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Essential Corporate News – Week ending January 26, 2018

Publication January 26, 2018


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

PLSA: Corporate Governance Policy and Voting Guidelines 2018

On January 25, 2018 the Pensions and Lifetime Savings Association (PLSA) published their latest Corporate Governance Policy and Voting Guidelines (Guidelines) to assist PLSA members in promoting the long-term success of the companies in which they invest and ensuring that the board and management of those companies are held accountable to shareholders.

The PLSA notes that since the changes proposed by the Financial Reporting Council (FRC) to the UK Corporate Governance Code (Code) in December 2017 will not come into effect for some time, the Guidelines relate to the application of the current Code.  Key changes in the Guidelines from those published in January 2017 include the following:


The PLSA expects both audit committee and auditor reports to provide sufficient “colour” to enable shareholders to form a judgement about their work in the year. Particular areas of interest are:

  • critical accounting policies used;
  • level of materiality adopted;
  • assumptions and judgements;
  • evidence of professional scepticism by the auditor;
  • main findings and actions taken to respond to any recommendations where the FRC’s Audit Qualiy Review Team has undertaken a review; and
  • oversight of auditor independence by the audit committee.

Auditors are also expected to maintain a healthy level of scepticism over management accounts, rigorously test them and be willing to challenge their own past judgements. A maximum 20 year audit firm tenure is a minimum expectation and the audit tender process should focus on auditors’ independence and processes to ensure professional scepticism, as well as audit quality.

Approval of annual report and accounts

The Guidelines note that if the audited accounts are deemed to fail to provide a true and fair view of profit or loss, assets or liabilities,(for example, because they overstate profit or assets or understate likely liabilities such as pension or climate-related liabilities) then shareholders should consider voting against the adoption of the report and accounts and/or the auditor and/or the audit committee chair.

The Guidelines also stress the need to provide a fair and balanced explanation of the composition, stability, skills and capabilities and engagement levels of the company’s workforce and recommend a vote against the annual report where this is not provided.

If there is boilerplate or limited disclosure about the board evaluation and review of corporate governance arrangements in the annual report, the Guidelines recommend a vote against adoption of the report and accounts.

Approval of remuneration report

Circumstances in which shareholders may wish to consider voting against the remuneration report include where the remuneration committee has failed to exercise discretion and pay awards fail to reflect wider circumstances such as serious corporate conduct issues.

If shareholders vote against the remuneration report, the Guidelines recommend that in most circumstances shareholders should also vote against the re-election of the remuneration committee chair and other remuneration committee members if they have been in post for more than one year.

Appointment of auditor and authorisation of auditor’s remuneration

Where the auditor has been in place for more than 20 years, the Guidelines suggest shareholders should consider a vote against the audit committee chair and auditor. They also stipulate that companies should spend no more than 50 per cent of the audit fee on non-audit services (or a material monetary sum - £500,000) unless an explanation of exceptional circumstances that may apply is provided. If that figure is exceeded, a vote against the audit committee chair, auditor and/or audit fees may be appropriate.

Similarly, if there are major concerns about the audit process or quality of the accounts (relating to a failure to provide a true and fair view or visibility over the dividend paying capacity) which are not satisfactorily resolved by the board, then a vote against the re-election of the audit committee chair or reappointment of the auditor may be appropriate.

Market purchase of shares

The Guidelines state that shareholders will generally support buy-backs if they are a prudent use of the company’s cash resources and are supported by cash-flows of the underlying business, and do not introduce excessive and unsustainable leverage.


The Guidelines include a new section headed “Sustainability”. This notes that positive relations with key stakeholders is of clear importance to a company’s long-term performance and it recommends that shareholders should consider voting against the annual report and accounts or the re-election of the board chair where they believe key relationships are being neglected and the board is not adhering with the spirit of requirements to have for the concerns of stakeholder constituencies.

Climate change is noted as a key sustainability issue and the Guidelines state that companies in sectors affected by climate change and efforts to mitigate it should undertake rigorous examinations of whether their business model is compatible with commitments to mitigate global temperature increases and how they plan to address the issue of climate change. This also requires climate-related expertise at board level. The Guidelines stipulate that where, after shareholders have attempted to engage on this issue, companies fail to provide a detailed risk assessment and response to the effect of climate change on their business, and incorporate appropriate expertise on the board, shareholders should not support the re-election of the board chair.

(PLSA, Corporate Governance Policy and Voting Guidelines, 25.01.18)

ESMA: Practical guide to national rules on notifications of major holdings under the Transparency Directive

On January 16, 2018 the European Securities and Markets Authority (ESMA) published a practical guide (Guide) on the different national rules on notifications of major holdings under the Transparency Directive.

The Guide summarises the main rules and practices applicable across the European Economic Area (EEA) in relation to notifications of major holdings under national law in accordance with the Transparency Directive. Part I sets out a summary of the main rules and practices in relation to making and publishing notifications of major holdings and is presented on a country-by-country basis. The focus is on on-exchange transactions based on the assumption that these trigger the majority of notification obligations under the Transparency Directive. Part II presents key data i.e. information on notification thresholds, the triggering event, the deadline for learning of the triggering event, the deadline for making a notification, permitted channels and format for the filing of notifications and the deadline for publishing a notification.

(ESMA, Updated Guide on National rules on notifications of major holdings under the Transparency Directive, 16.01.18)

BEIS: Register to crack down on criminals laundering dirty money through UK property market

On January 18, 2018 the Department for Business, Energy & Industrial Strategy (BEIS) announced a world-first register that will crack down on money laundering through property in the UK. The register is set to go live by early 2021 and will provide the Government with greater transparency on overseas companies.

The register will require overseas companies to declare their ultimate owners when they purchase property in the UK. It is hoped that, as a result, it will become increasingly difficult for criminals to use shell companies to buy properties in the UK to launder their illicit proceeds. The aim is to make it easier for law enforcement agencies to track criminal funds and take action.

The announcement states that a draft bill will be published this summer and it will be introduced into Parliament by summer 2019. The aim is for the register to go live by early 2021.

(BEIS, Press release, 18.01.18)

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