UK: revised corporate governance code

The FRC has published a new version of the UK Corporate Governance Code applicable to accounting periods beginning on or after 1 January 2019. The changes include a requirement to have a board-monitored whistleblowing mechanism and a mechanism for workforce engagement, additional diversity reporting requirements and a greater focus on diversity in succession planning, and that remuneration committees should take into account workforce remuneration policies when setting director remuneration. See our corporate governance briefing here for more detail.  Reporting requirements for some companies have also been amended by the Companies (Miscellaneous Reporting) Regulations 2018 applicable to financial years beginning on or after 1 January 2019, introducing mandatory reporting on employee and stakeholder engagement and information on the ratios between CEO and average staff pay.

UK: board diversity report and updated executive search code

The Parker Review Committee has published its final report into the ethnic diversity of UK boards. The final recommendations are substantively the same as those published in a 2016 consultation draft. The final report recommends that there should be at least one director of colour on each FTSE 100 board by 2021 and each FTSE 250 board by 2024. There are also recommendations on ensuring the pipeline, executive search principles, and that commentary on a company’s efforts to increase ethnic diversity within its organisation, including at board level, should be included in the description of the company’s diversity policy set out in the annual report. Companies that do not meet the board composition recommendations by the relevant date should disclose why this is the case. Continue reading

UK: Employees in the boardroom – learning the lessons of Bullock

The last half of 2016 saw a number of developments in the corporate governance field, kicked off by Theresa May's leadership campaign speech and followed by a Select Committee inquiry and government consultation. One of the key proposals was to enhance the representation of employee views in the boardroom.

As with the new Prime Minister’s interest in the resurgence of grammar schools, her proposed introduction of elected employee representatives in the boardroom (perhaps surprisingly) had a decidedly retro feel about it. But unlike grammar schools, this was certainly not a rehash of former Tory policies; the concept of elected employee board members was lifted straight out of the playbook of the Labour party.  And in a further echo of events of forty years ago the idea now seems to have died a death for reasons very similar to those that led to the policy's original demise.

In an article here, Peter Frost, partner in Herbert Smith Freehills' London employment team, considers whether the reasons why the idea was rejected 40 years ago still hold good today.

UK: Government announcements – workers’ rights post Brexit, employee representation on boards, employment of foreign workers, and review of modern employment practices

At the Conservative Party conference, Theresa May announced plans to repeal the 1972 European Communities Act, which gives direct effect to EU law in the UK, and to transpose all existing EU laws into domestic legislation. She also promised that "existing workers' legal rights will be guaranteed" during her premiership.

The conference speeches also built on the policy announced by Mrs May at the G20 summit to tackle corporate irresponsibility, "cracking down on excessive corporate pay and poor corporate governance, and giving employees and customers representation on company boards".

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UK: BIS Select Committee launches Corporate Governance Inquiry

The Business, Innovation and Skills ("BIS") Select Committee announced on Friday that it is launching an inquiry into corporate governance, focussing on executive pay, directors duties and boardroom composition, including employee representation and increasing the number of women in executive positions.

Looking at executive pay in isolation, the inquiry follows a series of developments over the summer including the GC100 and Investor Group's updated guidance on remuneration reporting and the Executive Remuneration Working Group's Final Report on the current executive pay regime. The outcome of the Inquiry is likely to influence the corporate governance proposals trailed by Theresa May as part of her leadership campaign which the Government intends to announce before Christmas. These issues are highlighted in our recent briefings on executive pay: GC100, Executive Remuneration Working Group and Remuneration Reports.

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UK: Updates to the GC100 and investor group guidance on remuneration reporting

The GC100 and Investor Group has published a revised version of its guidance on directors’ remuneration reports and policies, which all UK incorporated companies listed on the LSE, in any EEA state or on NYSE or NASDAQ are required to produce. Whilst the revised Guidance largely follows the previous version, it also includes some important updates which companies will need to carefully consider in preparing their next report and updated policies.

This article sets out the key revisions made to the Guidance, including strengthened guidance on the requirement for policies to impose a maximum salary for directors, the use of discretion within policies and the approach to disclosure of performance targets for directors’ annual bonuses, which is an issue that has received particular investor scrutiny. The updated Guidance is available in the GC100 section of the Practical Law website

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UK: Board diversity – Cranfield board diversity progress report published

Cranfield School of Management has published its latest report on Women on Boards. As well as setting out the most recent figures for the percentage of women holding directorships amongst the FTSE 350, the report includes details on how FTSE 100 companies, and a sample of 50 FTSE 250 companies, have complied with the provisions in the Governance Code on diversity which took effect for financial years beginning on or after 1 October 2012.

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