Welcome to your June round-up, where we bring you key dates and the latest industry highlights from the world of registry along with a market update provided by Georgeson.

This month we cover:

Industry Update:





Industry update

Her Majesty’s Treasury has released a consultation which proposes to grant them the power to block listing on the grounds of national security.

While it is expected that such action will be rare, there is a genuine belief that it such powers are necessary for instance where the proceeds from a listing will be used to further a country’s nuclear weapons capability.

The principal features of the proposal are:

  • Scope of Powers
    The powers would apply to all new admissions of shares, securities representing equity and convertible securities on both regulated markets and MTFs (i.e. AIM). There is no current plan to include debt securities.
  • Companies already listed
    The powers would not apply to a secondary issue of an already listed company and nor would it allow a company to be delisted if already listed.
  • Disclosure required by issuer
    Certain information will have to be disclosed by issuers, including their place of registration, overview of its business, details of the issuer’s management and major shareholders. This will allow the government to make a national security assessment, even where a prospectus would not have been required.
  • Pre-clearance process
    An early disclosure option for companies is being considered so that a company considering listing can obtain comfort from the government early in the listing process.

The consultation closes on 27 August 2021 and following responses, a further technical consultation is expected.


As part of the it’s research paper series, the Department for Business, Energy & Industrial Strategy have published a paper titled “Executive pay & investment in the UK”.

The research looks at the relationship between CEO performance targets, associated pay incentives and investments for companies listed on the FTSE All-Share index from 2013 to 2019.

The key aims of the paper was to:

  • Explore the prevalence of different performance targets used in UK executive contracts so as to better understand the use of different target types and whether they are aligned effectively to incentivise achievement.
  • Examine the evidence on whether CEOs influence investment decisions to improve performance against their targets.
  • Examine the evidence to understand if there is a systematic connection between the existence and size of performance targets and a firm’s investment.

The paper was commissioned following the identification of evidence that within the UK, investment decision making tends to prioritise short-term financial returns rather than long-term growth. Further to that, recent data has shown that UK investment is weak compared to other advanced economies.

Some of the findings within the paper include:

  • While academic evidence is principally US based it does identify that executives do alter a firm’s investment so as to influence performance against their targets.
  • Evidence suggest that CEOs engage in myopic behaviour to beat strategically important milestones such as zero earnings and last year’s earnings.
  • Actions may be taken to beat analyst forecasts as missing them may cause negative market reaction.
  • There is a stable harmonisation of target types across firms which allows for easier analysis of their relationships with a firm’s investment.
  • As a large proportion of CEOs achieve the threshold pay-out across their targets, it suggests that targets could influence a CEOs behaviour.
  • Changing investment is a significantly more powerful way of maximising performance-based pay-outs than share repurchases.

While the paper states that there is no clear evidence that CEOs are influencing a firm’s investment strategy to benefit their performance targets, the authors suggest that there are areas of further study required. This further research could include breaking down the analysis by sector, considering what other channels beyond investment that CEOs may use to influence short-term target performance such as opex reductions or redundancies.

CPU’s View
Our Company Secretarial team highlight the continuing focus, with several recent high-profile shareholder revolts, on executive remuneration and the importance of the Remuneration Committee in setting challenging, robust targets whilst exercising independent judgment in determining awards. Remuneration Committees may wish to consider these findings when setting future awards.

It is worth highlighting that this paper appears to have been somewhat reliant on academic research from North America, and while there are similarities between the UK and the US market there is also far more differences in how governance works in each location. Therefore, it is understandable that the paper might suggest there are reasons to believe that executive pay is influenced by investment decisions, however later in the paper the authors make clear there is no clear evidence. 

The latest results of the Quoted Companies Alliance quarterly survey have been released. The Small & Mid-Cap Sentiment survey which is conducted with the assistance of YouGov received responses from 103 quoted companies and 28 advisory firms.

The results of the survey indicate an optimistic view of the prospects of the UK market and the prospects of the respondent’s firms, with sentiment at the most positive level in the survey’s 10-year history.

Fewer businesses are considering raising capital over the next 12 months, with the proportion considering taking such action being at a 2-year low, with bank finance seeing a bigger increase in the preferred option. However, raising capital through public equity is still the preferred solution and seen as the easiest of options.

This survey also looked at whether firms had Directors & Officers liability insurance, premiums, coverage and general thoughts on it. The survey asked respondents about employees returning to the office, with 30% of issuers suggesting they would be returning to their office between June and September. It also found that most organisations were planning on having some staff return and having other work remotely. Over 95% of issuers said they would be more flexible than they were pre-pandemic with remote working.

Respondents were also asked if they had held a range of events/meetings remotely, would that continue once in-person events/meeting were allowed. Over 50% of the issuers who responded expressed that they would be looking to hold investor meetings, AGMs and Board meetings remotely in the future.

CPU’s View
Our Company Secretarial team advise that it will be important for Companies to consider the benefits of continuing virtual or hybrid meetings and the impact on shareholder engagement. In addition, Boards may wish to monitor the location of directors when participating in meetings to ensure that that the mind and management of the Company is unaffected.


The Financial Reporting Council has published a report titled “Workforce Engagement and the UK Corporate Governance Code”.

It looks at the approaches taken by FTSE 350 companies in engaging with their workforce in light of the requirements introduced in the latest version of the Corporate Governance Code.

Based upon a review of annual reports for companies which employed at least 50 staff (excluding investment trusts):

  • One company appointed a director from the workforce
  • 12% established an advisory panel
  • 40% appointed a designated NED for workforce engagement
  • 16% established an advisory panel and appointed a designed NED, and
  • 32% adopted alternative arrangements.

The report analyses the approaches adopted, looks at the activities undertaken by NEDs and how advisory panels operate. It also investigates how boards considered which mechanism to adopt and how the mechanism adopted supports engagement activities.

CPU’s View
Our Company Secretarial team advise that Companies should continue to review their workforce engagement practices ensuring that they remain appropriate, and that output is of the required standard and reviewed at the appropriate levels.


The Department of Enterprise, Trade & Employment published a press release last week in which it announced that approval had been gained for the Companies (Small Company Administrative Rescue Process & Miscellaneous Provisions) Bill 2021.

One of the key changes being introduced under the ‘miscellaneous’ aspect of the Bill is to make changes to the Companies Act 2014 and the Industrial and Provident Societies Act 1893 to allow companies to hold virtual meetings, which were originally permitted under the Irish governments temporary COVID legislation.

CPU’s View
In the UK there is an active project, led by the Financial Reporting Council (FRC), to look at the future format of company general meetings, their role in stakeholder engagement and whether a code of conduct/code of best practice might be beneficial. This project will also consider whether changes to company law can/should be made to clarify the validity of a fully virtual meeting. Until that time, the UK remains one of the few western countries whose legislation doesn’t definitively permit virtual meetings. Computershare are actively engaged in the FRC’s project and will look to keep its clients informed of progress, with an anticipated consultation due later in the year.


Broader Diversity in Corporate Leadership

The Canadian Securities Administrators have announced that they will be consulting later in the year on the matter of diversity in corporate leadership. One of the principal aims is to help determine the if the needs of Canadian investors have changed since the adoption by most CSA jurisdictions of the ‘women on boards’ disclosure requirements.

 

Transparency & Disclosure Standards for State-Owned Enterprises

The OECD have published a new voluntary standard which contain a set of best practices for transparency and disclosures by internationally active state-owned enterprises and their owners.

 

Scope Emissions Explained

Chapter Zero (The Directors’ Climate Forum) have released a guide on how to understand scope emissions.

As corporate activity is far-reaching companies influence a wide range of greenhouse gas (GHG) emitting activities throughout their value chain, many aren’t obviously related to the organisations primary business. Therefore to help define the boundaries of GHG emissions that organisations are responsible for the World Resources Institute Greenhouse Gas Protocol established three categories, otherwise known as Scope Emissions. These both categorise emissions based on how directly they relate to business activity and also how much control a company may have over them.

 

CPU’s View
Companies will need to review and consider any impact this may have on annual reporting requirements. Our Company Secretarial team would be happy to discuss further should you wish.


Georgeson market update

Georgeson is a leading Corporate Governance advisory and Shareholder Engagement company, and part of the Computershare group

Georgeson gives an overview of this new phenomenon across Europe and United States. This client memo covers both board-sponsored and shareholder resolutions, along with the views of proxy advisors and institutional investors such as BlackRock and CalPERS.

If you would like to receive a copy of this client memo please contact your usual Georgeson account manager or your Registry Client Manager.


Vanguard recently announced updates to its proxy voting guidelines. The updated policy guidelines became effective as of April 1, 2021. The most significant policy updates relate to the issues of board diversity, board oversight failings and environmental/social disclosure. Key policy updates summarized.

Read the full memo here.


Georgeson's Daniele Vitale was joined by Maria Ortino (Global ESG Manager - Legal & General Investment Management) and James Upton (Head of ESG EMEA - BHP Billiton) to discuss the alphabet soup of ESG acronyms and what companies need to know and prioritise.

Watch the presentation here.