UK: defining the characteristics of mutual deferred shares

HM Treasury has published a consultation paper seeking views on the characteristics of mutual deferred shares, for the purpose of Regulations to be created under section 1 of the Mutuals’ Deferred Shares Act 2015: see here (pdf).

UK: The Mutuals’ Deferred Shares Act 2015

The Mutuals’ Deferred Shares Bill received Royal Assent yesterday: see here. A copy of the new Act is available here or here (pdf). The Act gives the Treasury the power, through secondary legislation, to permit or facilitate the issue of deferred shares by a friendly society or mutual insurer. For further background information, see the briefing paper provided by the Commons Library and available here.

UK: reforming bank governance - some suggestions from Andrew Haldane

The current issue of the London Review of Books contains an article by Andrew Haldane, the Executive Director for Financial Stability at the Bank of England, titled The Doom Loop: see here. Mr Haldane writes on a topic about which he has already spoken over the past year or so: the governance of banks and the appropriateness of vesting control rights in shareholders where equity represents a small proportion of bank balance sheets. He makes several suggestions, including extending voting rights across a wider group of stakeholders in order to curb the profit-seeking incentives of the equity minority.

UK: Government promises consolidated legislation for co-operatives and mutuals

In a speech delivered earlier today, the Prime Minister stated that the Government would seek to consolidate the legislation concerning co-operatives and mutuals during the current session of Parliament: see here.

UK: the Plan for Growth and corporate governance

HM Treasury and the Department for Business, Innovation and Skills published A Plan for Growth yesterday, described in its introduction as "an urgent call for action": see here (pdf). The document contains a section on corporate governance, defined as "the framework established through legislation, regulation and practice by which companies are directed or controlled" (para. 2.133). In this section proposals are outlined which, in the Government's view, will improve corporate governance, including:

• Reducing the number of companies required to be audited and pressing the European Commission to remove the audit requirement for most medium sized companies as part of a revised audit directive (expected, the Government states, in November 2011).
• Changing the law in 2012 to exempt many subsidiaries from producing audited accounts and encouraging the European Commission to exempt the smallest companies from reporting requirements.
• Requesting the Office of Fair Trading to investigate whether clauses in lending agreements made by banks are unfairly restricting competition in the audit market [in this context, the report refers to work by the OECD, available here (pdf)].
• Simplifying the narrative reporting requirements for quoted companies (views will be sought from business by the end of July 2011).
• Modernising the legislative framework governing mutuals. 

The Government also explains, at para. 2.139, that it will publish in the summer this year "the next steps" of its review of corporate governance and economic short-termism.

UK: Budget 2010 - financial regulation and governance

The Chancellor delivered his annual budget today and in his speech expressed support for an international systemic tax on banks. Elsewhere in the budget report there is more of interest to note. Chapter 3 of the report - titled "Reforming financial services" - mentions several company law and governance matters, many of which are likely to remain if there is a change of Government later this year. To quote directly from the report (para. 3.24-3.25 and 3.65):

Sir David Walker was commissioned by the Government in 2009 to review governance practices in the financial services sector. The Government, in collaboration with other bodies with a governance remit, will implement Sir David’s recommendations throughout 2010. Consequently, the FSA is consulting on changes to its ‘significant influence controlled functions’ regime. The Financial Reporting Council (FRC) is consulting on revisions to the Corporate Governance Code, and separately on the adoption and coverage of a Stewardship Code for investors. As part of the development of the Stewardship Code on which the FRC is currently consulting, the Government will also consider whether the existing institutional investor voting disclosure regime should become mandatory as provided for in section 1277 of the Companies Act 2006.

On 10 March 2010 the Government published draft Regulations to require enhanced disclosure of remuneration in the financial services sector. After the Financial Services Bill gains Royal Assent, the Government will formally consult on those Regulations. As part of that process, and given the key role that owners should play in managing remuneration contracts, the Government will consult on whether further practical measures can be identified to facilitate the consent, by owners, of executive remuneration in the financial services sector.

The Government proposed in the 2009 Pre-Budget Report the introduction of a specific governance code for building societies and other financial mutuals. It also announced that it would consider the introduction of a regular independent review of financial mutuals’ adherence to the code. HM Treasury has commissioned a working group to take this work forward and to make recommendations to Ministers. The objectives are to ensure that an appropriate code is there for those that need it; the Walker recommendations are appropriately reflected in guidance for mutuals; there is independent input into this process; the governance and ownership characteristics of the mutual model are fully reflected in governance guidance; and the guidance provides a useful resource in promoting good governance among financial mutuals. The Government will update on the group’s work in the Pre-Budget Report".

UK: corporate governance at building societies

The Building Societies Association has published the fourth edition of Conversations with Members - Member Engagement at Building Societies: see here (pdf). This report provide a very useful overview of building society governance and in the section titled "Members' Direction and Control" there is information on governance matters across the sector including attendance at AGMs, board composition and directors' remuneration.

UK: the Association of Financial Mutuals

A new organisation - the Association of Financial Mutuals - was formed through the merger of the Association of Mutual Insurers and the Association of Friendly Societies on January 1. In a report appearing in the Financial Times, the AFM's chief executive, Martin Shaw, is quoted:

The mutual sector has proved its strength through the recent financial crisis, continuing to innovate and provide value to its customers and we need to keep on doing this ... It will also be of paramount importance to protect what mutuals stand for and ensure the government supports and recognises some of our initiatives, such as the corporate governance code [here: pdf] we have developed"