Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
BEIS: Green paper on corporate governance reform
On November 29, 2016 the Department for Business, Energy & Industrial Strategy (BEIS) published its much heralded Green Paper on corporate governance reform for discussion. A range of options are proposed for strengthening the UK’s corporate governance framework, since “the behaviour of a limited few has damaged the reputation of many”. Section 172 of the Companies Act 2006 enshrines the importance of wider interest groups in corporate governance. Under that section, directors are required to take account of wider interests when seeking to promote the success of a company for the benefit of its shareholders. Therefore, in the Green Paper, the Government is exploring new ways to connect boards to a wider range of interested groups and to build upon existing good governance practices. Options include: increasing shareholder influence over executive pay, strengthening the employee, customer and supplier voice at boardroom level, and extending higher minimum corporate governance and reporting standards to large, privately-held businesses.
Responses to the Green paper are requested by February 17, 2017.
For more information, please see our briefing on the Green Paper.
FCA: Consultation on DTR 2.5 changes – Delay in the disclosure of inside information
On November 28, 2016 the Financial Conduct Authority (FCA) published a consultation paper proposing changes to DTR 2.5 in order to make it consistent with the European Securities and Markets Authority’s (ESMA) guidelines on legitimate interests to delay disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public and persons receiving market soundings under the Market Abuse Regulation (MAR).
In relation to market soundings, the FCA has decided that it is not necessary to make any changes to the FCA Handbook to comply with ESMA’s guidelines on market soundings and therefore all of the proposed changes are intended to implement the guidelines on delay in the disclosure of inside information.
In amending DTR 2.5 the FCA intends to follow the approach adopted in its policy statement on the implementation of MAR. This entails deleting any FCA Handbook material that conflicts with or duplicates the ESMA guidelines and, where a provision is deleted, cross-referring to the guidelines as appropriate.
The proposed amendments to DTR 2.5 include:
- adding a general sign post (DTR 2.5.1BG) to direct readers to the ESMA guidelines at the start of DTR 2.5;
- deleting DTR 2.5.3G on circumstances to which legitimate interests to delay disclosure may relate as it directly overlaps with ESMA’s guidelines;
- amending DTR 2.5.4G to remove the reference to DTR 2.5.3G (as this will be deleted) and instead cross-refer to the ESMA guidelines;
- deleting the third sentence of DTR 2.5.5G as the FCA believes it is not compatible with ESMA’s guidelines; and
- defining the ESMA guidelines on delay in the disclosure of inside information and adding the term to the Glossary.
The FCA has requested comments by January 6, 2017.
Big Innovation Centre: The Purposeful Company – Interim executive remuneration report
On November 25, 2016 the Big Innovation Centre published an interim report on executive remuneration by the Steering Group of its Purposeful Company Taskforce (Taskforce), which is developing a range of policy recommendations to support the development of UK companies pursuing sustainable growth inspired by purpose.
The interim report notes that executive remuneration has been impacting on public trust in business and, as a result, policy-makers are considering reforms to address three perceived failings in current executive pay practices and governance:
- that executive pay encourages short-term behaviour that is to the detriment of the long-term growth and productive potential of the British economy;
- that executive pay has become disconnected from the pay of ordinary working people to an extent that is damaging social cohesion; and
- that shareholders do not have adequate control over executive pay practices, enabling companies to continue with practices against shareholder wishes.
The Taskforce puts forward four proposals to help align executive incentives better with long-term purposeful behaviour and to help rebuild public confidence in executive pay:
- Shareholder guidelines and the UK Corporate Governance Code should enable companies to adopt simpler pay structures for CEOs based on long-term equity and debt holdings to encourage long-term behaviour and to avoid the unintended consequences of over-reliance on performance-based incentives.
- Companies should be required to publish a Fair Pay Charter explaining policy and outcomes for wider employee pay and fairness and to engage with employees on its content, including specified disclosures on pay comparisons.
- The directors’ remuneration reporting regulations should be updated to enable greater stakeholder understanding of a company’s maximum pay and the relationship between pay and performance.
- A binding vote regime should be triggered when companies lose or repeatedly fail to achieve a threshold level of support on the advisory remuneration vote.
The Taskforce’s final recommendations will be published in January 2017 and will take into account the Government's Green Paper on executive pay and corporate governance and feedback from members of the Taskforce and other stakeholders.
How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.