UK: ABI Principles of Remuneration - revised edition published

The Association of British Insurers has published an updated edition of its Principles of Remuneration: see here.

UK: ABI report and recommendations on improving corporate governance

The Association of British Insurers has published a report titled Improving Corporate Governance and Shareholder Engagement: see here (pdf). Many recommendations are made. The ABI calls on companies to ensure that their corporate governance reporting focuses on the application of the UK Corporate Governance Code principles rather than with reporting compliance. Reviewing the time commitment of non-executive directors is also recommended.

UK: ABI publishes 'Encouraging equity investment' report

The Association of British Insurers published a report today titled Encouraging Equity Investment, Facilitation of Efficient Equity Capital Raising in the UK Market: see here (pdf). Many recommendations are made including some regarding governance and, in section 3.4 of the report, it is argued that the governance standards of companies with controlling shareholders should be increased. In this regard some suggestions are given including imposing certain compliance responsibilities directly on controlling shareholders and making them liable for the prospectus at IPO for companies seeking a Premium listing.

UK: ABI publishes board effectiveness report

The Association of British Insurers has published its second report on board effectiveness: see here (pdf). Based on an analysis of FTSE350 company reports, a survey of FTSE350 company secretaries and interviews with company chairmen, the ABI finds that boards are making clear progress on diversity and the use of external evaluation but need to do more on disclosing their approach to succession planning.

UK: The ABI's Principles of Executive Remuneration

The Association of British Insurers has published an updated edition of its Principles of Executive Remuneration: see here. The Principles reflect ABI members' views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured.

UK: ABI publishes board effectiveness report and updated remuneration principles

The Association of British Insurers yesterday published a report on boardroom effectiveness (see here, pdf) and an updated edition of its remuneration principles (see here or here, pdf).

UK: ABI remuneration guidelines - letter to remuneration committees

The Association of British Insurers has written to remuneration committee chairmen highlighting aspects of its remuneration guidelines which are of particular relevance in the current economic climate: see here (Word). The ABI states, for example, that:

Remuneration structures that seek to increase tax efficiency should not result in additional costs to the company or an increase in its own tax bill. Remuneration Committees should be aware of the potential damage to the company’s and shareholders’ reputation from implementing such schemes".

UK: ABI revised guidelines on executive remuneration

The Association of British Insurers has published revised guidelines on executive remuneration: see here (html) or here (pdf). The guidelines are principally intended for listed companies and cover the following: remuneration committees and their responsibilities; base pay, bonuses, pensions and contracts and severance; and share-based incentive schemes.

UK: Lord Myners on the Walker Review and the ownerless company

Lord Myners, the Financial Services Secretary, was interviewed by the BBC's Business Editor, Robert Peston, in a TV programme - Leading Questions - broadcast last Saturday. Lord Myners repeated his call for the radical reform of bank corporate governance and argued that institutional investors need to become effective owners (as opposed to investors) in order to prevent what he called the "ownerless company". 

Lord Myners suggested that Sir David Walker's recommendations had not gone far enough with regard to remuneration. He also stated that consideration should be given to introducing differential voting rights in order to provide an incentive for institutions to take ownership more seriously. This suggestion has attracted much attention. A report in today's Financial Times notes criticism from the National Association of Pension Funds. Criticism from the Association of British Insurers was noted in a report in Saturday's Telegraph newspaper. 

The interview can be viewed below (but only for those in the UK) and will be available until 4:59am on 8 August. If the video does not appear embedded below, try watching it here. 

UK: Bellway shareholders reject remuneration report

Last Friday, at the Bellway plc annual general meeting, a majority of shareholders voted against the company's remuneration report (see pp. 34-41 of the company's annual report and accounts). It is highly unusual for a company to lose such a vote. The cause of the shareholders' concern was the company's lack of consultation regarding directors' bonuses and the vagueness over future policy. After the meeting, the board published this statement expressing contrition:

The Board has noted shareholders' views on the Report of the Board on Directors' Remuneration and believes it was wrong in not consulting with major shareholders earlier. It therefore proposes to review future policy on this matter, in consultation with them, in the coming months".

Notes:

[1] The UK's Combined Code on Corporate Governance stresses the importance of discussion with shareholders. Main Principle D1 provides:

There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place"

[2] Quoted companies are required to provide shareholders with the opportunity to vote on the contents of the remuneration report (see Section 439 of the Companies Act 2006). The vote is advisory and does not effect the validity of the company's remuneration arrangements. 

[3] The Association of British Insurer's Director of Investment Affairs, Peter Montagnon, provided the following comments in a statement issued after the AGM:

This is a very clear message that there must be a proper link between reward and performance, even in a sharp economic downturn. It is right that Bellway should consult with shareholders on its policy review. More broadly, shareholders expect all companies to be sensitive to the need for bonuses to be paid only if stretching targets are met. Remuneration consultants, who advise companies, should be particularly alert to the views of shareholders in this regard.”

UK: updated ABI guidance - directors' powers to allot shares and disapply pre-emption rights + articles of association

In December, the Association of British Insurers published updated guidance regarding: [1] Directors' powers to allot share capital and disapply shareholders' pre-emption rights and [2] articles of association. The former outlines the ABI's change of position following the recommendation of the Rights Issue Review Group that the overall allotment headroom that shareholders should normally be invited to approve be increased from one third to two thirds of the issuer's issued share capital. For further information, see the ABI's press release and this report from The Financial Times. 

The ABI's articles of association guidance states that "[a] company's Articles of Association are a key element of corporate governance and consequently of considerable interest to investors" and sets out the ABI's expectations with regard to various matters including directors' conflicts of interest, auditor liability limitation agreements and political expenditure. With regard to dispute resolution clauses, the guidance document explains:

Some companies believe that it is appropriate to provide for a dispute resolution procedure and governing law in their Articles. In general terms these provide that arbitration should be in accordance with the Rules of Arbitration of the International Chamber of Commerce. Where a court determines that arbitration cannot be used in a particular dispute, or where a derivative claim is being brought under the Companies Act 2006, the courts of England and Wales would have exclusive jurisdiction. However, ABI members remain concerned about such dispute resolution provisions being codified in the articles of association. If a Company considers that such provision may be appropriate in their case, it is advised that careful consultation with shareholders is necessary".

UK: Rights Issue Review Group report and recommendations

Amongst the documents published today, as part of the Government's pre-budget report, is the report of the Rights Issues Review Group. The Government has agreed with the Group's recommendations, which include the following short-term objectives (to quote directly from the report):

• The FSA and BERR to consult on reducing the rights issue subscription period from 21 to 14 days.
• BERR to take forward the practical transposition of the Shareholder Rights Directive to maintain the option of a 14 day notice period for companies’ general meetings.
  
• The Association of British Insurers (ABI) to review its guidance on the ceiling on allotments in light of the Group’s recommendation that it be increased from one-third to two-thirds of an issuer’s issued share capital.
  
• The FSA to continue to maintain oversight of the conflict of interest regimes with a view to reinforcing transparency between issuers and underwriters.
  
• The FSA to facilitate the development by market participants of non-prescriptive guidance on the issues that an issuer could usefully consider when embarking on a capital raising by way of a rights issue.
  
• The FSA to take forward consultation on a new form of open offer which will provide compensation and which may be run over a 14 day period in conjunction with a general meeting notice period. 

Several medium term objectives are identified, including:

• Working at the EU level for the adoption of a short form prospectus for rights issues.
  
• The possible increased use of shelf registration for equity issuance.
  
• The FSA to consider further a basis for conditional dealing in rights issues to allow the general meeting notice period and the rights issue subscription period to be run in parallel.
  
• The FSA to undertake further informal discussions on the usefulness of progressing with further work to introduce more accelerated rights issue models including for this purpose the Australian RAPIDS [Renounceable Accelerated Pro-rata Issue with Dual-bookbuild] model.
  
• The FSA market consultation on a more permanent position on short selling in rights issues.
  

UK: ABI publishes rights issue discussion paper

The Association of British Insurers has published a discussion paper titled "Rights Issues and Capital Raising". This makes suggestions for improving the capital raising process whilst respecting shareholders' pre-emption rights. Further information is available in this brief letter and longer article from the UK's Financial Times newspaper. The consultation paper has been published against the background of the Government's review of the rights issue regime: see this earlier post.

UK: Relationship between good governance and company performance

The ABI has published a report titled "Governance and performance in corporate Britain" in which, to quote directly from the report, it seeks to answer the following questions:

"...does good governance lead to stronger operating performance, and does it lead to higher share price returns? Our findings suggest the answer is yes. We use the ABI’s Institutional Voting Information Service (IVIS) to assess the quality of company governance over a four-year period. It is the first time we have used the data in this way. We set this against data on company performance and shareholder returns generated by Thomson Financial. The studied companies are in the FTSE All-Share Index".

The authors conclude (to quote directly from the report):

(a) Over a five-year period, the shares of well-governed companies deliver an extra return of 37 basis points a month industry-adjusted.

(b) The volatility of share-price returns is also lower for portfolios of well-governed companies. In addition, well-governed companies deliver higher returns when you adjust for risk.

(c) The overall balance of the board is important. More Non-Executive Directors (NEDs) on a board improves performance, but too great an increase in the percentage of NEDs on a board is associated with a decrease in profitability. The key is balance. This suggests that the Combined Code model of balanced boards, or of at least two independent NEDs at sub-FTSE 350 companies, is preferable to the US model that appears to favour boards with a vast majority of NEDs.

UK: Directors' contracts and severance pay: ABI and NAPF revised guidance

The ABI and NAPF joint guidance on directors' contracts and severance pay has been revised. The revised guidance contains eight principles and it is interesting to note here what is said with regard to notice periods:

"The Combined Code states that under normal circumstances directors should be retained on contracts of one year or less. However we believe that a one year notice period should not be seen as a floor, and we strongly encourage boards to consider contracts with shorter notice periods. Compensation for risks run by executive directors is already implicit in the absolute level of remuneration, which mitigates the need for substantial contractual protection"..

The guidance is available here.