FCA and FRC: Joint statement reminding companies that extended financial timelines continue to apply
On January 27, 2021, the Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) published a joint statement reminding companies about the various measures announced in a joint statement from the FCA, FRC and Prudential Regulation Authority in March 2020 in light of the COVID-19 pandemic, which continue to remain valid.
In summary, those measures include the following:
- Publication of year end and half-yearly financial reports - The FCA has given listed companies an additional two months to publish their annual report (so within six rather than four months of the financial year end date) and an extra month for half-yearly financial reports (so within four rather than three months of the financial half-year end date).
- Filing of accounts - Companies House has extended the period for filing accounts by three months. This automatic extension expires on April 5, 2021, but if companies apply for a filing extension after that date, Companies House will have discretion to grant a three-month extension if the coronavirus is cited as a factor impacting completion and/or audit of the accounts.
- AGMs - In relation to delaying or adapting AGMs, while the flexibilities around the conduct of AGMs provided by the Corporate Insolvency and Governance Act 2020 expire at the end of March 2021, the Department for Business, Energy and Industrial Strategy is working with stakeholders on further guidance.
Stakeholders, including boards of listed companies, are encouraged to remind themselves of the measures and use them where necessary to ensure the quality of reporting is not compromised. In addition, the following reminders are provided:
- Alerting investors to reporting timetables – Investors and other users of financial information are reminded that reporting timetables could be extended in light of these measures and changes should be viewed in the context of current events.
- Keeping the market up to date – Companies are reminded that their obligations in relation to the disclosure of inside information under the UK Market Abuse Regulation remain in place, companies need to continually assess what constitutes inside information and recognise that the pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.
- Coronavirus-related reporting and audit guidance – Listed companies are reminded of the series of guidance published by the FRC and the statement notes that audit committees might consider it appropriate to include in their annual report the work they have undertaken and measures they have agreed to ensure high quality reporting and audit for the period affected.
- Auditor’s duty to report – Auditors are reminded of their regulatory obligations to report, to the appropriate regulator, matters arising from their work on a timely basis.
(FCA and FRC, Joint statement reminding companies that extended financial timelines continue to apply, 27.01.2021)
LSE: Inside AIM – Coronavirus and financial reporting deadlines
On January 27, 2021, the AIM Regulation team published an issue of Inside AIM in respect of continued temporary measures for financial reporting deadlines in light of the coronavirus pandemic.
This Inside AIM confirms that the temporary measures announced on March 26, 2020 and June 9, 2020 for reporting deadlines in relation to the publication of audited annual results and half-yearly reports required by the AIM Rules for Companies remain available for AIM companies until further notice of an orderly transition back to standard reporting periods.
An AIM company seeking an extension of its reporting deadline for its annual audited accounts pursuant to AIM Rule 19 can apply to AIM Regulation for an extension of up to three months. The request for the extension must be made by the AIM company’s nominated adviser and submitted prior to the current AIM Rules reporting deadline. AIM companies are reminded to refer to guidance published by Companies House in respect of the temporary changes to UK filing requirements, noting that the current automatic extension ends for any filing deadlines that fall on April 6, 2021 or later and thereafter an application will need to be made to Companies House for filing deadline extensions.
For an AIM company wishing to utilise the additional one month period for its half-yearly report, this Inside Aim confirms it must notify its intention to do so, via a RIS, prior to its reporting deadline under AIM Rule 18. The company’s nominated adviser must inform AIM Regulation of this separately.
(Inside AIM, Coronavirus - Financial reporting deadlines, 27.01.2021)
GC100: Shareholder meetings – Time for change?
On January 28, 2021 the GC100, representing general counsel and company secretaries working in FTSE 100 companies, published a discussion paper to inform legislative and regulatory developments in the area of shareholder meetings, particularly AGMs.
The GC100 believes that that the current AGM regime should be reviewed so that the positive experiences at some AGMs in 2020 can be extended to benefit more companies, their shareholders and other
stakeholders. The discussion paper provides a company perspective on the limitations of the current format for AGMs and considers that a different approach to the AGM format which embraces the use of technology could result in greater shareholder and stakeholder engagement. A number of the recommendations could also apply to company meetings other than AGMs.
Ultimately, the GC100 believes that companies should have the flexibility, depending on their circumstances and shareholder base, to decide whether a physical, virtual or a hybrid meeting is more appropriate, noting that all three choices of meeting format bring different benefits, and it is not appropriate to prescribe a one-size-fits-all approach.
However, in particular, the GC100 would like to:
- Encourage the Government to amend the Companies Act 2006 to ensure that in addition to hybrid meetings, virtual meetings are expressly permitted, thereby providing statutory legal certainty of the validity of a meeting to any company considering amending its articles of association to permit virtual meetings.
- Work together with the Government, investor bodies and the Financial Reporting Council (FRC) on a code of best practice for listed companies wishing to permit virtual participation in their shareholder meetings which addresses areas of shareholder concern such as engagement with the board and how questions should be addressed. A proposed draft Code of Best Practice is set out in Part 5 of the discussion paper.
- Secure the support of investor bodies and the FRC for listed companies to have the flexibility to hold AGMs in the way that they consider are in the best interests of their shareholders, such as by being able to choose between holding a physical AGM, a hybrid AGM, or a fully virtual AGM (in line with the Code of Best Practice) in the future.
- Open a debate on the value of further innovation in shareholder and stakeholder engagement, such as by encouraging companies to hold additional shareholder and/or stakeholder engagement sessions that are not held concurrently with the formal business of an AGM (for example, after the notice of meeting has been sent, but before the deadline for proxy forms to be lodged and the AGM is held).
The proposed draft Code of Practice concerns electronic participation at shareholder meetings and looks at issues before, during and after the meeting. It also includes by way of Annex suggested pro forma explanatory wording for proposals to amend articles of association to permit electronic meetings.
(GC100: Shareholder meetings – Time for change?, 28.01.2021)
Glass Lewis: Approach to executive compensation in the context of the COVID-19 pandemic (EMEA region)
On January 22, 2021, Glass Lewis published a document providing illustrative guidance on the intended application of Glass Lewis’ existing policy approach to executive remuneration at companies in the EMEA region under various scenarios expected in the wake of the coronavirus pandemic. This follows publication of its UK Proxy Paper Guidelines for the 2021 AGM season in November 2020.
For the fiscal year 2020/21, Glass Lewis proposes to focus on the following:
- Dividends – Where a company cancelled, reduced or has not resumed the payment of dividends due to the ongoing crisis, to save liquidity and/or ensure the grant of government aids, Glass Lewis would expect executive pay to be affected and a company’s dividend policy and payout ratio would be taken into account.
- Employees – Where a company had to undertake significant layoffs, furloughs or cuts in workforce salaries, Glass Lewis would expect this to be addressed in the remuneration report and believes there should be consistency between changes in the yearly disbursements for employee pay and executive pay.
- Stakeholder perspectives – Where relevant stakeholders, such as government agencies or local investor associations, publicly express concerns regarding a company’s proposed payouts or pay policies, Glass Lewis believe the company in question should publicly provide a direct and compelling explanation of how it has accounted for those perspectives.
- Key financials – In addition to performance of the metrics included in the incentive plans, Glass Lewis will consider results against the company’s other KPIs, including absolute and relative TSR, EBITDA, net profit, and historical year-on-year changes thereof.
- Equity grants and share price – When assessing the appropriateness of long-term incentive equity grants, Glass Lewis will scrutinise a company’s disclosure around the determination of the grant value and the calculation of the number of shares to be granted.
- CGLytics – For companies in the UK and Europe, Glass Lewis compare realised pay and performance over the past three-plus years according to the main KPIs and relative to Glass Lewis’ pre-defined peer groups hosted in the CGLytics platform.
Glass Lewis is generally opposed to discretionary adjustments to the terms of incentive plans, especially if such adjustments would affect outstanding awards that have already been granted, but may accept some one-off deviations from a remuneration policy if safeguards are in place in relation to target adjustments, non-financial metrics and COVID-specific metrics, the long-term incentive performance period and retention awards.
While Glass Lewis will take a holistic view of pay outcomes, ultimately, when assessing a board’s decisions on executive remuneration for 2020/21, Glass Lewis will look at year-on-year variations in total pay and will expect overall lower outcomes than in the previous year for all companies that have been affected by the crisis.
(Glass Lewis, Approach to executive compensation in the context of the COVID-19 pandemic (EMEA region), 22.01.2021)
ISS: Executive compensation and the COVID-19 pandemic – Frequently Asked Questions
On January 25, 2021, ISS published a document setting out guidance on how it will approach COVID-related pay decisions in light of its assessment of companies’ remuneration-related proposals.
The guidance is set out in the form of FAQs and these are as follows:
- How will ISS view changes to executive salary or variable pay opportunity?
- How will ISS evaluate COVID-related changes to short- and long-term incentive plans?
- For companies making COVID-related changes to bonus/annual incentive programs, what disclosure would be needed for investors to fully evaluate these decisions?
- How will ISS evaluate COVID-related changes to long-term incentive plans?
(ISS: Executive compensation and the COVID-19 pandemic – Frequently Asked Questions, 25.01.2021)
ESMA: Updated Questions and Answers on the Prospectus Regulation
On January 28, 2021 the European Securities and Markets Authority (ESMA) published an updated version of its Prospectus Regulation question and answers (Q&As). The purpose of the Q&As is to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of the Prospectus Regulation. It does this by providing responses to questions asked by the public, financial market participants, competent authorities and other stakeholders.
The updated Q&A includes six additional questions which provide clarification on the following issues in relation to the Prospectus Regulation:
- Financial information - clarifying the meaning of “or such shorter period as the issuer has been in operation” for the purposes of Item 18.1.1 of Annex 114 Commission Delegated Regulation 2019/980.
- Updating of the prospectus and whether the issuer is entitled to use its prospectus to make several offers.
- Valuations and statements prepared by an expert and whether they can be displayed and/or inspected.
- Order of the information in the prospectus.
- How to determine which annexes of Commission Delegated Regulation 2019/980 apply when drawing up a prospectus.
- The exemptions from the obligation to publish a prospectus in Article 1(5) Prospectus Regulation (EU) 2017/1129 as stand-alone exemptions.
(ESMA, Updated Questions and Answers on the Prospectus Regulation, 28.01.2021)