Trouble viewing this email? Read it online


cummings-logo-2013 (2).jpg
 


Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

claire-cummings.jpg

Claire Cummings

020 7585 1406

claire.cummings@cummingslaw.com
www.cummingslaw.com


 

EQUITY ISSUES

FRC consultation on UK Corporate Governance Code

 

The Financial Reporting Council (FRC) has published for consultation proposed revisions to the UK Corporate Governance Code (the Code) and Guidance on Board Effectiveness. The paper also includes an initial high-level consultation on the future direction of the UK Stewardship Code. The proposed revised Code follows the FRC’s announcement earlier this year that it would undertake a fundamental review to take account of work done by the FRC on corporate culture and succession planning and the issues raised in the government’s Green Paper and the BEIS Select Committee inquiry, published in November last year.

Background

The Code has been in place since 1992 and the review has built on the Code’s globally recognised strengths developed over the past 25 years, namely the unitary board, strong shareholder rights, the role of stewardship and the "comply or explain" approach, while considering the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.

The Code encourages companies to achieve high standards and in order to do this it needs to be clear and concise. The proposed revised Code is therefore shorter and more concise than the existing version, comprising 17 Principles and 41 Provisions. The existing supporting Principles have been removed and, in some cases, they have been incorporated into the new Principles and Provisions, while others have been moved to the Guidance on Board Effectiveness.

The revised Code focuses on the importance of long-term success and sustainability, addresses issues of public trust in business and aims to ensure the attractiveness of the UK capital market to global investors through Brexit and beyond.

The revised Code

The revised Code has five sections:

  1. Leadership and purpose
  2. Division of responsibilities
  3. Composition, succession and evaluation
  4. Audit, risk and internal control
  5. Remuneration

The majority of changes have been made to the first three sections of the current Code, which broadly correlate to Sections A (Leadership) and B (Effectiveness). Section E (Relations with shareholders) has been integrated within the revised Code, as the FRC regards shareholder engagement as a key aspect of good governance. Section 4, which deals with audit, risk and internal control, remains largely unchanged.

Proposed changes to the Code include:

  1. the insertion of a provision under which the board should establish a method for gathering the views of the workforce, which would normally be a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director;

  2. the insertion of a provision requiring the board to explain in the annual report how it has engaged with the workforce and other stakeholders, and how their interests and the matters set out in section 172 of the Companies Act 2006 influenced the board’s decision-making;

  3. the insertion of a provision providing that, where more than 20% of votes have been cast against a resolution, the company should explain the actions it intends to take to consult shareholders to understand the reasons behind the result. No later than six months after the vote, an update should be published. The final summary should be provided in the annual report, or in the explanatory notes to resolutions at the next meeting, on the impact the feedback has had on the decisions of the board;

  4. the removal of all exemptions from Code requirements for companies below the FTSE 350, including in relation to board composition, board evaluation, annual re-election, and audit and remuneration committee composition;

  5. strengthening the provisions on non-executive independence. In particular, the chair must demonstrate independence and meet the stated independence criteria throughout their tenure (not only on appointment);

  6. broadening the requirements relating to diversity;

  7. the insertion of a requirement that, before appointment as chair of the remuneration committee, the appointee should have served on a remuneration committee for at least 12 months;

  8. an expansion of the remuneration committee's remit to include responsibility for oversight of company remuneration and workforce policies and practices;

  9. an extension of the vesting and holding period for shares granted or other forms of long-term incentives, in normal periods, from at least three years to at least five years; and

  10. the insertion of a provision under which remuneration schemes and policies should provide boards with discretion to override formulaic outcomes.

Next Steps

Responses to the consultation are required by 28 February 2018. The FRC aims to publish a final version of the Code by early summer 2018, to apply to accounting periods beginning on or after 1 January 2019. The FRC expects to publish a detailed consultation on specific changes to the Stewardship Code in mid-2018, once the review of the Code has been finalised. The consultation can be found here

 

This document is for general guidance only. It does not contain definitive advice.


block-divider.jpg

We   have taken great care to ensure the accuracy of this version of Equity Issues.   However, Equity Issues is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the   information it contains. No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication. If you   would like to be removed from the mailing list of this publication please click unsubscribe below. Nothing within this communication may be copied, re-printed or similar without prior written permission from Cummings.

 

Authorised  and regulated by the Solicitors Regulation Authority. Please contact us if you would like to arrange a meeting. This message (including any attachments) from the law firm of Cummings is confidential and may contain information which is proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you are not the intended recipient, please do not read, copy, distribute, disclose or otherwise use or place any reliance on any information in this message or any attachments; and please alert the sender by return e-mail, delete this message and any attachments from your system and destroy any hard copies. Neither Cummings nor the sender accepts liability for any corruption, interception or unauthorized amendment of messages or attachments transmitted by e-mail. It is your responsibility to scan this message and any attachments for computer viruses in accordance with good working practice. The firm is not authorised by the Financial Conduct Authority, but is authorised and regulated by the Solicitors Regulation Authority (for the code of conduct please see www.sra.org.uk/rules) and undertakes certain activities in relation to investments which are limited in scope and incidental to its legal services or which may reasonably be regarded as a necessary part of its legal services.

Cummings

Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

www.cummingslaw.com

14 12 2018

 
 

Subscribe a friend | Unsubscribe

 

Interaction of social media with disclosure obligations under the AIM Rules

email sent by multimail

REPORT ABUSE