Essential corporate news – week ending March 22, 2019

Publication March 2019


Investment Association and Hampton-Alexander Review: Gender diversity in FTSE 350 companies

On March 15, 2019 the Investment Association and the Hampton-Alexander Review announced that they have written to 69 of the FTSE 350 companies, highlighting concerns relating to gender diversity on their board.

The letter was sent to companies who have no women or just one woman on their board and asks those companies to outline what action they are taking to make progress and ensure they are meeting the Hampton-Alexander targets of 33 per cent of women on their board and leadership team by 2020.

The letter follows the announcement in February that the Investment Association’s voter information service, IVIS, will give its highest warning level (a red-top) to companies who have just a single woman on their board.

(Investment Association and Hampton-Alexander Review: Gender diversity in FTSE 350 companies, 15.03.19)

Home Office: Guidance on publishing an annual modern slavery statement

On March 12, 2019 the Home Office published guidance for organisations on publishing an annual modern slavery statement under section 54 of the Modern Slavery Act 2015. The guidance is intended to assist organisations in identifying when they need to publish an annual modern slavery statement, highlights how to demonstrate compliance with the minimum legal requirements, and sets out best practice guidance on producing a statement.

The guidance states that an organisation is required to publish an annual statement if

  • it is a “body corporate” or a partnership, wherever incorporated or formed
  • it carries on a business, or part of a business, in the UK
  • it supplies goods or services
  • it has an annual turnover of £36 million or more.

In order for an organisation to meet and demonstrate the minimum legal requirements relating to the annual modern slavery statement, it must update its modern slavery statement every year, publish the modern slavery statement on its UK website, seek approval from the board of directors (or equivalent management body) and get a signature from a director (or equivalent) or designated member (for LLPs). Statements must describe the main actions taken by an organisation during the financial year to deal with modern slavery risks in its supply chains and business. In order to address all relevant matters, the guidance recommends that organisations cover

  • Organisation structure and supply chains
  • Policies in relation to slavery and human trafficking
  • Due diligence processes
  • Risk assessment and management
  • Key performance indicators to measure effectiveness of steps being taken
  • Training on modern slavery and trafficking

The guidance also highlights that the detail and quality of information included under each of these six areas should improve in successive annual statements and should demonstrate how the organisation is acting transparently and disclosing information about any modern slavery risks the organisation has identified and what actions it has taken in response to them, targeting the organisation’s actions where they can have the most impact by prioritising its risks and how it is making year-on-year progress to address those risks and improve outcomes for workers in its business and supply chains.

(Home Office: Guidance on publishing an annual modern slavery statement, 12.03.19)

PIRC: UK Shareowner Voting Guidelines 2019

In March 2019, Pensions and Investment Research Consultants Ltd (PIRC) published the 26th edition of its UK Shareowner Voting Guidelines.

PIRC has made several key changes in the 2019 Guidelines from those published in 2018, including the following

  • Chair: PIRC will recommend opposing the re-election of a chair with a tenure of over nine years, regardless of whether they were independent on appointment. However, PIRC does state that voting recommendations on the chair’s election/re-election will be considered on a case-by-case basis, with consideration given to any justification provided by the company.
  • Committee independence: PIRC will oppose the re-election of a chief executive that sits on the nomination committee as PIRC wants to encourage a balanced and impartial appointment process.
  • Diversity: PIRC will recommend abstaining on the re-election of a FTSE 350 company’s nomination committee chair where there is lack of disclosure on progress in line with the 2017 Parker review on getting directors from ethnic minorities onto FTSE 350 boards.
  • Commitment: Where PIRC has concerns about a director’s aggregate time commitments, it will withhold support for the director’s re-election unless the director has had a 100 per cent attendance record at board and committee meetings throughout the year. Where a director’s attendance record is below 90 per cent, PIRC may also not support the director’s re-election.
  • Meeting attendance: PIRC will recommend opposing the election/re-election of any director who misses any board or committee meeting without adequate or reasonable justification. Examples of reasonable justification are given and these include funeral attendance, hospital appointments, health-related issues or other serious unforeseen circumstances outside the director’s control.
  • Auditor rotation: Where an external audit is put out to tender, PIRC believes the current statutory auditor should not be included in the audit tender process. PIRC also believes audit firms (not just the audit partner) should rotate every five years and may not support re-election of an auditor with more than five years tenure, regardless of whether the firm’s level of non-audit work would be considered acceptable.
  • Authorising audit fees: PIRC will recommend opposing the re-election of the audit committee chair where the nature of non-audit work has not been adequately disclosed.
  • Voting process: In terms of voting information to be made available after a shareholder meeting, PIRC will expect information about the number of shares in respect of which the vote was directed to be withheld to be provided.
  • Sustainability and corporate responsibility reporting: There is increased emphasis on environmental and social issues in the 2019 Guidelines. PIRC expects each listed company to publish a comprehensive assessment of its resilience to climate change as part of a meaningful environmental policy and it refers to work by the Bank of England on climate risk as a material financial risk, as well as the work by the Financial Stability Board’s Task Force on Climate Related Disclosures.

The PIRC UK Shareowner Voting Guidelines 2019 can be purchased from PIRC - click here.

CMA: Guidance on the functions of the CMA after a “no deal” EU exit

On March 18, 2019, the Competition and Markets Authority (CMA) published the final version of guidance on the effects of a no deal EU exit on the functions of the CMA.

The guidance is designed to explain how the UK’s exit from the EU will affect the powers and processes of the CMA for antitrust and cartel enforcement, merger control and consumer protection law enforcement after exit day. The guidance also explains the treatment of "live" cases in a no deal scenario, which are those cases that are being reviewed by the European Commission or the CMA on exit day.

The guidance will come into effect on exit day only in the event that the UK leaves the EU in a no deal scenario and the Competition (Amendment etc.) (EU Exit) Regulations 2019 come into effect. The CMA will not be bound by the guidance unless and until such events occur. If the UK does not leave the EU in a no deal scenario, the guidance will be withdrawn.

The guidance applies to the CMA’s ongoing and future

  • Merger cases under the Enterprise Act 2002.
  • “Antitrust” cases, including cartels, under the Competition Act 1998 (CA98) – i.e. relating to the competition law prohibitions on anti-competitive agreements and on abuse of a dominant position.
  • Enforcement of consumer protection legislation, in particular under Part 8 of the Enterprise Act 2002.

(CMA: Guidance on effects of a no deal EU Exit on the functions of the CMA, 18.03.2019)

(CMA: Guidance on effects of a no deal EU Exit on the functions of the CMA - Summary of responses, 18.03.2019)

FCA: Primary Market Bulletin No. 22

On March 20, 2019 the Financial Conduct Authority (FCA) published Primary Market Bulletin 22. The Bulletin focuses on key changes to the Listing Rules, the Disclosure Guidance and Transparency Rules and the Prospectus Rules that will be applicable if the UK leaves the EU without an implementation period and summarises the key changes to the relevant FCA Handbook provisions.

In a no-deal scenario the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019 will apply. The UK’s primary markets regime after Brexit will apply to all issuers, regardless of their country of incorporation, that have securities admitted to trading, or have applied to admit securities to trading, on a UK regulated market or admitted to listing in the UK, or are making a public offer in the UK. The new rules would (in most cases) immediately apply from exit day in a no-deal scenario and closely mirror existing requirements that issuers would have in the UK or their home state. As a result, the FCA expects issuers to take reasonable steps to comply with these changes for exit day.

Key changes include the following

Disclosure Guidance and Transparency Rules (DTR)

  • All issuers with securities admitted to trading on a UK-regulated market will have to comply with the transparency rules, including those issuers whose current home member state is not the UK. The “home/host” concept, which currently determines which member state’s rules apply, will not be relevant in the UK after Brexit.
  • Issuers preparing consolidated accounts will have to use International Financial Reporting Standards (IFRS) as adopted by the UK (UK-adopted IFRS) for all financial years commencing on or after exit day, instead of IFRS as adopted by the EU.
  • The Treasury intends to issue an equivalence decision, in time for exit day, that would determine EU-adopted IFRS to be equivalent to UK-adopted IFRS for the purposes of the Prospectus Directive and Transparency Directive . On this basis, non-UK incorporated issuers will be able to prepare their consolidated accounts using EU adopted IFRS.
  • Auditors based in the EEA will become subject to the requirements currently applicable to third-country auditors, including registration with the Financial Reporting Council. However, for financial years beginning before exit day, the current provisions allowing the use of an EEA auditor without registration will remain in force.
  • Issuers will only be able to use a Primary Information Provider to distribute regulated information. Currently, they are also able to use an incoming information society service.

Listing Rules (LR)

  • Holders from any jurisdiction will be counted towards the free float (the calculation will no longer be limited to EEA holders).

The Prospectus Directive

  • Prospectuses passported into the UK before exit day will remain valid for use in the UK until their validity expires – even where the prospectus expires after exit day.
  • Where a supplement is required for such a prospectus after exit day, the issuer must apply to the FCA for approval of the supplement.
  • Certain public body issuers can issue their securities without producing a prospectus under the Financial Services and Markets Act 2000. This will no longer be limited to public international bodies for which at least an EEA state is a member. Instead, any public international body for which at least a state is a member will be able to issue securities without a prospectus.
  • Governments or local/regional authorities of any state will be able to issue non-equity securities without needing to produce a prospectus. This will no longer.be limited to governments and local/regional authorities of EEA states.

(FCA: Primary Market Bulletin 22, 20.03.19)


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