Governance Readout

The Financial Reporting Council (FRC) have announced a fundamental review of the Stewardship Code with the aim of ensuring that the principals of the Code are continuing to achieve the right stewardship outcomes.

The review will focus on:

• Supporting long-term value creation through appropriate investor-issuer engagement that drives issuers’ prospects and performance.
• How the Code may create reporting burdens on issuers as well as Code signatories
• How the Code has led to any unintended consequences such as short-term targets and outlooks for issuers.

The FRC have announced a number of roundtable sessions, with specific roundtables for Service Providers, Corporates and Asset Managers. The market engagement will then be followed by a consultation later in the summer. The Council intends to issue the revised Code in early 2025.

Computershare’s view

Efforts to strengthen and improve the work of the Stewardship Code is the right next step following the recent amendments to the Corporate Governance Code. Many companies we speak to express concerns about the way investors analyse their businesses, the tools they use, reliance on Proxy Advisers and the inability to adequately respond to analysis. Participation in the roundtables is a must for any organisation who wants to ensure that the FRC have the fullest of picture of challenges as they move to reviewing the Stewardship Code.

The latest report from the Review has been released and whilst they recognise that the work done to improve female representation on boards in the last decade is impressive, it feels that more can still be done.

Several key takeaways from the latest report include;

• There continues to be poor gender balance amongst CEOs; in 2011 there were 15 female CEOs in the FTSE 350 and in the 13 years to 2024 this has only risen to 21.
• There is an emerging trend of women being expected to take on a Senior Independent Director role before being appointed to a Chair, but that this is seemingly less expected of men.
• The review for the second year collected data on the UK’s 50 biggest private companies, noting that those who did not wish to contribute data were falling behind the curve. However, many of those who participated are keeping pace with their listed peers.

Back in the spring of 2023 the UK government issued their call for evidence in the amount and impact of non-financial reporting requirements and have now published a ministerial statement and summary of the responses received.

The call for evidence was issued in recognition of the increases that companies have seen in the volume of reporting requirements and the expanding complexity of annual report disclosures.

The responses to the call for evidence, while generally supportive of non-financial reporting, did raise a few issues around the complexity of reporting, associated costs and the burden that such reporting can put on smaller companies.

The key next steps outlined by the government are:

• Introducing legislation during the summer of 2024 to increase the monetary threshold used for classifying companies as large, medium and small by 50%, thus resulting in changes to significant numbers of companies’ reporting requirements.
• Consult on proposals to increase the number of employees that qualify a company to be considered ‘medium’ from 250 to 500 and to exempt medium companies from needing to produce a strategic report.
• Removal of certain disclosures currently required within the Directors’ Report and the Directors’ Remuneration Report.

Computershare’s view

We’ve long expressed concern about the ever-growing size of annual reports and the increasingly complex nature of reporting requirements. Therefore, it’s welcome to see that responses to the call for evidence have identified similar positions.

While we wait to see the content of the proposed consultation, the elements being considered may well see many companies put into a better position, finding that burdens in non-financial reporting will be reduced. But we have to remain cautious that removing the need for strategic reports or elements of directors’ reporting for some organisations doesn’t negatively impact good governance practices and in turn harm investment opportunities particularly for smaller companies as they look to grow.

The Georgeson Corporate Governance team has analysed how FTSE 350 companies approached the updated guidance from the Pre-Emption Group's Statement of Principles in 2023.

Georgeson reviewed the AGM proposals in 2023 across the FTSE 350 seeking the authority to issue shares excluding pre-emption rights. Georgeson collected details on the share issuance authorities sought by 333 FTSE 350 companies and analysed how many proposed 10%+10% authorities - and how much support these resolutions received.

The memo covers the following key points:

• Background to the changes by the Pre-Emption Group
• Proportion of FTSE 350 companies seeking 10%+10% authorities throughout 2023
• Level of support received by companies seeking 10%+10% authorities.
• Current European best practices in terms of generic dilution without pre-emptive rights
• Proxy advisor guideline updates to share issuance resolutions
• Mark Austin argues why the new PEG guidance should receive investor support

If interested, please request a copy of the Georgeson memo from Nicholas Laugier.

The Georgeson ESG team has put together a memo covering “Say on Climate” Board Proposals. It provides an overview of what has happened over the past three proxy seasons, investor expectations (and how they are applying pressure on companies), and how ISS and Glass Lewis approach Say on Climate.

The memo covers the following topics:

• Trends from the 2023 AGM Season – an overview of the board-proposed Say on Climate votes which took place in the UK & Europe during the 2021, 2022 and 2023 proxy seasons.
• Investor expectations – an overview of the spectrum of opinion towards Say on Climate votes amongst investors, sample investor guidelines and the results of the most recent ISS Policy (Investor) Survey with regards to climate change. Additionally we cover how voting decisions on Say on Climate differ between European-based and US-based investors.
• Proxy Advisor opinions & guidelines – An overview of the guidelines ISS and Glass Lewis have published for board-sponsored Say on Climate proposals.
• Summary – Questions companies should ask themselves before putting a Say on Climate proposal forward at its AGM.

If interested, please request a copy of the Georgeson memo from Hal Dewdney.