Institutional Voting Information Service (IVIS), amber top a company not using the template resolutions, and red top any company which doesn’t do so from 1 January 2017.
Remember to apply for your Legal Entity Identifier
Under the EU Transparency Directive, from 1 January 2017 it will be compulsory for issuers to have a Legal Entity Identifier (LEI). The LEI has been in use for a number of years and is a unique identifier for any organisation that is party to a financial transaction in any jurisdiction.
The LEI consists of a 20 character reference code. In the UK the London Stock Exchange is responsible for issuing LEIs and they provide useful guidelines on how to obtain one, which is available from www.lseg.com/LEI. Note that the London Stock Exchange’s LEI is called the International Entity Identifier (IEI). There is an initial allocation cost and annual maintenance cost to pay.
Registrars will, in the future, be a channel for providing LEI’s to Euroclear as part of the Central Securities Depositories Regulation (CSDR). We will be working closely with Euroclear and will communicate further information on this when it becomes clear.
Annual tax strategy statements are now required from large businesses
The Finance Act 2016 specifies that very large businesses must publish an annual tax strategy in respect of UK taxation for financial years beginning on or after 15 September 2016.
The statement must be published on a UK company website or as part of a wider document on a UK company website. Companies to whom the requirements apply are generally groups, sub-groups, partnerships or a single company with a turnover of more than £200 million or a balance sheet of over £2 billion. Information to be published includes:
- The group’s/company’s approach to risk management and governance arrangements in relation to UK taxation;
- Attitudes towards UK tax planning;
- Level of which, in relation to UK tax, that the group or company is prepared to accept;
- The approach towards dealings with HM Revenue & Customs.
Given the bad publicity received by some organisations regarding the payment of tax and the level of interest in tax matters displayed by stakeholder groups, companies may wish to consider publishing their UK tax strategy voluntarily.
Companies may face further regulation on corporate governance
On 16 September a BIS Commons Select Committee inquiry* was launched into some aspects of corporate governance focusing on executive pay, directors’ duties, and the composition of boardrooms, including worker representation and gender balance in executive positions.
It is likely that, given the Prime Minister’s statements about these issues, some form of legislation or regulation will follow in due course.
* Whilst the Department for Business, Energy and Industrial Strategy (BEIS) was created in May 2016 from a merger between the Department of Energy and Climate Change (DECC) and the Department for Business, Innovation and Skills (BIS), the Commons Select Committee inquiry into corporate governance was launched under BIS in September 2016.
Guidance on Board Minutes
Following consultation, the ICSA has published very useful guidance on minute taking.
The guidance acknowledges how difficult and time consuming minute taking can be and stresses that it is far from just an administrative formality. The guidance provides a 20 point summary which includes the following key points:
- The purpose of minutes is to provide an accurate, impartial and balanced internal record of the business transacted at a meeting.
- There is no one-size fits all approach for minute writing and no ‘right way’ to draft minutes.
- Minutes are normally written in ‘reported speech’ style in a past tense; they should not be a verbatim record of the meeting.
- Individual contributions should not normally be attributed by name, but this will be appropriate in some cases.
- Great care should be taken with the company secretary’s notes of the meeting, both in terms of content and retention. It is recommended that they are destroyed once the minutes have been approved.
- The degree of detail recorded will depend to a large extent on the needs of the organisation for example the sector in which it operates and the requirements of any regulator. As a minimum, minutes should include the key points of discussion, decisions made and, where appropriate, the reasons for them and agreed actions, including a record of any delegated authority to act on behalf of the company.
The guidance is available from the ICSA at www.icsa.org.uk
Assessment of the UK audit market
The FRC has published a report into the UK audit market and sets out its strategy for 2016 – 2019 that seeks to support continuous improvement in standards of reporting and auditing.
The report includes the FRC’s six key aims for audit in the UK and provides useful commentary on issues such as audit tendering, rotation and audit fees audit committees and auditor independence. It also sets out the FRC’s proposed focus in relation to audit for the future.
The report is available from the FRC website or here.