Australia: Treasury consultation - greater transparency of proxy advice

The Australian Treasury has published a consultation paper seeking views on various reform options including those designed to ensure independence, facilitate engagement between companies and proxy advisers, and provide for an appropriate licensing regime. The paper is available here here (pdf).

UK: FCA policy statement - PS19/28: Proxy Advisors (Shareholders’ Rights) Regulations implementation

The Financial Conduct Authority has published a policy statement in respect of the changes it will make to its Decision Procedure and Penalties manual (DEPP) and the Enforcement Guide (EG) following the new powers given to it by the Proxy Advisors (Shareholders’ Rights) Regulations 2019: see here (pdf).

USA: SEC guidance on proxy rules and proxy voting responsibilities

Earlier this week the Securities and Exchange Commission published two documents concerning proxy voting: [1] guidance regarding the proxy voting responsibilities of investment advisers (here, pdf); [2] interpretation and guidance regarding the applicability of the proxy rules (here, pdf).

India: SEBI report on proxy advisors

At the end of last month, SEBI published a report from the Working Group on Issues Concerning Proxy Advisors: see here. Public comment is now invited in respect of the report and the recommendations it contains. The report recommends that SEBI "may" consider drafting a code of conduct for proxy advisors. It also recommends that SEBI "should" make a stewardship code, operating on the basis of 'comply or explain', mandatory for all institutional shareholders.

UK: The Proxy Advisors (Shareholders’ Rights) Regulations 2019

The Proxy Advisors (Shareholders’ Rights) Regulations 2019 were laid before Parliament yesterday and come into force on 10 June: see here or here (pdf). The Regulations are accompanied by an impact assessment and explanatory memorandum: see, respectively, here (pdf) here (pdf). The Regulations introduce a new transparency framework for proxy advisors; as the memorandum explains (para. 2.1):

This instrument transposes Article 3j of the revised EU Shareholder Rights Directive (SRD II) into UK law, in line with the UK’s obligations as a member of the EU. Article 3j of SRD II places requirements on proxy advisors, which primarily offer voting services and/or advice to shareholders in publicly listed companies, to make certain disclosures about the way in which they conduct their business". 

Under the framework being introduced by the Regulations, the Financial Conduct Authority will become responsible for enforcing the new requirements placed on proxy advisors, including the obligation to disclose publicly the code of conduct* that has been adopted (with an explanation provided if a code is not adopted). Proxy advisors will be required to notify the FCA if they fall within the new framework and the FCA will maintain a public list.

* - The BPP Group is currently revising its Best Practice Principles for Shareholder Voting Research. The review is expected to be completed next month; an update on the review was published last month: see here.

UK: Exploring the intermediated shareholding model - BIS research paper

The second BIS research paper for 2016 was published yesterday. Titled 'Exploring the Intermediated Shareholding Model', the paper presents the results of important and interesting research concerning the chains of ownership and voting between individual and institutional investors and the companies in which they have invested. The research found, for example, that interest in attending and voting at the annual general meeting was low amongst individual shareholders. A copy of the paper is available here (pdf).

Canada: securities administrators publish guidance for proxy advisory firms

The Canadian Securities Administrators have adopted National Policy 25-201 Guidance for Proxy Advisory Firms: see here (pdf). The policy document contains recommended practices in respect of conflicts of interest; the determination of vote recommendations; the development of proxy voting guidelines; and communications with clients, market participants, other stakeholders, the media and the public.

Europe: ESMA publishes revised work programme for 2015

The European Securities and Markets Authority has published a revised work programme for 2015: see here (pdf). With regard to corporate governance, it is noted that ESMA will in the fourth quarter of 2015 undertake a review of the published best practice principles for proxy advisors.

UK: FRC publishes annual review of governance and stewardship

The Financial Reporting Council has published its annual review Developments in Corporate Governance and Stewardship: see here (pdf). The report provides: an assessment of corporate governance and stewardship in the UK; a report on the quality of compliance with, and reporting against, the UK Corporate Governance Code and UK Stewardship Code; findings in respect of the quality of engagement between companies and shareholders; an indication of the changes in governance behaviour or reporting that the FRC would like to see; and a summary of other developments, including changes to the regulatory framework within the UK and at European level (e.g., the European Commission's Recommendation on the quality of corporate governance reporting (2014/208/EU) and the proposed new Shareholder Rights Directive). .

A few points from the report follow. The FRC believes that the quality of corporate governance in the UK is high but it nevertheless identifies areas where improvements can be made. One such area is the quality of explanations provided as part of 'comply or explain', in particular where companies explain why, in departing from the Code, their chosen arrangements are appropriate.

The role of proxy advisors is discussed in the report because of the mixed reports that FRC has received about the quality of reporting, engagement and voting outcomes which result from the relationship between some proxy advisors and their clients. The FRC will be considering what role it can play in improving engagement and communication between the parties. The FRC will also be publishing a discussion document this year on succession planning and will also begin work to assess how effective boards are at establishing company culture and embedding appropriate behaviour.

With regard to the UK Stewardship Code, the FRC is concerned that too many signatories do not do what they have signed up to do. The standard of reporting by signatories is also variable. The first half of 2015 will see the FRC begin a project on how it can best promote a culture of stewardship; it will also increase its scrutiny of adherence to the Code.

Canada: Securities regulators consult on proxy advisory firm guidance

The Canadian Securities Administrators have published for consultation Guidance for Proxy Advisory Firms: see here (pdf). The guidance applies to all proxy advisory firms. It is not intended to be prescriptive but rather to provide a starting point for firms in developing and implementing their own practices with regard to various matters including conflicts of interest, the transparency of vote recommendations and communications with clients.

Europe: Commission publishes governance proposals - remuneration, shareholder rights, disclosure, Societas Unius Personae

The European Commission has today published a proposal for revising the Shareholder Rights Directive, a Recommendation on corporate governance reporting and a proposal for a Directive on single member private limited liability companies: see here.

The proposed revisions to the Shareholder Rights Directive include changes to the disclosure obligations in respect of a remuneration and the introduction of a binding vote on remuneration policy for certain companies. It also imposes new disclosure obligations on proxy advisors and the requirement for shareholder approval of certain related party transactions. For further information see: FAQs | Proposed Directive (pdf) | Impact assessment: summary (doc) and full text (doc).

The purpose of the Recommendation is to provide guidance on improving the quality of corporate governance reporting for those companies required to publish a corporate governance statement under Article 20 of Directive 2013/34/EU. A copy of the Recommendation is available here (doc).

The proposed Directive on single member private limited liability companies will require Member States to make available, through their individual legal systems, a single member private limited liability company, with several harmonised features and a common name (Societas Unius Personae, or SUP). The SUP would have a minimum capital requirement of one euro. For further information see: FAQs | Proposed Directive (doc) | Impact assessment: summary (doc) and full text (doc).

Best Practice Principles for Governance Research Providers

Last year the Best Practice Principles for Governance Research Providers Group published for consultation a draft of its Best Practice Principles for Governance Research Providers: see here (pdf). A final version of the principles was published last week: see here (pdf).

Best Practice Principles for Governance Research Providers - draft published for consultation

The Best Practice Principles for Governance Research Providers Group has published for consultation a draft of its Best Practice Principles for Governance Research Providers: see here (pdf). The core principles fall under the headings of service quality, conflict of interest management and communications policy and operate within a framework of 'comply or explain'.

Canada: CSA update on proxy advisor consultation

The Canadian Securities Administrators have published an update and summary of the responses received in respect of last year's consultation on proxy advisor regulation: see here (pdf). Regulation is not proposed, but guidance on recommended practices and disclosure will be published next year.

Canada: Securities Administrators priorities for 2013-2016

The Canadian Securities Administrators outlined its priorities for 2013-2016 earlier this week: see here (pdf). Included is work considering defensive tactics in takeovers and the regulation of activities undertaken by proxy advisory firm.

UK: PIRC recommends opposition to all new long-term incentive plans

PIRC has published the latest edition of its share owner voting guidelines: see here. Opposition to all new long-term incentive plans is recommended because, in PIRC's view, they are not long-term and do not incentivise. PIRC is also calling for greater scrutiny of remuneration consultants and companies' use of International Financial Reporting Standards.

Europe: ESMA recommends EU Code of Conduct for Proxy Advisors

The European Securities and Markets Authority has published its final report on the proxy advisory industry: see here (pdf). The report identifies several concerns with regard to the independence of proxy advisors and the accuracy of the advice provided. ESMA believes that these should be addressed through the introduction of an EU code of conduct for proxy advisors and its report sets out a proposed framework for such a code.

Europe: the Commission's action plan for company law and corporate governance

The European Commission published its company law and corporate governance action plan yesterday: see here (pdf). Nothing revolutionary in approach is proposed: national corporate governance codes, and the dominant 'comply or explain' approach, will remain. There are, instead, proposals within three broad areas which build on the current framework: increased transparency; more shareholder engagement; and exploring ways to support economic growth particularly in the cross-border context. Amongst the Commission's proposals are the following:

• Increase disclosure of board diversity policy and of risk management arrangements.
• Improve the visibility of shareholdings in listed companies in Europe.
• Improve the quality of corporate governance reports (in particular the quality of explanations provided by companies departing from corporate governance code provisions).
• Disclosure of voting and engagement policies as well as voting records by institutional investors.
• Improving transparency on remuneration policies and individual remuneration of directors, and granting shareholders the right to vote on the remuneration policy.
• Improve shareholder control over related party transactions.
• Improve the transparency and the conflict of interest frameworks applicable to proxy advisors.
• Work closely with competent national authorities and the European Securities and Markets Authority to develop guidance to increase legal certainty as regards the relationship between investor cooperation on corporate governance issues and the rules on acting in concert.
• Increase awareness of the European Company (SE) Statute (including employees' involvement) and possibly of the European Cooperative (SCE) Statute.
• Identify obstacles to employee share ownership in Member States.
• Further investigate the rules on the cross-border transfer of a company's registered office.
• Revise the rules on cross-border mergers.
• Investigate further rules on cross-border divisions.
• Codify the major company law Directives.
• Improve the information available on groups and recognition of the concept of ‘group interest’.

Europe: ESMA's proxy advisor consultation - responses published

The European Securities and Markets Authority has published the responses received in respect of its consultation on proxy advisors: see here. A feedback statement is expected later this year. A copy of the consultation paper is available here (pdf).

Canada: the regulation of proxy advisory firms

The Canadian Securities Administrators have published for comment a consultation paper in which views are sought on the potential regulation of proxy advisory firms in the light of concerns that have been raised about their services and impact on Canadian capital markets: see here (pdf).