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Essential Corporate News – Week ending March 25, 2016

Publication March 25, 2016


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

BIS: Guidance for People with Significant Control Over Companies, Societates Europaeae and Limited Liability Partnerships

On March 23, 2016 the Department for Business, Innovation and Skills (BIS) published its Guidance for People with Significant Control Over Companies, Societates Europaeae (SE) and Limited Liability Partnerships (LLP), which provides a detailed explanation of the requirements for individuals and legal entities which may be people with significant control (PSCs).

From April 6, 2016 individuals and legal entities with significant control will need to be identified on the PSC register for their respective entities and this guidance accompanies that already published for companies, SEs and LLPs, as well as the statutory guidance on the meaning of significant influence or control for both companies and LLPs. If a person or legal entity is in a position of significant control in relation to a legal entity to which the PSC regime applies, then certain legal requirements apply to that person or legal entity and failure to comply could constitute a criminal offence.

The guidance is very similar in essence to the guidance for companies, SEs and LLPs, but focuses on the role of the PSC. The guidance covers the following:

  • The legal framework for the PSC regime.
  • Who PSCs are.
  • Providing PSC information to the company.
  • Information required for the PSC register.
  • Understanding the conditions for being a PSC.
  • The regime for suppressing PSC information in exceptional circumstances.
  • Official wording for the PSC register.
  • Guidance for PSCs of LLPs.

(BIS, Guidance for People with Significant Control Over Companies, Societates Europaeae and Limited Liability Partnerships, 23.03.16)

HM Treasury: Empowering productivity – Harnessing the talents of women in financial services

On March 22, 2016 HM Treasury published a report by the CEO of Virgin Money, Jayne-Anne Gadhia, addressing the gender imbalance in senior positions in financial services companies. The Gadhia review was tasked with considering the representation of women in senior management roles in financial services firms as part of the Government’s commitment to tackle gender inequality in the workplace. The review’s research found that in 2015, women made up only 14 per cent of executive committees in the financial services sector and its report sets out the economic and business case for gender diversity, with case studies.

The report makes three overarching recommendations to achieve a balanced workforce and fairness, equality and inclusion for men and women. It believes that these recommendations should apply to all firms meeting the Financial Conduct Authority’s (FCA) definition of a financial services firm, save for those who fall into proportionality level three under the existing Prudential Regulation Authority and FCA Codes. The recommendations are as follows:

  • Reporting – Firms should set their own inclusive strategy and targets annually and progress against these internally generated targets should be reported. More specifically, the review believes firms should publish key metrics on gender balance at all levels of the organisation, including metrics in individual business units as well as by broad job functions.
  • Executive accountability – The strategy should be owned and driven at executive committee level by a senior member of the committee who is accountable for improving gender diversity at all levels of their organisation and in all business units.
  • Remuneration - Executive bonuses should be explicitly tied to achieving the internal targets which firms have set for themselves. The review notes that it would be up to the institution to determine how they would do this, but linking variable pay and performance to action against clear plans to promote diversity would send a strong message that firms take the issue seriously.

The recommendations in the report are voluntary but are to form part of a voluntary charter launched by HM Treasury which it hopes financial service organisations will sign to signify their commitment to take on board the recommendations.

(HM Treasury/Virgin Money, Empowering Productivity: Harnessing the Talents of Women in Financial Services, 22.03.16)

HM Treasury: Women in Finance Charter

In conjunction with Jayne-Anne Gadhia’s review into the representation of women in senior management roles in the financial services industry, on March 22, 2016 HM Treasury launched a charter committing signatories to work to build a more balanced and fair financial services industry.

It has been announced that Virgin Money, Lloyds Banking Group, Barclays, HSBC, the Royal Bank of Scotland, Columbia Threadneedle and Credit Capital Union are all to sign the charter and HM Treasury will publish a list of all those who have signed up to it after three months.

(HM Treasury, Women in Finance Charter, 22.03.16)

Equality and Human Rights Commission: Inquiry into fairness, transparency and diversity in FTSE 350 board appointments

On March 22, 2016 the Equality and Human Rights Commission (the Commission) published a report following their inquiry into board level recruitment and appointment practices in the FTSE 350 companies and the reasons why many companies have continued to fail to improve gender diversity. The inquiry was launched in July 2014, looking at how FTSE 350 companies and executive search firms instructed by them recruit and select people for board director roles. The aim was to identify whether recruitment and selection practices are transparent, fair and result in appointments on merit, and to identify where companies and their agents could improve these practices to increase the diversity of company boards.

The inquiry found that in terms of boards’ performance on gender diversity, headline figures concealed wide variations in the performance of individual companies and the lack of women in executive director roles is still particularly stark. Many board evaluations do not take gender diversity into account, and although many companies had board diversity policies, more than half had not set objectives or targets to increase the number of women on their board. Other areas reviewed by the inquiry included role descriptions, the search process used, selection processes, the role of the nomination committee and the process for improving diversity in the talent pipeline and candidate pool.

The report highlights good practice and makes recommendations for improvements, including:

Board evaluations

  • Board evaluation should be used to assess the balance of skills, experience and knowledge on the board and to obtain information about its diversity composition.

Diversity policies and targets

  • Boards should use information about under-representation to create a diversity policy for the board and senior management which includes aspirational targets unique to the company.
  • Boards should make sure targets reflect realistic expectations of what can be achieved and do not result in pressure to take potentially unlawful steps.
  • Boards should report annually on progress in meeting these targets.

Role descriptions

  • Boards should ensure role descriptions describe necessary skills, experience, knowledge and personal qualities for the role, identified by the board evaluation.
  • Boards should avoid potentially discriminatory requirements, such as a preference for candidates of a particular age or sex, previous FTSE board experience where not justifiable, or using terms such as ‘chemistry’ or ‘cultural fit’ which are subjective and undefined.

Search process

  • Boards should select an executive search firm that can demonstrate its effectiveness in improving diversity in appointments.
  • Boards should avoid giving unlawful instructions to an executive search firm, such as requesting an all-woman longlist or shortlist.
  • Boards should broaden the candidate pool by advertising appointments widely through appropriate channels, unless a role is business-sensitive.
  • Boards should avoid relying only on personal networks to identify potential candidates.


  • Boards should assess candidates consistently against objective criteria identified in the role description throughout the appointment process.
  • Boards should avoid questions about irrelevant factors that may introduce bias into the assessment process.
  • Boards should ensure selectors discuss their individual assessments where selection is based on one-to-one or informal interviews, to ensure consistency and reduce the impact of bias based on irrelevant factors or stereotypes.
  • Boards should define the skills, knowledge, experience and personal qualities that give rise to ‘chemistry’ and ‘fit’ and assess candidates against these criteria.

The nomination committee

  • Boards should ensure the nomination committee is involved in the appointments process alongside the chair.
  • Boards should ensure that the nomination committee and selection panels are diverse to bring different perspectives to the selection process.
  • Boards should provide training to everyone involved in the appointments process on equality law and avoiding unconscious bias.
  • In addition, the FRC should clarify the role and remit of the nomination committee and its chair in relation to diversity and board appointments and its disclosure requirements in the annual report.

Improving diversity in the talent pipeline and candidate pool

  • Boards should encourage executive search firms to identify ways of attracting more applications from women, and question the firms about their efforts if the candidate list is not diverse.
  • Boards should widen the candidate pool for board roles by considering suitably qualified individuals from outside the FTSE 350, such as the professions, the not-for-profit and public sectors, and academia.
  • Boards should use positive action measures to encourage individuals from under-represented groups to apply for roles or to help them gain skills which will enable them to compete on merit on an equal footing with others, such as training, development and leadership programmes, mentoring and networking opportunities.
  • Boards should use the tie-break provision to select a candidate from an under-represented group where there are two or more candidates who are equally qualified.
  • Boards should adopt management practices that support women’s retention, such as improved management of women who are pregnant or return from maternity leave, flexible working and flexible career paths.

The Commission expands on these recommendations in a separate publication ‘How to improve board diversity: a six-step guide to good practice’.

(Equality and Human Rights Commission, An inquiry into fairness, transparency and diversity in FTSE 50 board appointments, 22.03.16)

Equality and Human Rights Commission: Guide to good practice on improving board diversity

On March 23, 2016 the Equality and Human Rights Commission published a six-step guide on how to improve board diversity, in conjunction with the report of its inquiry into board level recruitment and practices of FTSE 350 companies.

The six steps are as follows:

  • Define the selection criteria in terms of measurable skills, experience, knowledge and personal qualities.
  • Reach the widest possible candidate pool by using a range of recruitment methods and positive action.
  • Provide a clear brief, including diversity targets, to your executive search firm.
  • Assess candidates against the role specification in a consistent way throughout the process.
  • Establish clear board accountability for diversity and targets.
  • Widen diversity in the senior leadership talent pool to ensure future diversity in succession planning.

(Equality and Human Rights Commission, How to improve board diversity: a six step guide to good practice, 23.03.16)

FCA: Quarterly Consultation No. 12 – Changes to Listing Rules, DTRs and PRs

On March 18, 2016 the Financial Conduct Authority (FCA) published its twelfth quarterly consultation (CP 16/8). Among other things, the consultation proposes a number of changes to the Listing Rules (LRs), Disclosure and Transparency Rules (DTRs) and Prospectus Rules (PRs).

The changes include the following:

  • Definition of reverse takeover in LR 5 – The FCA proposes amending the reverse takeover provision in LR 5.6.4R to state that issuers must apply the aggregation provisions in LR 10.2.10R, in addition to the class tests, when calculating the percentage ratio of a transaction. This is to ensure that it is clear to issuers that a transaction cannot be artificially broken up to avoid the reverse takeover requirements, and is in keeping with the FCA’s previously stated policy that it will consider the substance of a transaction over its legal form.
  • Prescribed reporting format for the Transparency Directive (TD) reports on payments to governments – Amendments are proposed to DTR 4.3A to implement a prescribed reporting format for annual reports on payments to governments prepared under the TD. The FCA is proposing that these reports be prepared using the same data scheme as prescribed by the Department for Business, Innovation and Skills and Companies House for reports required under the Accounting Directive on payments to governments. As such, these reports would be prepared in accordance with the current DTR 4.3A, with two new rules introduced to set out the requirement for filing (DTR 4.3A.10R(1)) and the requirement to upload the reports to the national storage mechanism (DTR 4.3A.10R(2)).
  • Various changes to the PRs – The FCA proposes several amendments to the PRs to reflect various ESMA publications addressing the Prospectus Directive. In particular, the FCA proposes updating the list of documents in PR 1.1.6G that need to be considered together when determining the effect of the Prospectus Directive to reference ESMA’s opinion papers assessing third country prospectuses under article 20 of the Prospectus Directive, Israeli laws and regulations on prospectuses, and Turkish laws and regulations on prospectuses.

The closing date for comments on the consultation is May 18, 2016.

(FCA, Quarterly Consultation No. 12 (CP 16/8), 18.03.16)

PERG: Updated guidelines on good practice reporting by private equity portfolio companies

On March 21, 2016 the Private Equity Reporting Group (PERG) published an updated version of its guidelines, which aim to assist private equity owned portfolio companies to improve the transparency and disclosure in their financial and narrative reporting by highlighting good practice examples.

PERG makes the following observations on trends identified in the most recent review, where additional focus will result in an improved level of reporting:

  • The topic of gender diversity needs to be a greater feature of the annual report, with stronger narrative on the policies in place as well as presenting the breakdown of the metrics for the number of people of each sex at the director, senior manager and employee level.
  • The inclusion of commentary on human rights is a requirement under the guidelines and this is in line with increasing regulatory emphasis, such as the introduction of the Modern Slavery Act 2015.
  • The presentation of a business model is an essential part of understanding the business. This should articulate how the business creates value and link this to the strategy of the business.
  • Areas that have been a permanent feature in the guidelines that are specific to private equity continue to be important and these should be addressed to a high standard. The identification and discussion of the private equity firm should be transparent and this also extends to the detail of the board composition.

(PERG/PwC, Improving transparency and disclosure: Good practice reporting by portfolio companies, 21.03.16)

FCA: Update to the Prospectus Rules Sourcebook in Handbook Notice No. 31

On March 18, 2016, the Financial Conduct Authority (FCA) published Handbook Notice No. 31 and the Prospectus Rules Sourcebook Instrument 2016 (FCA 2016/27) (the Instrument).

The Instrument amends the Prospectus Rules sourcebook to align it with the regulatory technical standards in the Commission Delegated Regulation (EU) 2016/301, which supplements the Prospectus Directive arising from the Omnibus II Directive.

The changes to the Prospectus Rules sourcebook are in largely the same format as those proposed in the FCA’s tenth and eleventh quarterly consultations.

Handbook Notice No. 31 provides updated versions of the three prospectus forms that must be submitted to the FCA under PR 3.1.3R, as amended by the Instrument.

The Instrument comes into force on March 24, 2016.

(FCA, Prospectus Rules Sourcebook (Omnibus 2 Directive Regulatory Technical Standards) Instrument 2016 (FCA 2016/27), 18.03.16)

(FCA, Handbook Notice No. 31, 18.03.16)

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