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The Panel on Takeovers and Mergers v David Cunningham King (2017)
On the 22 December 2017, the Scottish Court of Session granted a court order requiring Mr David King to make a mandatory offer for Rangers International FC Plc. This is the first time the UK Takeover Panel has applied to the court for an enforcement order under section 955 of the Companies Act 2006.
The respondent, Mr King, had previously been found to have worked in concert with other parties to acquire more than 30% of Rangers. This decision was first made by the executive in June 2016 and was subsequently upheld by the Hearings Committee in December 2016. It was finally upheld again by the Takeover Appeal Board in March 2017. Therefore, in accordance with Rule 9 of The Takeover Code, Mr King was required to make a mandatory offer for the company.
The Takeover Appeal Board required Mr King to make the mandatory offer by the 12 April 2017, which he failed to do, leading to the submission by the UK Takeover Panel that the court should enforce the order sought under section 955.
The key arguments of the UK Takeover Panel were as follows:- Section 955 states: 'the court may make any order it thinks fit to secure compliance with the requirement'. The panel suggested that the addition of the words 'to secure compliance with the requirement', demonstrated that the court did not have discretion as to whether to make an order or not, only as to the terms of the order.
- Mr King raised as an issue the fact that he did not have the 'free personal funds' to make the offer. The panel argued that this was irrelevant, as this reasoning would be against public interest, and that the respondent could not rely on his purported lack of funds as a reason for not having to comply with the code.
- Mr King stated that, as the Rangers share price was above the price at which an offer had to be made, no shareholder would take up such an offer, making it futile to grant the order. The Panel argued that the Code does not require the shareholders to sell, only that they have to opportunity to sell their shares to Mr King for the same price as that at which he gained control.
AIM Rule Changes
On the 11 July 2017, the LSE published a discussion paper seeking views on areas of the AIM Rulebooks. Since the consultation period ended, the LSE has published a feedback statement which sets out an overview of the responses received, as well as their proposed changes to the AIM rules. The discussion paper can be accessed here, and the feedback statement here.
The amendments proposed to AIM rules and contained within the feedback statement are as follows:- Requiring AIM companies to 'comply or explain' against recognised corporate governance codes - The proposals do not specify which 'recognised corporate governance code' should be applied. Currently, companies are required under AIM Rule 26 to disclose on their website their corporate governance arrangements. The amendments will require companies to 'comply or explain' against a recognised code. While an annual update is not required, the information on their website must be kept up-to-date and the last date that it was updated should be included. The changes to AIM Rule 26 are anticipated to take effect on the 30 June 2018.
- Formalising the early notification process - This amendment would involve extending and formalising the existing early notification process for nominated advisers regarding key information about AIM applicants.
- Providing guidance to nominated advisers on appropriateness considerations - The LSE proposed incorporating a non-exhaustive list of factors, which a nominated adviser should consider when assessing the appropriateness of an AIM company. It should be built into schedule three of the AIM Rules for Nominated Advisers.
Board Pack Length
A report by ICSA: The Governance Institute reveals that board packs are too backward-looking and too internally focused to allow meaningful forward-looking and strategic conversations.
The research (found here) identifies several main obstacles to effective board reporting and attempts to pave the way to find solutions. Based on a survey of governance professionals the main findings are:
- Getting the focus and balance right - 68% of respondents feel that board packs are too focused on operational rather than strategic issues and 59% feel they are not sufficiently forward-looking.
- Too long - 74% of respondents believe that their board packs are longer than necessary. This figure rises by 10% for organisations with a turnover of more than £500 million.
- Time-consuming to prepare - 78% of respondents identified that the length of time necessary to prepare board packs is a challenge. All respondents from the smallest organisations (those with a turnover of less than £10 million) consider the preparation to be too time-consuming.
- Improvement required - Preparation requires improvement due to receipt of board papers after set deadlines, lack of standardised reporting formats and issues managing revisions and collation of reports.
There is a clear correlation between the average length of board packs and the size of the organisation, with the number of pages almost doubling for organisations with turnovers of more than £500 million compared to those with a turnover of less than £10 million. Board packs for quoted and public sector companies can be longer again with some responding reporting that board packs can exceed 800 pages.
The ICSA intends to produce a number of tools to help organisations with the preparation and presentation of their board packs.
GDPR Board Awareness
The ICSA has released guidance to aid boards in their internal discussions in relation to the implications of the General Data Protection Regulation (GDPR). The guidance (found here) provides an overview of the new legal landscape and highlights the strategic and practical issues raised by GDPR.
While the regulation is directly applicable as law throughout the EU, it will be accompanied by a new UK Data Protection Act to allow for the implementation of member state options and address various data protection issues outside of the scope of the regulation.
The guidance breaks the legislation down into three areas:- Data basics
- Dealing with individuals
- Governance and risk management
At Computershare, we have been working on an internal project to ensure compliance with the GDPR for many months. There is a number of underlying workstreams on this project, including the mapping of our data and processes, updating privacy notices, the mandatory use of Data Protection Impact Assessments (under certain circumstances), amongst other things. In the coming days and weeks you will hear more from us on our GDPR readiness and elements of the project that will impact on you, our issuer clients.Anti-Money Laundering
On the 18 January the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) came into force.
Under these regulations the Financial Conduct Authority (FCA) has a new role, in the form of OPBAS. This new role for the FCA is designed to strengthen the UK's anti-money laundering supervisory regime and ensure that the 22 self-regulatory organisations that are currently carrying out Anti-Money Laundering supervision do so in a consistent and effective manner.
The FCA will now facilitate collaboration and information sharing between the self-regulatory organisations, statutory supervisors, and law enforcement agencies.
More information on OPBAS can be found here.Share Buy-Back Research
The UK's department for Business, Energy & Industrial Strategy has announced that they have appointed PwC and Professor Alex Edmans of the London Business School to conduct research into whether companies are repurchasing their own shares to artificially inflate executive pay.
The study forms part of the Government's wider corporate governance reforms and industrial strategy and follows concerns that a minority of companies are using buy-backs to inflate executive pay and crowd out investment. The study will examine how buy-back schemes are used and whether action is required to prevent them from being abused. It is anticipated that the findings of the study will be published later in the year.Boardroom Bellwether
The bi-annual survey from the ICSA canvassing the views of company secretaries on the challenges of the current state of the economy, market conditions, and the wider business and corporate governance environment has been released.
The survey (found here) covers a range of concerns unique to British boards including board composition, regulation and compliance and executive pay.Global News
Singapore Corporate Governance CodeThe Monetary Authority of Singapore has published a consultation paper (found here) seeking views on the proposed changes to its Corporate Governance Code.
The consultation which closes on the 15 March, seeks responses to the proposed changes aimed at enhancing corporate governance standards through three levers:
- Focusing on what is important - Streamlining the code to focus on the key tenets of good governance and not perceive it as a compliance exercise.
- Strengthening board quality - Encouraging board renewal and enhancing independence.
- Fostering a supportive eco-system - Recommend measures to enhance the eco-system to advocate good governance.
Federal Data Protection Regulatory Scheme
A coalition of US business associations and trade organisations has issued a letter (found here) to the House Energy & Commerce Committee and the Subcommittee on Digital Commerce and Consumer Protection of the US Congress to ask them to enact federal data protection and breach notification legislation.
The letter specifically asks Congress to enact legislation at a federal level which is flexible and scalable, and which factors in:
- the size and complexity of an organisation
- the cost of available tools to secure data, and
- the sensitivity of personal data held by organisations
Shareholder Rights Directive
The Irish Department the for Business, Enterprise and Innovation (DBEI) has recently issued a consultation on a part of the amended Shareholder Rights Directive which is due to close on 9 February 2018.
Whilst some of the Directive is subject to technical standards being defined by implementing acts in relation to articles 3a, 3b and 3c, the rest must be transposed into member state law by the 10 June 2019. The DBEI is seeking views on areas where member states can or must make a choice (articles 3 and 9).
We have issued our Irish clients with a briefing note (found here) on the consultation.
The European Commission's SRD expert group is drafting technical standards which are anticipated to be finalised in autumn 2018.
In the UK we are continuing a dialogue with the Department for Business, Enterprise and Industrial Strategy (BEIS) to understand how and when a similar consultation on implementing legislation will be published. Previously, the BEIS expressed an intention to introduce implementing legislation prior to the UK's exit from the European Union in March 2019.
Georgeson market update
Georgeson is a leading Corporate Governance advisory and Shareholder Engagement company, and part of the Computershare group
UK Activism
AGM Voting Review
The Pensions and Lifetime Savings Association (PLSA) has published its AGM Voting Review.
"Overall the AGM Voting Review shows relatively steady levels of shareholder dissent at company AGMs for the past two years, with roughly one fifth of companies (FTSE 250: 56 and FTSE 100: 17) experiencing significant dissent over at least one resolution at their AGM. Over the longer term, the report reveals a fall in shareholder dissent since its peak in the aftermath of the financial crisis and the subsequent focus on governance that entailed. Executive pay awards continue to be the most controversial aspect of corporate governance, with the figures of significant remuneration-related dissent at FTSE 350 AGMs from 2015-2017 consistent with previous years. The report also illustrates some progress in holding board members to account for flawed executive pay practices at FTSE-100 companies. In 2016, average dissent levels over remuneration policies were four times higher than dissent over the re-election of remuneration committee chairs as directors. In 2017, they were less than twice as high, suggesting that most shareholders are now voting against the remuneration committee chair if they vote against the remuneration policy."
They have also published their 2018 voting guidelines, found here.CEO Takes Pay Cut
Bloomberg reports that EasyJet's New Male CEO Takes Pay Cut to Match Female Predecessor.
"EasyJet Plc's newly hired chief executive officer is taking a pay cut to match the salary of his predecessor, Carolyn McCall, as the discount airline joins UK-wide efforts to reduce the national gender gap in remuneration. Johan Lundgren's salary, originally set at £740,000 ($1.04 million), will be reduced 4.6 percent to the £706,000 earned by McCall last year, before she left to run UK broadcaster ITV Plc, the Luton, England-based carrier said in a statement Monday. EasyJet will also seek to beat a target of ensuring that 20% of new pilots are women by 2020, Lundgren said".ISS Friend or Foe
PwC has published a report entitled ISS: Friend or Foe to Stewardship?
"Shareholder advisory firms such as Institutional Shareholder Services ('ISS') have come under increasing focus in recent times. Accused of wielding power without accountability, they are increasingly being brought into the regulatory net. In the EU, such firms will come under the remit of the Shareholder Rights Directive, and will become subject to a code of practice with a regulatory underpinning. The UK Stewardship Code is likely to be extended in the new year more explicitly to cover the role of shareholder advisory firms. Although they are currently encouraged to report against the Stewardship Code, the Code is not very relevant to the role they play in supporting stewardship. The advisory industry is in the process of reviewing its own best practice principles. Within our latest report ISS: a friend or foe to stewardship? We look at a range of issues including: The role of shareholder advisory firms; What is the impact of ISS?; What needs to happen next?".
International Activism
Societal Impact
The Wall Street Journal reports about BlackRock CEO to Companies: Pay Attention to 'Societal Impact'.
"The boss of the world's largest money manager told corporate chiefs to prepare for BlackRock Inc. to become a more assertive shareholder. Laurence Fink in his annual letter to chief executives of companies in which BlackRock invests called on them to better articulate their long-term plans and how their organisations contribute to society, and said the New York money manager will have more frequent and in-depth conversations with them. He has made similar appeals to CEOs in past letters".Gender Diversity
Glass Lewis reports on Raising the Stakes on Board Gender Diversity.
“2017 has seen interest in board composition intensify. Investors have long scrutinised individual directors’ qualifications; however, increasingly they are asking how those individuals complement each other, and whether the overall board reflects a diverse mix of backgrounds, skills and qualifications. Investors want to know how boards ensure that they are recruiting directors whose expertise aligns with company strategy, and numerous investment firms have updated their proxy voting policies to punish boards that lack diversity”.US CEOs Earn Most
Bloomberg reports that CEOs in the US earn the most compared with average workers.
"Chief executive officers in the US are paid much better than their peers abroad, and the gap between their compensation and that of average American workers is wider than in other countries. CEOs of the biggest publicly traded US companies averaged $14.3 million in annual pay, more than double that of their Canadian counterparts and 10 times greater than those in India, according to a Bloomberg analysis that used benchmark stock indexes in 22 nations".
Registry round-up archive
Take a look at our previous editions of the Registry round-up.