UK: BEIS Committee report - 'Executive Rewards: paying for success'

The Business, Energy and Industrial Strategy Committee published its report 'Executive Rewards: paying for success' today: see here or here (pdf). The report is critical of the role played by institutional investors, remuneration committees and the Financial Reporting Council (FRC). The Committee calls for the simplifcation of pay, advocating a structure based on fixed salary plus deferred shares that would vest over a long period (and subject to provisions designed to prevent 'rewards for failure'). It also calls for remuneration committees to have at least one employee representative. 

The Committee is strongly supportive of the creation of the new Audit, Reporting and Governance Authority (ARGA), to replace the FRC, and states that the ARGA should be "a more empowered, aggressive and proactive regulator that has the ability to take decisive action, where necessary, on executive pay and its reporting" (para. 11). Many of the Committee's recommendations are directed at the ARGA, particularly with regard to the revised Stewardship Code and its enforcement, as well as the expectations placed on asset owners. The Committee also recommends that the ARGA should become responsible for monitoring the impact of the new Wates Principles of Corporate Governance for Large Private Companies.

OECD report: flexibility and proportionality in corporate governance

The OECD has published a report titled Flexibility and Proportionality in Corporate Governance: see here. The report covers 39 jurisdictions and, in respect of seven areas - pre-emption rights; board composition, committees and qualifications; say on pay and remuneration disclosure; related party transactions; disclosure of periodic financial information; major shareholding disclosure; and takeovers - provides a descriptive account of the extent to which the governance frameworks permit flexibility and are proportionate (i.e., is something other than 'one size fits all' permitted and, if so, what determines this?). The results are based on the information received directly from jurisdictions through an online questionnaire.

UK: The Purposeful Company - interim report on executive remuneration published

The Big Innovation Centre, as part of its Purposeful Company project, has today published an interim report on executive remuneration: see here (pdf). The report sets out to provide (to quote directly from it) "a provocative challenge to the received wisdom on executive pay". This challenge extends to some of the common policy proposals in this area (e.g., pay ratios).  Four policy proposals, with supporting rationale and analysis, are put forward for discussion (again, to quote directly from the report):

• Shareholder guidelines and the UK Corporate Governance Code should enable companies to adopt simpler pay structures for CEOs based on long-term equity and debt holdings to encourage long-term behaviour and to avoid the unintended consequences of over-reliance on performance-based incentives.
• Companies should be required to publish a Fair Pay Charter explaining policy and outcomes for wider employee pay and fairness and to engage with employees on its content including specified disclosures on pay comparisons.
• The Directors’ Remuneration Reporting regulations should be updated to enable greater stakeholder understanding of a company’s maximum pay and relationship between pay and performance.
• A binding vote regime should be triggered when companies lose, or repeatedly fail to achieve a threshold level of support on, the advisory remuneration vote.

UK: new prime minister outlines governance reforms

Not so long ago today, and not that far away from where I sit typing this post, the Rt Hon Theresa May MP - now the only remaining contender for leadership of the Conservative Party and, as such, the UK's next prime minister - delivered a speech: see here. The speech set out her priorities for office, which included governance reforms, and was delivered before it was confirmed that she would become prime minister on Wednesday this week.  Here is an extract highlighting her proposals on board membership and executive pay:

I want to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough. So if I’m Prime Minister, we’re going to change that system – and we’re going to have not just consumers represented on company boards, but employees as well .... I want to make shareholder votes on corporate pay not just advisory but binding. I want to see more transparency, including the full disclosure of bonus targets and the publication of “pay multiple” data: that is, the ratio between the CEO’s pay and the average company worker’s pay. And I want to simplify the way bonuses are paid so that the bosses’ incentives are better aligned with the long-term interests of the company and its shareholders.

More detailed proposals will follow over the coming months. With regard to shareholder votes on pay, the UK framework currently requires a mandatory vote on policy - held at least once every three years, or when changes to policy are proposed - in addition to an annual advisory vote. It would seem that Mrs May proposes to make the annual advisory vote binding. Would this render redundant the binding vote on policy?  With regard to simplifying bonuses (the call for which has been made repeatedly over the past few years), how will this be achieved?

With regard to the board proposals, much depends on what Mrs May means by "represented on company boards", but the general tenor of her comments suggests that she wants to see dramatic changes through legislation rather than relying on encouraging best practice guidance in the UK Corporate Governance Code, which is the responsibility of the Financial Reporting Council. In this respect it is interesting to note that last month the chairman of the FRC, Sir Win Bischoff, and several of his European counterparts met (describing themselves the 'five chairmen group') and published a statement in which they defended the role and value of governance codes and recommended "a cautious approach in making further legislative proposals on corporate governance issues": see here (pdf).

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).

France: AFEP-MEDEF corporate governance code for listed companies - revised edition published

A revised edition of the AFEP-MEDEF corporate governance code for listed companies has been published and is available, in French, here (pdf). The press release accompanying publication of the new code is available here (pdf). A 'say on pay' vote is being given to shareholders in respect of executive directors' remuneration and companies' compliance with the code will be monitored by a new committee. The new code also seeks to improve companies' 'comply or explain' disclosures.

UK: Government proposals on directors' remuneration

The Government has published its proposals for the reform of directors' remuneration, including the new binding shareholder vote and changes to disclosure: see here (pdf).

UK: binding say on pay vote - annual or triennial?

Reports in today's newspapers (see here, for example) suggest that the Government may be considering giving shareholders a triennial binding vote on remuneration rather than an annual vote as originally proposed.

UK: the Queen's Speech - the Banking Reform Bill and the Enterprise and Regulatory Reform Bill

The Queen's Speech, marking the start of a new Parliamentary session and setting out the Government's forthcoming legislative programme, was delivered today: see here. Included in the list of proposed Bills is the Enterprise and Regulatory Reform Bill, which will contain, amongst other things, the Government's proposals on directors' remuneration including a binding vote for shareholders in respect of remuneration policy. Also included is a Banking Reform Bill through which the Government will implement the Vickers recommendations. Further information about the purpose and content of these Bills is available in the briefing notes published to accompany the Queen's Speech: see here (pdf).