Market Update:

  • Climate Action 100+ flag climate related proposals ahead of 2022 Proxy Season
  • Sentiment Survey
  • Parker Review Update
  • Ownership of UK quoted shares
  • Company House Reform
  • Diversity Related Disclosures

Georgeson Update:

  • 2022 Global Institutional Investor Survey
  • Contested FTSE 350 Remuneration Votes
  • Demystifying ESG Reporting
  • Quarterly Review of Shareholder Activism
  • Five questions to ask about Ukraine

Market Insights:

  • Dematerialisation
  • Insight Board insights


Market Update
 

Signatories and supporters of Climate Action 100+, the world’s largest investor engagement initiative on climate change, have reportedly filed over 39 climate related shareholder proposals with North American companies on subjects including greenhouse gas reduction targets, Paris agreement lobbying practices and climate accounting. Following shareholder engagement with the companies, 20 of the proposals were withdrawn. Climate Action 100+ is flagging key shareholder proposals ahead of the 2022 Proxy Season to drive greater shareholder action on the climate crisis; they noted that the average approval vote among all climate-related shareholder proposals at North American companies reached a record 44% in 2021.


Computershare’s view

These regional flagged proposals only represent a small number of climate-related shareholder proposals filed by Climate Action 100+ investor signatories to date. In Europe, we recently saw 34 investors with assets of USD7 trillion write to 17 of Europe’s largest companies stating that they could challenges board directors over their accounting of climate risks. Clearly climate-related disclosures and Say on Climate resolutions, which are related to the views with regards to a company’s climate-transition plan, are continuing to grow in importance in the minds of shareholders.

It should be noted that filing resolutions in North America has been historically more difficult when compared to the United Kingdom for example. More stringent thresholds for filing and a hesitancy from the courts to support ‘micro-management of the board’ has meant that North America has lagged behind Europe. However, the ruling by the SEC in 2021 to allow follow this to vote on climate resolutions filed by Follow This at Chevron, ConocoPhillips and Phillips 66 is a clear indication of changing sentiment.

It is also worth noting that the TCFD have launched a database of sample disclosures, this database which is provided for information/reference purposes only can be searched and filtered by several factors including company, industry, region and TCFD recommendation.


The Quoted Company Alliance have published their Q2 sentiment survey results which sought the views of small and mid-cap companies on key issues affecting them, their advisors and investors.

The results indicate that for the first half of 2022 confidence have continued to slip with directors feeling that the performance of the economy and their own organisations may not be as positive as it was 12 or even 6 months ago.

Organisations are expecting near record high turnover growth; however this may be down to inflation and the passing on high prices to customers. It remains that a small number of respondents see them seeking external finance within the coming year, but public equity has returned as the preferred and potentially easiest way of accessing finance.


The Parker Review, which considers the impact of ethnic diversity on boards and made recommendations to improve such diversity have released a 2022 update.

The update follows the deadline for FTSE 100 companies to have met the target set by the Review of having at least one director from an ethnic minority group by the end of 2021. FTSE 250 companies were given until 2024 to meet this same target. It was also a recommendation for companies to develop internal mechanisms to promote diversity.

The update has identified that:

  • 89% of the FTSE 100 have met the diversity target within the original timeframe, and a further five appointments were announced just prior to the publication of the update.
  • 55% of the FTSE 250 have met the target with three years still to go.
  • 16% of FTSE 100 board positions are currently held by an individual who identifies as being from a minority ethnic group, whereas within the FTSE 250 this is only 10%.

Similar to the recent reports on gender diversity we’ve seen published, this update warns against complacency and the adoption of a ‘one and done’ mentality. The Review is keen to see an improvement in minority ethnic directors being appointed into more proponent board positions, as most currently holdings positions are non-executives.


Computershare’s view

Whilst we acknowledge that significant progress has been made, there is still more which can be done. We strongly encourage all Nomination Committees to be reviewing Board composition and the senior leadership against all diversity factors.

It was disappointing to hear that the Government has elected not to proceed with mandatory Ethnic Pay Gap Reporting, instead allowing for it to be optional. The Gender Pay Gap Reporting has shone a light on the gender inequality lower in the pipeline and we are now starting to see the benefits of this coming through as women progress into more senior executive roles.


The Office of National Statistics (ONS) have published their latest review of the value of shares held in UK incorporated companies, broken down by a number of ownership categories.

The report assessed the ownership of UK companies as at the end of 2020. It found that yet again, a significant proportion of the shares of UK companies are held by non-UK residents. A record high of 56.3% of the value of those companies was held outside of the country and the value held by UK residents has fallen by 1.3 percentage points since 2018, down to 12%. The volume held by other financial institutions has risen to 12.8%, which is the highest on record.


Computershare’s view

Transparency around ultimate beneficial ownership in quoted companies is a poignant topic following the sanctions as a results of the Russian invasion of Ukraine. It is an important exercise for quoted companies to fully understand their beneficial register of members, particularly in terms of Investor Relations.

There was a noticeable change in ownership structure as we through the pandemic, with many financial institutions looking to de-risk their portfolios and an increased interest in trading from smaller retail investors and some of the statistics within the review could be explained by the market adjusting back. It is unfortunate that this ultimately comes down to a difference in culture and the weakness of the UK retail investor market, especially in comparison to the likes of the US. Hopefully, sentiments will change, and we will start to see an increase in UK residents owning UK businesses, however, this may have to wait until the cost-of-living crisis dissipates and more disposable income is available.


The government’s white paper regarding the reform of Companies House has been published. Amongst the proposals are greater powers for Companies House in relation to ensuring the accuracy of information on the register, identity verification for directors and a ban on corporate directors.

This white paper follows the initial consultation in 2019 and further consultations that took place throughout 2020.

These reforms will see Companies House turn from a passive receiver of information to an active gatekeeper. Companies House will have a number of new powers:

  • Power to query information
    They will be able to query any fillings that may appear erroneous, out of the ordinary or potentially suspicious and would therefore impact the integrity of the register. They will be able to request further evidence or reject the submission.

  • Remove information
    They will have the power to remove any material from the register in quicker fashion and under broader scope than previously permitted.

  • Digital filing
    All information will need to be filed digitally and accounts will have to tagged in iXBRL.

All new and existing company directors, Persons of Significant Control and those filing information with Companies House will be subject to new identity verification requirements. Failure to verify identities will be a criminal offence and/or may incur a civil penalty. We note and welcome that original proposals that suggested that all shareholders would need to be verified has been removed.

These reforms also see the ban on corporate directors, originally introduced in the Small Business, Enterprise and Employment Act 2015, finally implemented. The only exception will be where all directors of the corporate director are themselves natural persons and prior to the appointment all directors had their identities verified.

Only UK registered corporate directors will be permitted. No overseas registered corporate directors will be allowed.


Computershare’s view

Whilst these updates to Companies House are welcomed as progress, albeit belated, the practical application of several of these proposals will be intriguing and we would welcome further guidance from Companies House how they intend to implement these powers. The acceptance of digital fillings for accounts is long overdue and we would encourage widening these services to allow all filings to be submitted electronically, including electronic payment methods for all filings.

A greater understanding of the process for challenging information, as well as the process for dispute resolution, should Companies House continue to query information will be of particular interest.

The new identity verification requirements appear to be a overcorrection from the erroneous removal of Director verification codes over a decade ago which resulted in the increase in fraudulent appointments and registrations. Whilst we welcome the attempts to combat such fraud, we are intrigued to see how this will work in practice, without becoming too onerous on directors. We do welcome the sensible removal of all shareholder verification. There are several questions which still to be addressed such as will all foreign photo ID be accepted and how long will companies have to provide this information for existing appointments and PSCs, to name but a few.

We would challenge the benefit of including traded companies within the requirement to provide a shareholder list, where a shareholder holds at least 5% of any class of the company shares. Listed companies on the London Stock Exchange are already required to disclose significant holdings above 3%, as and when notified to the Market, and it is unclear what benefit the provision of this information will provide. It may encourage more shareholders to hold via Nominee accounts.

It will be interesting to watch how this develops further and is one that Computershare will remain active in campaigning for the best interest of our clients.

The FCA have published the final rules related to the new diversity related disclosures for listed companies. The policy statement lays out the rules that will require premium and standard listed companies to make disclosures in relation to gender and ethnic diversity at board and executive level for financial years starting on or after 1 April 2022.

The new Listing Rules will require companies within scope to include within their annual report a statement confirming if they have met specified board diversity targets as at a specific reference date set by the company within the financial year.

The targets are:

  • Board comprises of at least 40% female representation
  • At least one of the Chair, CEO, CFO or Senior Independent Director is a women
  • At least one member of the board is from a minority ethnic background

Where companies are not meeting the targets, they will be required to explain why. Additionally, they will have to include data on the gender identity or sex and ethnic diversity of their board and executive management, so long as local laws for any overseas individuals does not prevent such collection and publication such data.

The FCA is encouraging companies to start reporting sooner than the stated above, as they feel that as companies can choose their own reference date for the disclosures that they should be able to collect and report on the data sooner, such as for financial years starting on or after 1 January 2022.


Computershare’s view

We welcome all actions taken to boost diversity on Boards, although it feels like this could be an attempt at one size fits all for diversity - each company will need to consider these requirements carefully. Whilst these requirements themselves are not new per se, with much similar to the recent Hampton-Alexander update, the timeline which is being adopted is to be applauded.

Boards and Nomination Committees will need to ensure that they are carefully reviewing Board composition as well as senior leadership pipelines with the above criteria in mind. It is important to note that whilst these provisions are comply or explain, the recent trend has shown that non-compliance would require detailed explanation, including routes to compliance.

Smaller Boards may find these targets particularly challenging, and it is here where fuller disclosures may be required, as growing the size of the Board may not be in the interests of the Company.

In addition, this may also be a challenge for Investment Trusts, REITS and VCTs which typically do not have any employees, nor a CEO/CFO. In these circumstances we would welcome seeing these provisions expanded to include the senior leadership of the Manager to support the underlying driver for this rule.


Back to top

 


Georgeson market update
 

Institutional investors are incorporating ESG into voting and investment decision that fundamentally impact companies.

Georgeson exclusively interviewed 20 investors representing $30.5 trillion AUM to undercover the most important ESG trends on investors’ minds, their impact on voting and investment decisions and topics to anticipate as organisations prepare for their next AGM.

The survey can be read here.


This memo provides an overview of FTSE 350 remuneration report votes that received more than 20% opposition during the first quarter of 2022. During the period January-March 2022, 39 FTSE 350 companies held their AGM. Seven of these issuers received more than 20% opposition on their remuneration reports.

You can request a copy of the memo by emailing Georgeson here.


Georgeson’s Arun Kelshiker joined a London Stock Exchange webinar on Demystifying ESG Reporting.

“It’s a subject rich in acronyms - an alphabet soup - so by touching on the ESG developments and trends from around the world we will explore how they have relevance to UK companies. Our panel of experts know what is most pertinent to investors when it comes to ratings and ESG strategies so they can truly shed light on the best way for a company to start in their sustainability journey.”


Lazard released its Quarterly Review of Shareholder Activism – Q1 2022

"Key observations from Q1 2022 report include: 1) 73 new campaigns launched globally in Q1 marks the busiest quarter on record and, when combined with Q4, the busiest six-month period for activism since 2018; 2) The U.S. continues to account for the largest share of global activity, representing 60% of new campaigns and 55% of capital deployed; 3) Europe registered 15 new campaigns in Q1, representing a 50% jump in activity compared to Q1 2021; however, activity has declined following the onset of the Ukraine crisis, particularly from non-European activists; agitation may have pivoted to behind-the-scenes pressure rather than public campaigns; 4) Q1 activity in APAC accelerated, accounting for 16% of new campaigns vs. 2021’s recent low of 11%; 5) 38 Board seats were won by activists in Q1 2022 and Board change was an objective in ~40% of all new campaigns initiated; 6) 85 seats remain “in play” heading into Q2, including notable potential contests at Kohl’s (10 seats), Southwest Gas (10 seats), U.S. Foods (5 seats) and Hasbro (5 seats)."


Harvard Law School Forum on Corporate Governance has published a post entitled Five Questions Boards Should Ask About the War in Ukraine.

“While still recovering from the disruptions of the global pandemic, many companies find themselves grappling with a new and, for the most part, unanticipated emergency. Russia’s invasion of Ukraine requires business leaders to remain in crisis-management mode. Many commentators suggest that what we are witnessing is only the beginning of a new, precarious period of reconfiguration of the world order, with unclear economic and political implications. Whether or not it is true, at this stage of the crisis the main role of the board is to exercise oversight by asking probing questions to ensure the company is planning for multiple scenarios, reducing uncertainty, and adapting its business strategy.”


Back to top

 


Market Insights
 

In our March Readout we provided some insight into the developing market conversations on the introduction of dematerialisation in the UK and noted how this is a hot topic in other regions as well.

You can still read our insight by heading to the Readout archive found at the bottom of the page and you can read our accompanying memo on the subject here.

The survey that we opened in March is still open and we’d ask as many of you to complete the survey. Your responses will greatly help us in our discussions with other interested market participants, including government bodies, industry and shareholder groups.

So far

  • 90% of respondent believe there are benefits to the removal of physical share certificates from the UK market,
  • 70% feel that shareholder choice is either important or paramount in how shareholders told their shares,
  • 80% of respondents feel that retaining transparency of their register of members is either paramount or important together with other factors
  • Over 70% would have concerns about a model of dematerialisation that extended rights beyond registered shareholders
  • Finally, an overwhelming number of respondents saw that the introduction of dematerialisation was an opportunity to promote increased digital engagement with for instance the capturing of email address, and also that there were opportunity to enhance consumer protection.

You can still respond to the survey here.


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 May event.

  1. Executive & Non-Executive Directors
    Some organisations have found that as part of their pandemic response the duties of executive & non-executive directors may have become blurred and potentially impacted the ability of non-executives to provide effective oversight of an organisations management.

    While not all our board attendees saw this as an issue, some recognised that it was dependant on personality types and an individuals’ own background that would have an impact on the way NEDs and management engaged. It is understood that one mechanism to deal with the engagement is to have informal pre-board meeting sessions with key board members to facilitate better oversight (e.g., to allow a deep dive into a specific matter)

  2. D&I and Board Succession
    A clear principle of succession has to be diversity & inclusion, but that for the Company Secretary their role isn’t as clear cut as others due to the balancing of giving private support and juggling directors views. Therefore, the challenge isn’t necessarily down to the role but the perception of the role.

    The attendees were clear that early planning and thinking about the necessary mix of skills early on in the nine-year cycle would stop succession becoming an issue. It was felt that D&I had to be linked to ESG expertise, other emerging trends and stakeholder expectations. Therefore, setting succession within a governance context can remove issues that may arise if board dynamics become upset.

  3. Company Secretary Succession & Development
    It was felt that the ‘traditional’ company secretariat has morphed into a ‘governance team’ which seems to allow international based individuals understand the role but means that it can be seen very broadly and is resulting in some Company Secretaries pushing for name changes to further improve the perception of the role.

    The pandemic shone a light on the role of the company secretariat and improved in many ways the trust the board and organisation had in those within the teams. It was also seen that one of the key differences between a General Council and a Company Secretary is the ability for the latter to introduce a less formal mindset that allows for flexible thinking.

    In respects of development its often the softer skills that are more of a struggle to develop or provide training in as some of the qualifications on offer do not always cover the reality of the role. While there is a significant volume of talent coming into the profession there are high salary expectations which aren’t always matching experience. Therefore, they may be benefit of drafting new talent straight from undergraduate courses or school and provide training/apprenticeships in-house.

  4. Subsidiaries
    There can be problems in obtaining relevant information on ESG in relation to subsidiaries for several reasons:
    • Directors aren’t always clear on their responsibilities
    • No clear understanding on what data should be collected or who is responsible for collecting it
    • Little guidance or help is available

    Needing to provide ESG reporting for subsidiaries is putting further pressure on already stretched teams with limited clear value. There are also questions as to the duplication of reporting due to the striking cross over of s.172 and ESG reporting requirements.

There is continued frustration at the quality of data being used by proxy advisors which can be old or even inaccurate. While there is sympathy that advisors are under resourced and have to rely on the best information they can obtain, it often falls to the Company Secretary to remedy the errors which can be positive to improve engagement with the advisors.

Often the terminology used in disclosures have make a significant financial impact, where AI will pick up on certain terms and phrases which feeds into proxy advisor or other reports and can then translates into share price changes.


Back to top
 

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.

All comments received will be kept entirely confidential and unattributable and we will not use your details for any marketing purposes.