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Essential Corporate News – Week ending August 3, 2018

Publication August 3, 2018


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

ISS: Global Policy Survey 2018

On July 30 2018, Institutional Shareholder Services Inc. (ISS) launched its annual global policy survey for 2018, a key component of their annual global policy development process, looking at potential changes for 2019.

The 2018 survey (as was the 2017 survey) is conducted in two parts, beginning with a high-level ISS Governance Principles Survey covering some global high-profile governance topics including auditors, audit committees, director accountability, gender diversity in the boardroom and the “one-share, one-vote” principle.

The second part of the survey follows on and is a more in-depth portion of the survey, broken down by region, containing an expansive and detailed set of questions. Several questions which form the second part of the questionnaire relate to Europe, and focus largely on LTIPs and non-executive director pay.

A question in the EMEA region questionnaire seeks information on Chair's Responsibility in Contentious Executive Pay Situations, focusing specifically on the UK.

ISS notes that there have been recent examples of relatively high dissenting shareholder votes against chairs in such situations, often accompanied by high dissenting votes against remuneration committee members. In some cases, the chair was not a member of the remuneration committee. ISS asks for views as to:

  • The extent to which the chair of a board should be held accountable for a company's remuneration decisions.
  • Whether it may ever be appropriate to withhold support from a chair's re-election in response to a contentious pay situation when the chair is not a member of the remuneration committee.
Comments are requested on the first part of the survey August 24 2018 and on the second part by September 21 2018.

ISS proposes a public comment period on the final changes.

(ISS’ Annual Policy Survey 2018: Part One – 30.07.18)

(ISS’ Annual Policy Survey 2018: Part Two (EMEA) – 30.07.18)

FRC: Revised FRC strategic report guidance

On July 31, 2018 the Financial Reporting Council (FRC) published revised guidance on the strategic report (Guidance) which encourages companies to consider wider stakeholders and broader matters that impact performance over the longer term. The Guidance is for directors and is intended as best practice for all entities preparing strategic reports. The FRC also published a statement summarising feedback received on the related consultation paper issued in August 2017.

The feedback was generally positive and showed that the 2014 Guidance was helpful. The FRC, therefore, did not undertake a fundamental review, and just made a small number of amendments to the 2014 Guidance.

The FRC has developed the revised Guidance that aims to be: principles based; mindful of recent developments in narrative reporting best practice; and is aligned with requirements in the UK Corporate Governance Code.

The revised Guidance places a greater focus on the directors’ section 172 Companies Act 2006 (section 172) duty to promote the success of the company. Briefly, the revised document:

  • Encourages best practice reporting with the inclusion of both financial and non-financial information in the strategic report. This follows 93 per cent of respondents indicating support for integrating non-financial information into the strategic report. The FRC believes that the strategic report should be a cohesive document containing all relevant information.

  • Clarifies throughout that the primary audience of a strategic report remains the shareholders. The FRC, nevertheless, continues to encourage companies to consider the interests of wider stakeholders when running their businesses as part of their section 172 duty.

  • Encourages boards to give due consideration to their duty in section 172 and to report on relevant matters relating to that duty. The Guidance addresses some key issues with reporting including assessing the long-term consequences of board decisions, identifying key stakeholder relationships and disclosing principal board decisions. The FRC’s intention is to improve the effectiveness of section 172 and to encourage board discussions on how companies are considering key shareholders.

(FRC: Guidance on the Strategic Report – 31.07.2018)

(FRC: Feedback Statement – Amendments to Guidance on the Strategic Report – 31.07.2018)

BEIS: Committee report on gender pay gap reporting (corporate aspects)

On August 2, 2018 the House of Commons Business, Energy and Industrial Strategy Committee (BEIS Committee) published a report on gender pay gap reporting. This report is the first output to the BEIS Committee’s inquiry into aspects of pay in the private sector, which was launched in March 2018. The BEIS Committee states that the UK has one of the highest gender pay gaps in Europe and pay gap reporting is only one step in closing it. The Report would like to see a widening of the companies that are required to report with companies required to publish action plans and narrative reports on what they are doing to close the gap. It is noted that only about half the members of the UK workforce are expected to be covered by the current reporting requirements.

The report makes several proposals for company boards to increase transparency and improve fairness, including:

  • the recommendation that company boards introduce Key Performance Indicators for reducing and eliminating their pay gaps and that Remuneration Committees, in reporting on pay policy, should explain how this commitment to reducing the pay gap is being reflected in their decisions.
  • Urging the Financial Reporting Council (FRC) to monitor the quality of reporting on gender diversity and the pay gap in annual reports and to press for improvements where necessary.
  • the recommendation that that businesses and organisations in the public and voluntary sectors should make it standard practice to include a tangible commitment to diversity in any tendering exercise or other provision of services.
  • the recommendation that the FRC proposals for a revised Stewardship Code include reference to ensuring that gender diversity is properly reflected throughout the company, notably at board level.

 The BEIS Committee will continue with the second strand of its inquiry, examining the progress of reforms relating to executive pay levels and structure, in the Autumn 2018.

(BEIS: Committee report on gender pay gap reporting – 02.08.18)


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