Essential Corporate News – Week ending February 2, 2018

Publication | February 2, 2018

Introduction

Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

FRC: Coalition Group to develop new corporate governance principles for large privately-owned companies

On 30 January, 2018 the Financial Reporting Council (FRC) announced that James Wates CBE, Chairman of the Wates Group, will chair the Coalition Group to develop new corporate governance principles for large privately-owned companies. The Coalition Group, of which the FRC is secretariat, has been established in light of the Government’s response to its Green Paper consultation on corporate governance reform published in August 2017.

The Coalition Group comprises the FRC and senior representatives from the Institute of Directors, the Confederation of British Industry, the Institute for Family Business, the British Private Equity & Venture Capital Association, the Institute of Business Ethics, the Investment Association, the Climate Disclosure Standards Board, ICSA’s Governance Institute and the Trades Union Congress. The Coalition Group will develop and deliver principles that aim to promote:

  • best practice in corporate governance and reporting arrangements;
  • public trust and confidence through greater transparency in the manner in which large privately-owned companies conduct their business;
  • strong corporate culture and integrity within large private businesses, encourage broader consideration of workforce and wider stakeholder representation and interests; and
  • investor, lender and creditor confidence to facilitate long-term value and improved productivity.

(FRC, Press release on the Coalition Group, 30.01.18)

(BEIS, Press release on the Coalition Group, 30.01.18)

BEIS: Government to research whether companies buy back their own shares to inflate executive pay

On January 28, 2018 the Department for Business, Energy & Industrial Strategy (BEIS) announced new research that will help the Government to understand how companies use share buybacks and determine whether further action is needed to prevent them from being misused.

The research will address concerns that companies may be repurchasing shares to artificially inflate executive pay. The Government has appointed PwC to undertake the research into share buybacks and PwC will be supported by Professor Alex Edmans from the London Business School. The findings will be published later in 2018.

(BEIS, Press release on share buybacks, 28.01.18)

PLSA: AGM Voting Review

On January 29, 2018 the Pensions and Lifetime Savings Association (PLSA) published its annual AGM Voting Review. This examines AGM results for the FTSE All Share Index in 2017, highlighting resolutions that attracted ‘significant’ levels of dissent. The PLSA has taken dissent levels of over 20 per cent to be ‘significant’ in line with guidance from the GC100 and Investor Group and the threshold for publication on the Investment Association’s Public Register.

Overall dissent

Across the FTSE 350, there were 117 AGM resolutions that attracted dissent levels of over 20 per cent at 73 different companies in 2017. Around 20 per cent of companies in the FTSE 350 experienced significant dissent over at least one resolution at their AGM.

Executive remuneration

The PLSA found that executive pay was the most controversial aspect of corporate governance, with remuneration-related resolutions being the most common source of dissent.

The PLSA surveyed pension fund members’ views on the executive pay gap between companies’ executives and their wider work force and found that, overall, 85 per cent were concerned. When asked why remuneration is too high, 63 per cent of members responded that ‘large pay packages for under-performing executives are particularly inappropriate, but executive pay is disproportionately high across the board’.

In terms of accountability, the PLSA encourages disaffected shareholders to vote against the re-election of remuneration committee chairs responsible for pay practices when voting against a company’s remuneration policy or report, in order to introduce greater individual accountability over pay. In 2016, average dissent levels over remuneration policies were four times higher than dissent over the re-election of remuneration committee chairs as directors. In 2017, they were less than twice as high, suggesting that most shareholders are now voting against the remuneration committee chair if they vote against the remuneration policy.

Directors’ elections

In addition to remuneration related-resolutions, the election and re-election of directors’ resolutions also attracted shareholder dissent at 2017 AGMs. The PLSA notes that, overall, there was a slight increase in dissent over directors’ elections in 2016 and 2017 from previous years.

Conclusions

While there has been some progress on individual accountability, the PLSA argues that there is much more to be done. Companies are still failing to effectively explain their employment models and working practices to their shareholders and must improve reporting.

These findings have informed the update to the PLSA’s corporate governance policy and voting guidelines published on January 25, 2018.

(PLSA, Press release: AGM Voting Review, 29.01.18)

(PLSA, AGM Voting Review, 29.01.18)


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Raj Karia

Raj Karia

London
Raj Karia

Raj Karia

London
Jo Chattle

Jo Chattle

London
Jo Chattle

Jo Chattle

London