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Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On January 24, 2017 the Supreme Court ruled on Article 50 of the Treaty of European Union, handing down judgment in the UK Government’s appeal against the earlier decision of the High Court that parliamentary approval is needed to give notice under Article 50, the formal treaty mechanism by which a Member State exits from the European Union.
The decision, by a majority of 8-3, upholds the High Court’s earlier decision and means that the Government cannot invoke Article 50 without first obtaining the approval of Parliament.
For more information, please see our Inside Brexit blog entry discussing the judgment.
On January 23, 2017 the Department for Business, Energy and Industrial Strategy (BEIS) published a Green Paper on building Britain’s industrial strategy. Its aim is to improve living standards and economic growth by increasing productivity and driving growth across the whole country. It starts to set out a coherent framework for industrial strategy across all sectors and the Green Paper is accompanied by a separate document in which BEIS sets out the ten pillars underpinning BEIS’ approach to industrial strategy.
The ten pillars are as follows:
BEIS has requested comments on the papers by April 17, 2017.
On January 24, 2017 the International Corporate Governance Network (ICGN), the Institute of Directors (IoD), Institute of Chartered Secretaries and Administrators (ICSA) and the Trades Union Congress (TUC) published a letter sent by them to the Prime Minister regarding corporate governance issues in the Green Paper published in November 2016.
The signatories note that they will be responding individually to the Green Paper setting out their own particular priorities, however, the signatories all recognise the importance of section 172 Companies Act 2006. Section 172 requires directors to promote the success of the company for the benefit of shareholders, and in so doing to have regard for the interests of workers, consumers and other stakeholders. The letter notes that there is no effective mechanism for policing this law, which means that if companies, particularly private companies where there is little or no institutional shareholder oversight, do abuse the law, they are not always held to account. The letter suggests that establishing a regulator for companies would deliver economic benefits and greater fairness.
In addition, the letter notes that one of the most contentious governance issues is that of executive remuneration. While the letter acknowledges it is not likely that one single measure will remedy the problem, it states that perhaps what is most important is the Government’s voice in demanding that companies, their remuneration committees, advisers and shareholders, recognise the problem, and resolve a better, and perhaps a simpler, regime for corporate pay which can command broad support.
Finally the signatories urge the Prime Minister to do the following, at a minimum:
On January 26, 2017 the Financial Reporting Council’s (FRC’s) Financial Reporting Lab published a case study report on WM Morrisons supermarket PLC (Morrisons). The report focuses on two areas of disclosure of Morrisons’ supplier arrangements: commercial income and relationships with suppliers.
Disclosures: Commercial income
Reporting by a company to investors is often a fine balancing act between providing too much information and not enough detail. This is especially the case in areas where there is limited guidance, regulation, and practice.
In 2015 Morrisons found itself managing this balance when responding to increased investor interest in the nature and impact of commercial income (a type of payment between suppliers and retailers), following recognition issues identified at Tesco plc.
In its 2014/15 annual report Morrisons adopted a level of disclosure of commercial income which was more comprehensive than others in the sector.
Through its disclosure, Morrisons sought to:
In 2015/16 the focus of value to investors of the Morrisons disclosures changed, with the initial concern of investors having been satisfied the importance of trend and industry comparative information came to the fore. The disclosures provide additional insight into the Morrisons business, and over time add to investors’ understanding of margins and how the company works with suppliers.
A model for reporting of emergent issues
Investors consider that the approach that Morrisons adopted could be a useful model for others when reporting on an emerging industry issue. Disclosures which are made on an emergent or one-off issue can often be seen as adding clutter to the accounts once their initial purpose has passed. Companies which seek to produce clear and concise accounts consider on a regular basis whether the information they are producing continues to meet an investor or regulatory need.
Disclosures: Relationships with suppliers
Information on commercial income provides some insight into how a retailer works with suppliers. This feeds into the broader desire from investors to understand the quality of supplier relationships and their place in a food retailer’s wider business model. Investors recognise that the multi-faceted nature of relationships can be difficult to report in the confines of the annual report. However, by drawing out the differential aspects of its relationship with the supply base, Morrisons’ business model disclosure helps investors understand the importance of these relationships to the company.
This report forms part of the FRC’s Clear and Concise reporting initiative that promotes transparent and accessible reporting.
On January 24, 2017 the Competition and Markets Authority (CMA) published an updated guide, developed jointly with the Institute of Risk Management, for senior managers, directors and their advisers on how to avoid breaching competition law.
The guide provides a basic overview of competition law, outlining the steps that can be taken to help identify and mitigate competition law risks specific to certain organisations. It is intended to help businesses ensure that they are compliant with competition law and may help businesses spot when others are engaging in illegal anti-competitive behaviour. The guide also provides details on what to do if a business is breaking competition law.
On January 20, 2017 the European Commission published a consultation paper on the capital markets union (CMU) action plan in connection with its planned mid-term review. The consultation retains the same structure as the action plan adopted in September 2015 but seeks feedback on how the current programme can be updated and completed so that it represents a strong policy framework for the development of capital markets.
The European Commission has requested comments on the paper by March 17, 2017.
IMO 2020 is almost upon us. Readers are well aware of the impending switch to 0.5 percent fuel mandated by Annex VI of MARPOL which will cause an anticipated drop in HSFO demand, the potential hazards of new untested LSFO blends, the concerns around scrubber operations, the debate over open loop versus closed loop, and the myriad of other risks associated with the impending regulatory change.