Market Update:

  • Dormant Assets
  • Takeover Panel Practice Statement
  • ScamSmart
  • FTSE Women Leaders Review
  • Wates Principles
  • Climate Related Financial Disclosures

Georgeson Update:

  • BlackRock 2022 Updates
  • Bargain Basement UK Companies
  • Buying Dirty Energy Assets
  • Investor Distraction or Climate Action?

Market Insights:

  • Australian AGM Intelligence Report
  • Dematerialisation
  • Insight Board insights


Market Update
 

On 24 February the Dormant Assets Act received Royal Assent. This now brings the UK government’s work to expand the previous bank and building society scheme to the final stages.

This Act will see the expansion of the existing scheme, allowing other sectors such as pensions, insurance, wealth management and securities to join the scheme and transfer dormant assets. The money raised will be used for certain good causes.

Issuers can join the government backed scheme on a voluntary basis. In the first instance, issuers are obliged to conduct appropriate attempts to reunite shareholders with their assets (shares, distributions, and some corporate action monies). In the event that those attempts to trace shareholders are unsuccessful and the assets in question have been dormant for at least 12 years, they can be transferred into the scheme. Shareholders are still able to make claims should they come forward in the future and the associated process will be laid out within the participation agreement that is yet to be finalised.


Computershare’s view

We have continued to work with the Department of Culture, Media & Sport, the Reclaim Fund and the Expansion Panel as the legislation was drafted and worked its way through the Houses of Parliament. We anticipate the scheme will be able to accept new participants on a voluntary basis during Spring this year once the necessary participation agreements have been finalised.

It will be interesting to see how many companies opt to join the scheme. There are some key differences in the operation of the scheme in relation to securities when compared with the proposals made by the securities sector working group and industry champion. In particular, these impact the definition of dormant assets and the terms on which reclaims can be made by shareholders post-forfeiture of their assets (more information on the original proposals can be seen within our market insight here). However, the scheme still provides a consistent level of consumer protection and can be seen as a positive action to be taken by companies from a governance point of view.

We encourage clients to review the terms of the scheme alongside the forfeiture provisions that may be contained within your own Articles of Association. In some instances, you may prefer to leverage existing Article provisions, should they offer more flexibility on what can be done with the assets, such as using them for good causes that are more closely aligned with their corporate strategy.

Some practical suggestions:

  • Review the terms of the scheme alongside the forfeiture provisions that may be contained within your own Articles of Association.
  • In some instances, you may prefer to leverage existing Article provisions, should they offer more flexibility on what can be done with the assets, such as using them for good causes that are more closely aligned with your corporate strategy.

The Takeover Panel have published a revised version of their Practice Statement No.20 which details when it should be consulted regarding possible offers. They have simultaneously issued a consultation which considers removing the restriction on a bidder purchasing shares in the target through an anonymous order book.

Looking firstly at the revised practice statement, this provides guidance on rule 2 of the takeover code. It explains that the Panel should be consulted if the share price of the target moves 10% or more over the relevant period. This movement is key in determining the latest time by which the Panel should be notified of a potential offer; if they have been notified prior to the movement, they wouldn’t expect to be consulted again. However, this doesn’t negate the existing requirement to consult the Panel if the target is subject to a rumour or speculation or if there is a 5% share price movement in a single day.

The consultation proposes removing the restriction found in rule 4.2(b) that stated that during an offer period, a bidder cannot acquire an interest in any target securities though any anonymous book system or any other means expect in certain circumstances. The Panel explain that the reason for proposing the change is that the current rule causes challenges for the bidder to purchase shares in the market at the prevailing market rate.

The consultation will close on the 18th March 2022, with the final rule changes being published in Spring 2022 and the amendments being in force a month later.

The Financial Conduct Authority (FCA) have updated the campaign material they use and provide to the financial services sector to help in the combatting of investor and other financial services related fraud.

The campaign is designed to improve the knowledge of consumers on the signs of an investment scam by increasing awareness of the Warning List. This provides details on the associated risks and details the firms that the FCA are aware of which are operating without authorisation.

The Authority have designed a ScamSmart partnership toolkit containing instructions, assets and copies of social media content.


Computershare’s view

This is only good news, in informing and educating consumers regarding the risk of investment scams such as boiler-rooms. We continue to maintain collateral that Issuers can use with mailings to shareholders or have printed on other materials such as dividend advice notices.

The Review, which is independent and looks to continue the work originally started by the Hampton-Alexander and Davies Reviews, have released their latest report which considers the progress within the FTSE 350 in improving gender balances in senior leadership.

Previously, the review had made four new recommendations to set the expectations and is hoping to reach the final stages in ensuring gender balanced boards and leaders:

  • Increased voluntary target for FTSE 350 boards, and for FTSE 100 leadership teams to a minimum of 40% women by the end of 2025.
  • FTSE 350 companies to have a woman either (or both) in the Chair or Senior Independent Director role on the Board, and/or a woman in the CEO and CFO role by the end of 2025.
  • Key stakeholders to set best-practice guidance or have mechanisms in place to encourage FTSE 350 boards that have not met the prior Hampton-Alexander and/or Davies targets.
  • The scope of the Review is extended to include the largest 50 private companies in the UK by sales.

The Review has recognised that within the FTSE 100 the progress has been steady with the volume of women in the executive committee or as direct reports having increased to 32.5% (up from 30.6% last year). Meanwhile, there was good progress in the FTSE250 also, with representation in the same areas increasing to 30.7% (up from 28.5% last year).

Women on boards within the FTSE has also continued to increase when compared with the start of 2021. There are currently 88 FTSE 100 companies who have met or exceeded the 33% target and almost half of them have hit the 40% mark. 77% of the FTSE 250 have met or exceeded the targets previously set and 92 companies are now at 40% or more.


Computershare’s view

We welcome the continued progress and awareness of diversity in the Boardroom. Following on from the momentum of the Hamilton-Alexander and Davies reviews, these objectives will continue to encourage diversity of thought to be a focal point through the director appointment process and succession planning.

These voluntary targets also go beyond previous objectives by including 50 largest private companies and placing responsibility on key stakeholders to encourage best practice. This is a refreshing step forward ensuring better governance at large private company levels. It will be interesting to see the progress of these targets, especially surrounding female executive directorship target, and whether these will be achieved after previous targets fell short of achievement by 4%.

Some practical suggestions:

  • Check if this is on the Board’s agenda as a specific item
  • Is there an agreed strategy in place? If not, who should own this?
  • How are you framing your strategy and disclosures in your own business context?

The Financial Reporting Council has issued an in-depth assessment on the quality of reporting from private companies who have adopted the Wates Principles.

The assessment considered how the many organisations applied the principles, how many applied an alternative code and then reviewed the quality of the disclosures to identify examples of good practice.

It’s been identified that two-thirds of organisations that fell within the scope of The Companies (Miscellaneous Reporting) Regulations 2018 reported on corporate governance within their directors’ report or in another location of their annual report. Of those 57% relied on the Code to define their positions.

It has been identified that companies often opted to disclose more information on how their practices and policies have matured, which indicates that many are still in a learning phase and so are developing their disclosure practices. There have been good levels of disclosure related to general information on their formal policies but lower levels when considering how they have been applied in practice.


Computershare’s view

The amount of quality reporting of the Wates Principles for private companies is a positive acknowledgement of the importance of corporate governance across all types of companies. However, there is still progress to be made to improve the quality and practical application. This should develop over time while private companies establish their corporate governance practices.

Some practical suggestions:

  • Check what's needed and how it applies to your business
  • What is the quality of the Board's discussion on the applicability of the Principles?
  • Does the Board have visibility into how the Principles are applied in the business, and their impact?

The Department of Business, Energy and Industrial Strategy (BEIS) have released some non-binding guidance to aid organisations with the new regulations that require certain companies to include climate-related financial disclosures in their annual report.

The guidance covers a number of regularly asked questions including:

  • The consequences of non-compliance
  • How requirements operate in a group situation
  • How size thresholds are applied to determine organisations in scope

A major part of the guidance considers what information should be disclosed to ensure compliance with the different requirements, including an element that may be unfamiliar for many which is the scenario analysis. The guidance also addresses the overlap between these reporting requirements and other climate and disclosure requirements such as the recent changes to the Listing Rules.


Computershare’s view

The guidance to businesses on climate-related financial disclosures is a genuinely useful tool while businesses navigate their way through these new requirements. Providing advice on the practical implementation, including for a Group setting, will support companies to grasp the necessary reporting requirements for their company holistically. The guidance provides clarity to complex legislation, whilst also highlighting the overlap of reporting requirements which is useful for listed companies.

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Georgeson market update
 

Georgeson has published a memo covering the BlackRock updates to their 2022 Proxy Voting Guidelines and Stewardship Expectations as well as their Annual Letter to CEOs.


The Financial Times reports Activist investors descend on ‘bargain basement’ UK companies.

“From Vodafone to Unilever, this breed of shareholder is shaking up corporate boardrooms”.


The Economist reports about Who buys the dirty energy assets public companies no longer want?

“The first law of thermodynamics states that energy cannot be created or destroyed, just transferred from one place to another. The same seems to apply to the energy industry itself. Pressed by investors, activists and governments, the West’s six biggest oil companies have shed $44bn of mostly fossil-fuel assets since the start of 2018. The industry is eyeing total disposals worth $128bn in the coming years, says Wood Mackenzie, a consultancy. […] But much of the time these outmoded units are not being closed down. Instead they are moving from the floodlit world of listed markets to shadier surroundings.”

MSCI has published a post about Say on Climate: Investor Distraction or Climate Action?

“Management-sponsored say-on-climate votes emerged as a new avenue for investor engagement on climate change in 2021. The practice’s adoption may increase as more companies try to sell investors on their climate strategies. Most say-on-climate votes in 2021 (58%) were one-time events, with only 24% of votes set to have annual follow-ups. This may fuel concerns that say on climate could be a distraction or facilitate greenwashing. Say-on-climate votes in 2021 were mostly at companies with emission trajectories aligned with the Paris Agreement, but companies with less-aligned paths have set votes in 2022. Shareholders may use those to sound the alarm.”


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Market Insights
 

Computershare & Georgeson have published the 2022 AGM Intelligence Report exploring the changing AGM landscape in Australia 2022. During 2021, Computershare supported our Australian clients to successfully deliver over 900 meetings, 736 of which were AGMs. Throughout the year we witnessed a slight increase in the volume of in-person meetings, given certain states were unimpeded by lockdowns and restrictions as the year progressed.

This trend was accompanied by shareholders continuing to use digital channels such as Proxymity and InvestorVote to lodge their votes online.

Many of the trends seen in Australia are ones that we are seeing across the globe including in the UK, Channel Islands, and Ireland. We will be monitoring the early stages of the AGM season in this region, together with looking across the whole of the season to provide you regular updates on the market trends and insight that may assist your organisation in planning, running, and executing a 2022 shareholder meeting.

It’s the market development that seems to have been on the near horizon for much of the last twenty years. Dematerialisation initiatives have been invested in and then paused on numerous occasions within the UK during that time period. Other markets around the world have been more successful in progressing to implementation, with most prominent cases looking at direct registration approaches akin to the UK industry model e.g., Ireland, US (continued), Hong Kong etc. With the introduction of the EU Central Securities Depositary Regulation in 2014, the UK was tracking towards an implementation in 2023. However, with the exit of the UK from the EU, the imposed deadline was shelved and the government-sponsored project was paused.

At least that was until the UK government announced in September 2021 that as part of the desire to ensure the UK financial market remained competitive post-Brexit, they would once again be sponsoring an initiative alongside industry to implement dematerialisation in the ‘near term’.

The Registrars have collectively been engaging with government and market participants including most recently since the government announcement. No formal detail has been issued as to how and when dematerialisation will be taken forward, but the manner of implementation has the potential to significantly impact issuer and shareholder rights. As such, it’s essential that stakeholders are actively engaged on the subject to avoid a sub-optimal outcome.

It is also worth considering the principles and key components of the previously devised industry model for dematerialisation, which was the agreed manner of implementation before the project was paused in 2016.

We’ve laid out the key information in the memo you can access here. Considering the introduction of dematerialisation is likely to be the biggest change to the securities sector for decades, we’d welcome your thoughts on our memo and in particular on the introduction and implementation of dematerialisation. With that in mind we’ve posed a few starter questions, which can be answered here.

  • Would the removal of physical share certificates be seen as a benefit to the UK market?
  • If dematerialisation was introduced, should it ensure that investors retained choice in how they hold their shares (i.e., with a broker/custodian or not)
  • Would you wish a model of dematerialisation to continue to provide you with transparency as to your registered shareholders?
  • How would you feel about a model of dematerialisation that required to you to extend rights beyond registered shareholders at your expense?
  • Should dematerialisation promote increased use of electronic communication, such as requiring email address to be captured?
  • Should dematerialisation also require the capture of other key information to enhance security and due diligence?

All feedback is very welcome, and we will look to ensure you are able to engage in this important market development over the coming weeks and months.

Here is a roundup of what Company Secretaries are telling us from our regular Insight Boards. The following topics, entirely at the discretion of the attendees, came from our February event.

  1. ESG & Reporting
    This is clearly an area that’s continuing to cause problems/frustration. Some concerns voiced by Company Secretaries include:

    Reporting
    • The challenge of balancing ‘aspirational’ public targets/statements with the need to deliver them, with the CoSec often playing the role of challenger/reputation manager
    • With regard to Climate Resolutions, Boards are having to stand behind management’s promises, which can lead to CoSecs having to set expectations, both internally and externally. Due to a lack of clear disclosure guidelines (targets/transition/implementation), development of the concepts, measures, structures, and reporting were in some cased being developed somewhat ‘on the fly’
    • The CoSec often plays the role of co-ordinator for multiple internal stakeholders yet are not the ESG experts. This type of responsibility is not new for company secretaries, but we’re hearing that this needs to lie elsewhere.

    Responsibility
    • Boards are asking for more information, but there is limited time in meetings for proper consideration
    • Board Committee structure/ToR and/or individual accountability needs to reflect the additional considerations to ensure sufficient focus
    • Climate is a high priority for Risk and Finance functions in particular
    • CoSecs are adding value in the development of board papers on climate/ESG discussions – ensuring S172 requirements on stakeholder consideration in decision making are included
    • There is an opportunity for CoSecs to enhance director training to ensure clarity on roles and responsibilities between NEDs and Management
  2. Evolving role of the CoSec
    There is a general feeling that whilst the role has always evolved, it’s looking more likely that there’s a chance for revolution now, not simply more evolution. Here’s what we’ve been hearing:
    • CoSec functions want to operate more effectively (fit for the future), but time, expertise (and in particular, technology) and budgets are often a constraint
    • The CoSec must ensure compliance obligations are fulfilled but the function needs to pivot to provide more value-adding governance advice and stakeholder management. Compliance and admin need to be delivered differently to free up capacity for value add. Forward-looking CoSec teams are focusing on process improvement to free up time.
    • Governance KPI dashboards are evolving to provide visibility and help focus but can still involve manual input to set up the right processes
    • Suggestions from the Market:
      • Find the right balance between centralised and decentralised global subsidiary governance – i.e., give the local business more responsibility with central CoSec oversight including bi-annual check/audit. Can work well but a tight subsidiary governance framework is needed to drive standards and consistency
      • More to be done to explore the “art of the possible” with technology/automation. Many CoSec functions lack the time or expertise to plan, procure/develop and implement the technology innovation required
      • Analysing/understanding and then rationalising time spent on governance across the organisation (boards, group management and business management) can bring value
      • Process improvement tools (e.g., Six sigma) and/or the development of governance/CoSec playbooks can be valuable tools.
  3. Technology
    There is room for optimism here. There are new technologies arriving to help company secretaries all the time.
    • Opportunity for CoSecs to create/use automated workflows and APIs to free up time, do more with less, and improve flow of information with internal/external stakeholders
    • The past two years has opened up significant change to the role e.g., document sharing (e.g., Teams) and reduced reliance on network drives
    • Could technology support succession planning processes (e.g., flexible skills matrices which allow future planning)?
    • There will remain a role for CoSecs alongside the increased use of automation/AI – to develop and oversee processes.
    • Procurement can be a blocker to using tools from smaller, start-up vendors

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To comment or register an interest in any items discussed above, or register an interest in any sessions referenced above, please email us at: IssuerMarketInsights@computershare.com.

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