Governance Readout

The website Corporate Compliance Insights published an article in early May that considered rebranding the role Company Secretary to better take account of its increasing position influencing strategic decision making.

It argues that few know the full history of the company and it is short sighted if boards view the role of Company Secretary as purely administrative.

The author calls out the fact that the Companies Act 2006 doesn't define the remit of the Company Secretary as is the case with similar legislation, guidance or views seen around the world. Boards should be cognisant of the fact that the role of Company Secretary is highly influential due to the intersectionality between the board, the executives and the investors which provides them with unique perspectives.

The article also articulates how with the growth in focus on ESG matters, the Company Secretary is more often than not the embodiment of the company's governance efforts.

Therefore, when you factor in these elements the article feels that it's time to rebrand so as to attract the right calibre of talent into the roles to ensure the future success of a company and of the role as a whole.

Computershare's view

In our Insight Boards, there is a distinction drawn between the perception of the role of Company Secretary and their teams. Company Secretaries feel that Boards not only “get” the role but appreciate it. And for Company Secretaries, they ensure that their key stakeholders understand the value the role brings.

But things can change the deeper you go. CoSec teams do spend a lot of time on the more administrative; minutes, statutory compliance, subsidiary management, share plans, etc, but the real value they seek is more in the advisory aspects, whether that applies to corporate actions, reporting and disclosures, group re-structuring, etc. There is a catch 22 here, especially, but not exclusively in Financial Services; executives appreciate the presence of a CoSec in their (many) committee meetings. But to step away to add value elsewhere can create a sense that the CoSec team are not actually adding value to executives where they (rightly or wrongly) want it most. The real focus here is on making sure that the right people are supporting the Committees, and this is where having a strong, well-rounded team allows established junior colleagues the chance to step up and stretch themselves. Not only will this help colleagues develop and hone their skills in a safe and supported manner it also helps showcase the strength of the team and in turn the profession of Company Secretaries.

And one of the key issues here is in the name. The arguments are well-established on both sides. There has been a growing trend to move away from the title of Secretary, including from the CGI. Our view? Until the word “Secretary” is better understood (as it is in government for example), it's often a problem and the name alone will not change it until we are all better at articulating what this means to the wider world.

In the Financial Conduct Authority's latest primary market bulletin (no. 49), it has highlighted its thematic review on the listing rules as they relate to LTIPs and has set out its expectations for listed companies.

The review, which looked at 25 premium listed companies over a three-year period, considered the companies compliance with disclosure obligations as they relate to LTIPs and the nature of any metrics and performance conditions tied to the incentive plans.

The review has noted that of the 25 companies only 10 of them published a shareholder circular in accordance with LR 13.8.11 that either contained a full text of the incentive scheme or a description of its principal terms, and nine of the 10 filed that circular with the national storage mechanism.

Of the 11 companies who amended their LTIP only five released a revised circular with the full terms of the proposed amendments but all 11 did provide a summary. Most commonly when it came to metrics, total shareholder returns, return on capital and earnings per shares were used and while there is no specific requirement to include non-financial metrics the use of them had doubled by 2022 from 2020.

The FCA has, within the market bulletin, laid out its expectations of premium listed companies:

• Listed companies are to take adequate steps to establish and maintain adequate procedures, systems and controls and this extends to those needed to meet their obligations under the listing rules;
• They are to ensure that their LTIPs are approved by ordinary resolution before they are adopted;
• A circular to shareholders about the approval of the LTIP must include full text of the scheme or a description of its principal terms; and
• If the scheme isn't circulated to shareholders, the circular must include a statement confirming it will be available for inspection at the general meeting at least 15 minutes prior to the meeting, during the meeting and that it is available on the national storage mechanism.

The FCA has also said it will continue to use thematic reviews to monitor compliance with these requirements.

Also, of note within this market bulletin is the FCA's reminder to issuers about disclosure and filing requirements for Annual Financial Reports and the revised descriptions from the Office for National Statistics on categories for ethnicity.

A consultation has been published by the Department for Business and Trade on exempting mid-sized companies from needing to prepare a strategic report. This follows the call for evidence issued in May 2023 on non-financial reporting. The department is also seeking views on increasing the maximum number of employees that should be used to identify if an organisation is ‘medium-sized' from not more than 250 to not more than 500 employees.

Other matters being considered to streamline non-financial reporting that are discussed within the consultation that were outlined by the government in their March 2024 response to the call for evidence are:

• Monetary thresholds – it has been intended that legislation would be introduced in 2024 to raise the monetary thresholds used for classifying companies as large, medium and small by 50%. The consultation paper explains that this would mean that a large company would need to meet two of the following.
• Turnover of £54 million or more (up from £36 million)
• Balance sheet of £27 million or more (up from £18 million) and
• 500 or more employees (up from 250)
• Directors' report – the legislation also plans to remove certain required disclosures from the Directors' Report and the Directors' Remuneration Report such as use of financial instruments, important events affecting the company since the end of the financial year, likely future developments, and research and development opportunities.
• Energy & other reporting requirements – there was no intention by the government to change the threshold for streamlined energy and carbon reporting without further analysis. It is also noted that there are other reporting requirements that have separate tests based on a company's size such as those for quoted companies which will not be impacted by the changes being consulted on.

The consultation was scheduled to close on the 27 June 2024, and under the guidance for purdah (pre-election period) because this consultation was released prior to the announced UK General Election it will remain open until its stated closing date.

Computershare's view

This appeared to be a priority of the current Conservative government, but its prioritisation following the July general election remains to be seen. If there was general cross-party support and the legislation required to make these proposed changes isn't primary, there remains a good chance that we could see these changes come into force later in the year. But if it requires primary legislation and support is minimal then there is every chance these recommendations could be kicked into the long grass.

On the basis that these do progress, our view would be that looking at this in isolation is reverting to type with a piecemeal approach and that what is required is a wider holistic view of necessary reforms. The movements in these reporting metrics are substantial and could move a lot of companies or their subsidiaries out of reporting requirements and whilst we would welcome simplifying obligations for small and medium sized businesses, we would question if it would be better to instead look at what is required to be reported by Companies who meet these metrics. Only reviewing the thresholds for reporting only moves the goal posts and not the underlying issues.

Since Euroclear UK & International (EUI) introduced the functionality to pay dividends directly to CREST members in 2004, there has been a continuous drive from EUI, Registrars and custodians for issuers to adopt this functionality especially for those issuers within the FTSE 350.

In the last twelve months, EUI have been working to make sure that CREST members, rather than issuers aren't the blockers for adoption. So, they have been working with all members to ensure that they have at least a GBP Cash Memorandum Account (CMA) in place against their CREST position.

Following a recent consultation EUI were planning on mandating that all CREST members were set up to receive future dividends and interest payments on equities via the CREST system, but following feedback, they will allow members to opt out by the 12 July. Where a member hasn't opted out of the relevant fields, their CREST position will be updated from Monday 29 July to reflect that they are accepting of dividends and interest payments via CREST.

Because EUI have only mandated the need to have a GBP CMA against their position, issuers making dividend payments via the CREST system could see an increase in rejected payments from the 29 July, especially if the currency elected for by the CREST member is Euro or USD.

It's worth noting that issuers who haven't yet adopted dividends in CREST may get challenged by their largest investors as to why it has not been adopted. If you need any further information on adopting dividends in CREST, please contact your Client Manager.

Computershare's view

If you haven't yet opted for the functionality, 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 stock in the CREST system?
• Do you pay dividends in GBP, EUR or USD? If so, paying those shareholders who hold their shares in CREST might just be an easier and more risk-adverse solution.

The Georgeson ESG team has put together a memo covering “Say on Climate” Board Proposals across UK & Europe. It provides an update of what has happened so far during the 2024 AGM season (1st July 2023 to 30th June 2024) compared to the previous 3 proxy seasons, as well as outlining 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 2024 AGM Season – an overview of the board-proposed Say on Climate votes which took place in the UK & Europe during the 2021, 2022, 2023 and 2024 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.

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