A NOTEPAD ON COMPANY AND FINANCIAL LAW, NEWS AND REGULATION
The Enterprise and Regulatory Reform Act 2013 received Royal Assent on 25 April 2013.
Part 6 of the Act contains the provisions which will give shareholders in quoted companies a binding vote over the pay of their directors, by amending Part 15 of the Companies Act 2006. It is expected that those amending provisions will come into effect on 1 October 2013, with the provisions applying to quoted companies with financial years beginning on or after that date.
The Insolvency Service published in April 2013 a guide for directors “of any company involved in compulsory liquidation (winding up by the court) in England and Wales”. The guide also “talks about the disqualification of company directors and criminal offences in relation to a company [and] also summarises the other insolvency procedures that can apply to companies and explains some common insolvency terms”.
The guide (URN: 13/769) can be downloaded here.
The second annual review – following the 2011 Davies Review of Women on Boards - tracking progress in increasing the number of women on FTSE 350 company boards was published on 10 April 2013 and can be read here.
The associated BIS press release is here. Excerpt from press release:
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The TUC’s “Trade Union and Engagement Guidelines” of March 2013 are here.
It cost the Pru hundreds of millions in abort costs and fees in 2010, and today it has cost them another £30 million in an FSA fine.
Prudential, according to the Financial Services Authority, didn’t tell the regulator what it was intending – even when the regulator pretty much asked and even though its own advisers emphasised the importance of keeping the FSA informed. The CEO is also censured. FSA press release here and Final Notices here (the Pru) and here (the CEO).
From the FSA press release (our emphasis added):
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On 11 March 2013 the Department of Business, Innovation and Skills published a second draft of the regulations which will implement the Government’s changes to the corporate governance framework for executive remuneration. As we discussed in this post of June 2012, the big change is to give shareholders in quoted companies a binding vote over executive remuneration.
The second draft of The Large and Medium-sized Companies and Groups (Accounts and Reports )(Amendment) Regulations 2013 is here. The BIS consultation page is here.
On 22 March 2013 BIS published a useful set of FAQs on these new regulations. Section C of those FAQs attempts to explain the implementation of the timing of the new regime.
The Financial Reporting Council’s “Financial Reporting Lab” published on 5 March 2013 the results of its second project on reporting remuneration, “this time exploring the views of investors and companies on two new aspects of the draft reporting regulations on remuneration:
The Lab’s press release is here and the project report is here.
See also: A single figure for directors’ pay? FRC Financial Reporting Lab report#
The National Association of Pension Funds, today (press release and letter):
“Pension funds have warned the FTSE 350 that shareholders will not tolerate unjustified executive rewards in the upcoming voting season, and have set out the pay guidelines they expect to see applied in 2013.
In a letter sent to the chairmen of FTSE 350 businesses, the National Association of Pension Funds (NAPF) warned that companies that have failed to create a strong link between executive rewards and performance should expect shareholders to repeat their concerns of spring 2012.
The NAPF also set out some guidelines it wants to see reflected in the pay policies set through 2013. These include capping executive base pay increases at inflation and keeping them in line with the rest of the workforce. Where this is not the case, companies should offer a sound explanation.
The NAPF also criticised the use of peer group benchmarking, where pay is set by comparing it to that of other executives from different companies. The NAPF believes this practice has contributed to the escalation of boardroom pay. It said boards should focus more on their own strategies and less on comparing themselves against their peers.
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Summary of measures from the New York Times; applies to Swiss-listed companies.
See also: Directors’ pay in quoted companies: draft regulations and Government consultation document published
Section 175:
“A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest which conflicts, or possibly may conflict, with the interests of the company.”
J Sainsbury plc Annual Report 2012, page 40:
“The Board…considered a potential conflict for Justin King, whose son, Jordan King, is one of the country’s top young racing drivers. His recent success is attracting interest from potential sponsors. Current sponsors include high net-worth individuals and companies with established interests in motor sport. Some of the sponsors are also suppliers to Sainsbury’s. Jordan King arranges his sponsorships through his company, 42 Racing Ltd. The Board has satisfied itself that Justin King has no direct involvement in the trading relationship between Sainsbury’s and any supplier who may have an interest in 42 Racing Ltd. It is satisfied that the governance of all supplier relationships is robust and that there is therefore no conflict of interest regarding these arrangements.”
H/T The Times 27 February 2013: Sainsbury boss Justin King’s son is given a racing start by store’s suppliers
David Jones is also a former chairman of Next plc:
From an SFO press release today:
“Today, two men appeared before Leeds Magistrates’ Court in response to a summons in connection with forgery and misleading statements made to the market by JJB Sports Plc in 2009.
Sir David Charles Jones (70) of Ilkley, West Yorkshire was the Executive Chairman of JJB Sports Plc between January 2009 and January 2010. He is charged with:
• Two offences of making a misleading statement, contrary to s397(1)(b) of the Financial Services and Markets Act 2000;
• One offence of using a false instrument, contrary to s3 of the Forgery and Counterfeiting Act 1981.
Stuart Mark Jones (38) of Bingley, West Yorkshire is the son of Sir David Jones and was employed as Head of Marketing at JJB Sports plc in February 2009. He is charged with:
• One offence of aiding and abetting Sir David Jones’s use of a false instrument, contrary to s3 of the Forgery and Counterfeiting Act 1981.
Both defendants were released on unconditional bail. Proceedings are to be transferred to a Crown Court for 19 April 2013.”
From Wey Education plc’s announcement on 29 January 2013:
“On 17 January 2013, the Company sent Dr Atkins a copy of a report which set out, inter alia, allegations (i) that Dr Atkins had breached her fiduciary duties and her conduct was not commensurate with her duties and responsibilities as Chief Executive Officer of the Company; (ii) Dr Atkins had accepted a position as a Director of a Wey client company, without disclosing such to the Wey Board, or seeking permission for such; (iii) that Dr Atkins had incorporated various companies, having names similar to that of the Company and its principal subsidiary, Zail Enterprises Limited, where Dr Atkins was named as the sole shareholder and Director, again without disclosing such to the Wey Board; and (iv) that Dr Atkins had supplied incomplete or inaccurate information to the Company’s ISDX Advisor as to her Directorships and shareholdings.”
See also: Directors: Loyalty, avoiding conflicts and not making secret profits
On 30 January 2013 the Financial Reporting Council issued a consultation document on implementing the recommendations of the Sharman Inquiry on Going Concern and Liquidity Risks. The consultation document is here and the accompanying press release is here. From the press release:
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In 18 January 2013 ICSA published a guidance note on ”Liability of non-executive directors: care, skill and diligence“. From the accompanying press release:
“The latest ICSA guidance note suggests ways in which NEDs can approach their work which would also allow them to demonstrate to a regulator, or in a court of law, that they had executed all necessary steps to reduce their liability exposure.
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The snappily-named Listing Rules Joint Working Party of the Company Law Committees of the Law Society of England and Wales and the City of London Law Society has published its response to the FSA’s October 2012 consultation on “Enhancing the effectiveness of the Listing Regime” (we discussed the consultation in this post).
Here.
30% Club press release of 13 December 2012:
“The 30% Club has been working on a new initiative to improve the number of women partners in UK professional services firms. A group of ten law firms and seven accountancy/consultancy firms, most of whose managing partners are members of the 30% Club, participated in a 10 week project, co-ordinated by the 30% Club and facilitated by McKinsey and Company. The purpose of the initiative was to examine why, notwithstanding the efforts of individual firms to date, progress remains limited as to the numbers of women partners in professional services firms, and suggest ideas for firms to explore to accelerate the pace of change. Key components of the initiative included interviews with senior leadership and HR managers, the provision of quantitative data on pipeline and talent processes and the participation by over 700 fee-earners in an online feedback survey, results of which were analysed on an anonymised and aggregated basis.
A key finding was that attrition was not the root cause of lack of women in partnership, nor prioritisation, with 80 per cent of firms having diversity as a strategic priority and an array of efforts being undertaken by individual firms. Rather it appeared the issue stems from inconsistent commitment to diversity at all levels in firms, questions around the partner promotion process which both men and women believe may not evaluate ability and different leadership styles in a way that furthers equality, and differences between men and women’s perceptions of being a partner and the process towards promotion. Ideas to address the challenges include embedding greater accountability for progress amongst all partners and effecting a shift from a diversity strategy focussed on women to a “talent” strategy, with a particular emphasis on sponsorship. An increased scrutiny of critical systems, such as work allocation and annual evaluation is also suggested, to ensure fairness of allocation and attribution of value to outputs in a broader range of ways. Continued collaboration and engagement with key stakeholders, including the client community, are also key, with a commitment made by these firms to reconvene to review progress on a regular basis going forward.”
Announcement here.
“The Business, Innovation and Skills Committee today announces its intention to inquire into the Kay Review of UK Equity Markets and Long-Term Decision Making and the Government’s Response to that Review.
The Committee invites submissions of evidence on the recommendations set out in the Kay Review and the Government’s plans for the implementation of its recommendations.”
Submissions are invited by 18 January 2013.
See also: Government response to the Kay Review: strongly supportive
The European Commission yesterday set out an “Action Plan: European company law and corporate governance“. The accompanying press release is here and a set of FAQs is here.
Below are the 16 measures contained in the plan; the “precise scope” of the different actions – i.e. whether each will relate to all companies or only to companies listed on regulated markets – will, in the Commission’s words, “be assessed at a later date”.
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The Association of British Insurers has updated its “Principles of Remuneration”, which are now dated November 2012 and can be read here.
The Government published on 22 November 2012 its response to the The Kay Rcview of UK Equity Markets and Long-term Decision Making. The Kay Review – which we discussed in this post – made 17 specific recommendations aimed at, in the Government’s words, “reversing the culture of short-termism and restoring relationships of trust and confidence in the investment chain”; the Government response sets out its (overwhelmingly supportive in principle, if not in detail) stance on each of those recommendations
The BIS press release is here and the Government response document is here. From the press release:
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The European Commission has today published a draft directive on “improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures”. The headline proposal is the setting of an objective for a 40% presence of women among non-executive directors of companies listed on EU regulated markets, to be met by 2020.
This is a target, not a mandatory quota. The directive does encourage an element of positive discrimination in favour of appointing women if all other criteria for the position are met equally by candidates; see the extract from the directive below.
The Commission’s press release is here. The Justice Commission’s press release is here. A set of Q&As on the proposed directive is here. The draft directive is here.
From the draft directive:
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In a new consultation paper published today, the Financial Services Authority – in its guise as the UK Listing Authority – has announced that it is consulting on:
No, according to this report in the New York Times on a recent study by two US academics who:
“…conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another. In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up.
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Ofcom, in its decision issued yesterday on whether Sky is a fit and proper person to hold a broadcasting licence, gives a good example of how section 174 Companies Act can be breached by an omission or lack of action by a director. That section requires that a company director “must exercise reasonable care, skill and diligence”.
In assessing James Murdoch’s failure to take meaningful steps to investigate allegations of wrong-doing at the News of the World (i.e. phone hacking), Ofcom observes that:
“…a company director is required to exercise reasonable care, skill and diligence in the exercise of his functions. He may delegate, but has a duty to supervise appropriately. We consider James Murdoch’s conduct, including his failure to initiate action on his own account on a number of occasions, to be both difficult to comprehend and ill-judged. In respect of the matters set out above, in our view, James Murdoch’s conduct in relation to events at NGN repeatedly fell short of the exercise of responsibility to be expected of him as CEO and chairman.”
Ofcom clearly believes that Mr Murdoch’s behaviour and absence of challenge fell short of fulfilment of that duty.
The Times reported on 13 September 2012 that Legal & General Investment Management has banned remuneration consultants from meetings with company management:
“Sacha Sadan, the director of corporate governance at LGIM, said that when pay consultants were present, they tended to dominate proceedings. He added that LGIM, which owns 4 per cent of the stock market, was not alone in outlawing pay advisers from its meetings with management. “If the chair of the remco [remuneration committee] can’t explain the policy, then that means it is not right,” he said.”
See also: Vince makes his mind up: Final plans for reform of directors’ pay in quoted companies
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The London Stock Exchange has produced a new guide to “Corporate Governance for Main Market and AIM Companies”, which can be read here. Written by a number of law firms and financial and other advisers, it is a comprehensive overview, if not particularly detailed discussion, of the subject and associated areas such as:
• Corporate governance in an EU context
• Requirements for non-UK companies listing in London
• Inside information
• The Bribery Act 2000
• Managing directors’ conflicts
• The independent adviser’s role
• Financial communications and investor strategies
• Protection for directors and their companies.
See also: Corporate governance
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The Government today launched new guidance for senior business leaders on tackling “the growing cyber threats to their companies”. The BIS press release is here. Excerpt:
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The Financial Times reports today that Viviane Reding, the EU Justice Commissioner, will next month propose that listed companies “will be forced to reserve at least 40 per cent of their non-executive board seats for women by 2020 or face fines”. The FT points out that such rules could be adopted by majority voting, so the UK would not have a veto. The draft of the proposals obtained by the FT suggests that the proposals would apply to companies with more than 250 employees or more than Euro 50 million in revenues, with those failing to meet the mandatory quota being subject to “administrative fines” and, more seriously, potentially being barred from state aid and contracts.
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ICSA has updated (dated June 2012, published July 2012) its guidance note on the induction of directors. The updated guidance can be read here. The introduction to the guidance says that:
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In an undated announcement on its website, the Serious Fraud Office states that it has re-opened its investigation into Weavering Capital UK, the advisor to the US$639 million Weavering Macro Fixed Income Fund Ltd hedge fund which collapsed in 2008:
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The Times reports today (here, paywall) that:
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Prompted by the failure of the Royal Bank of Scotland and in the spirit of Barclays travails, HM Treasury today launched a consultation on possible sanctions for directors of failed banks. The consultation document is here and the accompanying Treasury press release is here.
The two principal measures suggested in the consultation document are:
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Marcus Agius back as Chairman. Announcement here.
Mr Diamond said in the announcement: “We…added our own distinctive chapter to the long and proud history of Barclays”.
UPDATE 3 July 2012: Barclays submission to the Treasury Select Committee is here. The part of interest is the file note by Bob Diamond, in which he recorded on 29 October 2008 that Paul Tucker, Deputy Governor of the Bank of England, had that day told him that “it did not always need to be the case that we [i.e. Barclays LIBOR submissions] appeared as high as we have recently”.
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In his statement this afternoon on LIBOR, the Chancellor of the Exchequer announced a plethora of inquiries and reviews:
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