Governance Readout

It’s that time of the year again when the London Stock Exchange publishes its dividend procedure timetable for the forthcoming year.

As is always the case, if your dividend timetable follows the procedural guidelines, then you don’t need to notify the exchange in advance, so long as the announcement of the dividend includes:

• Unless stated otherwise, dividends must be stated as gross,
• Record and payment dates, and
• Details of any elective events (i.e., scrip dividends, DRiP or currency options) together with the election dates.
• For Dividends with Options, any election date should fall at least 10 business days after the record date.

It’s worth remembering that the announcement must contain key information, including:

• the dividend amount,
• default currency, and
• better references to information – not simply a web location or separate circular.

The Exchange has again this year reminded issuers that the dividend information has to be made under the correct announcement headline category, which may be part of an interim or final results announcement or the separate ‘dividend declaration’ category.

Any deviation from the timetable must be notified to and agreed with the Exchange’s corporate actions team prior to the announcement being made.

For those issuers who offer currency elections for non-CREST eligible currencies (anything other than GBP, EUR or USD), Euroclear has announced that from 18 November 2024, it will relax the validation of elections so that participants of the system will be able to make their currency elections via CREST (the resultant payments will continue to be made outside of CREST). 

Also don’t forget that elective dividends offer the opportunity to leverage the Electronic Election Entitlement (EEEs) functionality that Computershare has had in place since last year, which allows CREST participants to make elections based on the use of temporary, non-tradable ISINs. The use of EEEs is the preferred election method by CREST participants and is a key recommendation within the draft recommendations and consultation for ensuring the UK market is ready for T+1 settlement, so it’s worth considering sooner rather than later.

Computershare’s view – some practical suggestions

As you are considering the implications of the Exchange’s timetable, it’s worth remembering that Euroclear has recently made it mandatory for all (unless they opted out) CREST participants to receive dividend and interest payments through CREST and that the participants should at a minimum be able to receive GBP payments in CREST. Therefore, if you don’t yet offer dividends via CREST, it is now worth speaking to your Client Manager about implementing this functionality.

If you would like more information on the above, remember to speak as early as possible with your Client Manager. If you aren’t following the Exchange’s procedures, and if you haven’t considered using dividends via CREST or EEEs, you’ll want to consider the following:

• Do your articles permit you to make dividend payments electronically without being specific on what electronic methods are used?
• Do you have significant amounts of your dividend paid to shareholders who hold their securities in the CREST system?
• Do you pay dividends in CREST eligible currencies? If so, paying those shareholders who are holding securities in CREST might be easier and a more risk-averse solution.
• Could your elective event be more effective and efficient if those holding securities in CREST could make elections using EEEs?

Updated guidance has been published by the UK Government on the requirement for large UK companies to report on payment practices, policies and performance. Those entities which are within the scope of the requirements must provide a report for each reporting period in the financial year, on their payment practices and upload this to the Government’s dedicated website.

The guidance clearly states that entities within scope are those that for a financial year, on their last two balance sheet dates exceed two or all of the thresholds for being considered a medium-sized company under s.465 (3) of the Companies Act 2006.

The guidance also provides details on what needs to be reported and where the information needs to be reported together with a set of FAQs. The new measures introduced will deal with late payments and include:

• Introduction of a new Fair Payment Code – this code includes different standards and will replace current Prompt Payment Code. Where an entity can evidence, it has met good payment standards it can sign up to the new code from the autumn;
• A consultation on the role that audits, and the audit committees play in relation to payment practices;
• Planned legislation in the near future that will require large businesses to include their payment reports within the annual reports, and;
• Stricter enforcement of the reporting requirements.

Computershare’s view

Payment practice reporting is not new but it’s very likely that many companies will welcome this guidance and look for it to be implemented – and probably with some pace! Late payments to small companies from some larger ones still cause problems. We hope that these new standards and proposed additional accountabilities, will further help companies demonstrate good corporate citizenship – which is in the benefit of all stakeholders. The inclusion of additional reporting within the annual report is something which should undergo serious consideration - is the Annual Report the best place to house this? It’s a crowded room already, and as the information will be publicly available, perhaps proper signposting might be better?

The Quoted Company Alliance has produced a report that looks into its members’ views on the impact that proxy advisers and their voting recommendations have on small and mid-sized companies. The survey, while done on a small scale, is still evidencing that small and mid-sized companies are often facing significant challenges due to the influence of proxy advisors.

Some of the key findings include:

• Over half of the respondents have found that they have less than 48 hours to review, challenge or correct voting recommendations before they are circulated to the market;
• More than half of companies find that the time period can be even shorter and have reported they had less than 24 hours;
• 76% of those that questioned a voting recommendation found that proxy advisers were unresponsive.

The QCA has advised that this research has been provided to the Financial Reporting Council to feed into its consultation on the Stewardship Code, which is anticipated to be open for responses later this year.

Computershare’s view

The subject of engagement with Proxy Advisors arises frequently in our Insight Boards, particularly those we host in May and June! The findings are not news to many with challenges of timeliness, engagement and differing approaches being common gripes. It’s a complicated equation, with pressures on both sides. Perhaps we should declare what we hope is a helpful interest: our Georgeson team has strong relationships with issuers, investors and proxy advisors, and often supports issuers in responding to information requests and would be willing to discuss how these challenges can be addressed. If you would like to hear more about Georgeson, please email Nicholas Laugier.

While the annual Donnelly Financial Solutions (DFIN) searchable and interactive ‘Guide to Effective Proxies’ is aimed at US companies, it does provide some good examples of how such companies have handled commonly addressed and trending topics such as workforce diversity, board skill matrices, board evaluations and ESG matters.

The document provides examples and allows you to click directly into the relevant elements of a company’s annual report/proxy on the subject that is being addressed.

For only the second time the Financial Reporting Council has reviewed the application of the Wates Principles for large private companies and how they’ve been applied.

Companies in scope of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 are required to include a statement within their directors’ report on their corporate governance arrangements (where they aren’t already required to report against a specific corporate governance code). Therefore, those private companies who have i) more than 2,000 employees, and/or ii) a turnover of more than £200m and a balance sheet of more than £2bn, will need to make a declaration. The Wates Principles were developed to provide a suitable alternative for private companies.

The FRC’s review has looked at reports for financial years 2021/22, and identified how those in-scope of the regulations have included the required statement in their annual report and if the approach taken has changed since the 2022 review.

The review has identified 1,815 companies that were in-scope of the requirements, and of those 69% included a statement on their governance arrangements and of those 44% were using the Wates Principles. This has shown that since the last review there’s been a c.57% increase in companies using the Wates Principles.

The report aims to provide information on where companies can still improve their disclosures to provide increased insight and clarity on governance procedures, such as reporting on a company’s purpose under Principle One. This remains challenging, and only a small percentage of those that used the Principles detailed what their values mean and how they are applied both to the desired cultural behaviours and their impact in the boardroom in guiding discussions and decision-making.  This aligns to a broader shift in tone from the FRC where focus has been on outcomes-based reporting.

The Financial Reporting Council has recently published its Annual Review of Corporate Reporting for 2023-2024 and it contains a number of key findings for companies to be mindful of as they begin the process of looking at producing their next annual report.

The key findings are:

• Quality of Reporting: The overall quality of reporting in the FTSE 350 has been maintained with some identified improvements in a number of areas. For the first time in over five years, reporting on provisions and contingencies are no longer in the top ten of issues identified.
• Judgements and Estimates: Fewer companies have been questioned about their disclosures on judgement and estimates than in previous years.
• Restatements: Among FTSE 350 companies there has been an increase in restatements related to the impairment of assets and cash flow statements.
• Sustainability: The Council identified few premium listed companies who had compliance issues with reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework.
• Quality Gap: There has been a concerning widening in the quality of reporting between FTSE 350 companies and other companies.

The Council has encouraged companies to focus on providing clear, concise and company-specific disclosures, and where possible to avoid unnecessary volume in their reports. The Council has also made some recommendations on how to improve:

• Consistency and Connectivity: Ensure that the annual report and accounts tell a consistent and coherent story. This includes maintaining connectivity across different sections of the report.
• Judgements and Estimates: Improve the disclosure of judgements and estimates because this has been a reoccurring issue and better transparency is called for.
• Sustainability Reporting: Enhance compliance with the reporting frameworks such as the TCFD, and ensure the reporting includes more detailed and specific information on climate-related risks and opportunities.
• Impairment of Assets and Cash Flow Statements: Companies should address common issues related to these matters because they have frequently led to substantive questions and therefore need more attention.
• Restatements: Companies must be vigilant about the need for restatements particularly around the previous point, they should ensure accuracy to avoid the need for corrections at a future date.

We are pleased to present the 10th edition of our European AGM Season Review, a comprehensive analysis of AGM trends across eight major markets.

For a decade, our European AGM Season Reviews have provided valuable insights into voting behaviours, corporate governance developments and the influence of proxy advisors.

Highlights in this year's report:

• All markets saw a fall in contested remuneration report votes in 2024.
• Remuneration-related resolutions receiving over 10% shareholder opposition dropped from 31.7% in 2023 to 25.7%.
• The number of Environmental and Social shareholder proposals across the 8 markets analysed reached a five-year low (3).
• Support for Say on Climate votes across Europe increased from 91.0% to 92.6%.

Georgeson’s Daniele Vitale presented the findings of the 2024 European AGM Season Review and moderated a panel with UBS’s Matteo Passero, Amundi’s Edouard Dubois, and Schroders’ Pippa O’Riley. If you registered for the event but were not able to attend, the video recording is accessible here. If you were unable to register for the webinar but would still like to watch the recording, please email Daniele Vitale.