Commenting on the upcoming AGM season, Chris Stamp, Boardroom Director for Prism Cosec, Equiniti’s company secretarial and corporate governance practice, said:
"Corporate Governance will continue to be an area for attention in 2018 as the package of reforms proposed by the Government in its response to the Green Paper on Corporate Governance are further developed, consulted on and brought into force particularly through changes to the UK Corporate Governance Code.
The FRC’s proposed new UK Corporate Governance Code is shorter and more focussed than the current version and shifts emphasis to the application of its principles rather than reporting on compliance with provisions. Companies will be carefully considering the impact of the new code ahead of it coming into force for financial years beginning on or after 1 January 2019.”
1. Board diversity and gender pay gaps
Nomination Committees will be reviewing diversity policies and succession plans during 2018. The FRC Code takes into account the influential Hampton-Alexander and Parker Reviews on gender and ethnic board diversity, and increases the emphasis on promoting diversity (including diversity in social and ethnic backgrounds and not just gender diversity) in appointments and succession planning.
Following the publication of gender pay gap data by companies and associated press and public comment over recent weeks, shareholders will be on the lookout for comments on gender pay gaps in their annual reports and at shareholder meetings themselves, and any action the company proposes to address them.
In addition to the high-profile disputes about executive remuneration we have seen in the press, an update to the UK Corporate Governance Code, which is expected to look at the relationship between worker pay and executive pay, coupled with guidelines from the Investment Association and ISS, will keep remuneration policies and practices firmly in the limelight.
Areas of focus include responsibilities and experience of the Remuneration Committee and Chair, levels of remuneration, remuneration structures, improved shareholder consultation, and transparency around performance targets.
3. Hybrid AGMs
The ISS and IA voiced support companies holding hybrid AGMs (simultaneous online and physical meetings) in 2017. An increasing number of companies have taken steps in preparation to be able to hold virtual AGMs, and shareholders can expect to see more amendments articles in 2018 in preparation to hold hybrid meetings. However, attempts to permit virtual only electronic meetings will be robustly challenged by shareholders.
4. Employees and stakeholders’ views
The new Code also includes provision requiring companies to establish a method by which the views of the workforce are considered by the board, and secondary legislation to strengthen the reporting of how directors have had regard to wider stakeholders is expected. Shareholders will also see this in their annual reports as new guidance includes aims to strengthen the link between the purpose of the strategic report and the directors’ duty under section 172 of the Companies Act.
Investors are routinely challenging the re-election of non-executive directors where it considers them to be “overboarded” (that is having too many other directorships of listed companies) and/or spending insufficient time on board business (as evidenced by their attendance at Board and committee meetings). Where there is a risk that investors may be concerned about this, it is important that companies engage with key shareholders about these areas of concern.
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Notes to Editor:
About Prism Cosec
Prism Cosec provides corporate governance and company secretarial services to quoted and unquoted companies seeking to operate UK governance standards. It helps both UK and international companies establish and maintain best practice corporate governance policies and systems.
Prism Cosec was established in 2002 and became part of the Equiniti Group in 2012. Equiniti David Venus has been providing corporate governance and company secretarial services to clients for over thirty five years. In 2016 the two businesses combined, bringing together a wealth of experience and industry expertise.
Equiniti is a multinational specialist outsourcer delivering technology-enabled solutions to some of the best-known brands and public-sector organisations in the UK, including c.70 of the companies in the FTSE 100.
It is the UK’s leading provider of share registration and associated investor services, and also has market leading positions in administration of employee share plans, pension administration and software, and employee benefit schemes.
Equiniti’s services, which are delivered by over 5,000 employees, benefit 28 million people in the UK and 120 countries around the world.