Ten Hot Topics For Company Secretaries

Applicable to: All UK listed entities

At the start of the year the Department for Science, Innovation and Technology (“DSIT”) invited businesses and organisations to provide feedback on a proposed Cyber Governance Code of Practice (the “Code”). The Code focuses on the critical areas that directors and business leaders need to be aware of and engage on. Whilst support in this area is welcomed, it is important that where companies have not done so already, they start having discussions about cyber governance right away.

The cyber security landscape is forever evolving, and it is crucial that Boards keep up to date. In their 2024 Benchmark Policy Guidelines, Glass Lewis stated that cyber risk is material for all companies, and that they “believe that it is critical that companies evaluate and mitigate these risks to the greatest extent possible. With that view, we encourage all issuers to provide clear disclosure concerning the role of the board in overseeing issues related to cybersecurity, including how companies are ensuring directors are fully versed on this rapidly evolving and dynamic issue.”

We are all aware that ensuring a strong cyber governance framework is in place will help build and maintain cyber resilience, which is one of many important elements that will support a company’s long-term success. But where do you start?

Applicable to: All UK listed companies

As we are all aware there has been a steady increase in the number of AGMs which have seen shareholder activism. Protestors are seeking to disrupt meetings with many hoping to force them to be abandoned and attract media attention.

In a recent article, EQ have advised that by leveraging AGM services, maintaining decorum, and addressing activist concerns with diligence, boards can navigate disruptive forces while upholding the integrity of shareholder meetings. Embracing transparency and responsiveness fosters a culture of trust and collaboration, laying the foundation for sustainable corporate success. By incorporating these strategies, organisations can navigate the complexities of AGM meetings with confidence, ensuring they remain constructive forums for shareholder engagement and governance excellence.

Applicable to: All UK entities

As we pass the mid-year point it is a good chance to circle back and re-focus on Board performance reviews, especially as the new UK Corporate Governance Code 2024 places particular emphasis on them. If a review is due to take place in H2 now is a good time to start planning.

Alternatively, if a review has already been completed this year, make sure that any outputs are captured, and an action plan is prepared and approved by your board. Many Company Secretaries have expressed the view that Boards approach effectiveness reviews as an annual box-ticking exercise, whereas in fact, there are a number of steps around assessing and monitoring that need to be taken throughout the year to ensure continuous improvement.

Applicable to: FTSE 350 and large private companies

On 11 March 2024, the Parker Review Committee published an update with the 2023 results of its voluntary census on the ethnic diversity of boards of FTSE 350 companies and 50 of the UK’s largest private companies.  For the first time the Parker Review (the “Review”) has considered data on senior management teams and 50 of the UKs top private companies and posed the question – what should the share / proportion of directors from ethnic backgrounds be by the end of 2027?

As part of its inception in 2015, the Review set voluntary targets for FTSE 100 companies to have at least one ethnic minority director on the board by December 2021 or, for FTSE 250 companies, by December 2024.

The report highlights:

• In December 2023, only 44% of the UK’s top 50 largest private companies had at least one ethnic minority director on their board, compared with 96% of FTSE 100 and 70% of FTSE 250 companies.
  
• There are 12 ethnic minority CEOs in the FTSE 100, an increase from seven in 2022. There are also seven ethnic minority chairs.
• People with ethnic minority backgrounds now hold 19% of all director positions in the FTSE 100, a rise from 18% in 2022.
• The number of companies with more than one ethnic minority director is 56, compared to 49 in 2022.
• In the FTSE 250 the proportion of all board directorships held by ethnic minority directors was 13.5%, and among the 50 largest private companies this was 11%.
• 79% of the 222 FTSE 250 companies that responded to the voluntary census say they have now met the 2024 target of one ethnic minority director on their board.

Applicable to: All UK entities that apply the QCA Corporate Governance Code, including AIM, Main Market, the Aquis Stock Exchange and private companies which may opt to float in the future

As you will be aware, on 13 November 2023, the QCA issued the third edition of its Corporate Governance Code (the “Code”). The new Code was effective from 1 April 2024, so 2025 will be the first year that most companies report against it, and those companies with a financial period starting since that date should already be in the process of adopting it. The good news is that the QCA has confirmed that there is a transitional period of 12 months allowing companies the flexibility to adjust. Companies are, however, being encouraged to use this period to focus on more usage of explanations on certain areas where there have been changes to the Code. The QCA has not made too many changes in the new Code principles as it was keen not to add more, or duplicate, disclosure requirements for its members. Instead, it remains practical with companies being allowed to disclose according to their own circumstances.

Applicable to: AIM-quoted companies

There has been much talk about how to plan and execute a successful IPO, but what if your company is already on the Alternative Investment Market (“AIM”), a sub-segment of the London Stock Exchange, and is considering the move to Main Market? Access to the Main Market brings with it various benefits, however, the Company Secretary must be aware of the initial challenges and the significant ‘step-up’ required from a governance perspective to support the company in its long-term goals.

As Company Secretary, what are your main considerations and how can you support your Board with the transition? There are several practical governance considerations that companies must consider for a smooth changeover. From changes in regulatory compliance, guidance, and company law to potentially appointing different advisers.  There is no fast-track procedure for transfer – the AIM listing must be cancelled and a whole new application process to the Main Market undertaken including a prospectus. The Company Secretary’s role in providing and verifying information for the prospectus should not be underestimated!  

Applicable to: All entities that apply the UK Corporate Governance Code

 The new UK Corporate Governance Code (“the UK Code”) was published on 22 January 2024 and applies to financial years beginning on or after 1 January 2025, except for Provision 29 (review and reporting of internal controls) which will apply to financial years beginning on or after 1 January 2026.

Following publication of the UK Code, the FRC has also published updated UK Corporate Governance Guidance (“Guidance”). The purpose of the Guidance it ‘to aid boards with their actions and decisions when applying the Code’ and to ‘support those who use the Code by providing advice, further detail and examples’. The FRC has confirmed it will regularly review the Guidance.

This Guidance incorporates other previously published FRC guidance including ‘The Guidance on Board Effectiveness, Guidance on Audit Committees’ and ‘Guidance on Risk Management and Related Financial and Business Reporting’. The Guidance refers to another piece of existing FRC guidance ‘Improving the Quality of Comply or Explain Reporting’, which was published in February 2021. There is increasing focus on comply or explain reporting, particularly with the publication of the Code and recent FRC Reviews of Corporate Governance Reporting. These reviews have found that tick box exercises continue to be the preferred approach over high quality reporting of effective governance practice and frameworks, and they have highlighted a lack of sufficient and original narrative on explanations for departures from the Code.

The Guidance also includes a helpful set of questions for each section of the Code that will encourage discussion and consideration of current governance practices by the Board. These questions also focus on more specific topics in places, such as the extension of length of service of Board members. There is also a new section that aims to support the effective management of board committees ‘Good Practice Guidance for The Successful Management of Board Committees’ which takes into account the fact that board committees have comparable composition and practices.

Applicable to: All UK listed entities that are in scope

As you will recall, the TNFD was launched in 2021 in response to the increasing demand for nature-related risks to factor into financial and business decisions and has since been endorsed on a global scale. The TNFD published the final version of its recommendations for a disclosure framework and a suite of additional guidance September 2023, and shares similarities with the Taskforce on Climate-related Financial Disclosures (“TCFD”).

The 14 recommendations are grouped into the same four pillars as the TCFD; these are governance, strategy, risk and impact management, and metrics and targets. They are also consistent with the International Sustainability Standards Board and the Global Reporting Initiative reporting standards.  This is great news, as it means those that are already reporting TCFD will have a good framework and model from which to start.

As with TCFD, the TNFD will track voluntary market adoption on an annual basis through an annual report beginning 2024, and the first mandatory reporting is anticipated for FY25. Although not all companies will be in scope, it is advisable to start thinking about how you might prepare your company.

We hope that this article was of use and interest to you. For further information please visit our Company Secretarial Services page or find out how we can help and support you.

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