Last February, we published a guide to the 2010 AGM season which considered the implementation of the Shareholder Rights Directive and the final sections of the Companies Act 2006 and the effects of these on your AGM and articles of association.

Since then there have been no legislative changes which will affect the business of the meeting but there have been a number of corporate governance developments.

This update provides you with details of these developments and one in particular which will have an impact on the business of some AGMs. For guidance on changes considered at the 2009 and 2010 AGM including the content requirements of the AGM notice, amendments to articles of association and extended shareholders' rights, please refer to our publication entitled "Are you prepared for the 2010 AGM season?"

UK Corporate Governance Code

The Financial Reporting Council (FRC) has revised the UK Corporate Governance Code (the Code) (formerly the Combined Code).

Key changes include:

  • annual re-election of directors of FTSE 350 companies;
  • a requirement to have regard to the benefits of diversity when making board appointments, including gender diversity;
  • regular performance reviews by the chairman and externally facilitated board reviews;
  • further provisions regarding risk management; and
  • encouraging chairmen to report personally in their annual statement on how the principles relating to the role and effectiveness of the board have been applied.

The Code applies for accounting periods beginning on or after 29 June 2010 but many companies with financial years beginning before that date have already begun to comply with the new reporting requirements.

FTSE 350 companies with financial years commencing on or after 29 June 2010 should comply with the annual re-election requirements for all directors at their forthcoming AGM or explain any non-compliance. The Pensions & Investment Research Consultants Ltd have previously stated that they would not expect companies to comply with this requirement until their 2012 AGM to ensure that annual elections are implemented in a consensual way. The National Association of Pension Funds (NAPF) believes that annual elections for all directors could lead to better accountability but recognises that there are risks associated with this, particularly with respect to continuity and stability. In these circumstances, the company's policy on director elections should be clearly explained.

There has been some discussion as to whether FTSE 350 companies should amend their articles to deal with this change. So far relatively few companies have and there is no specific requirement to do so.

The Stewardship Code

The FRC has published the UK Stewardship Code which sets out good practice on engagement between institutional investors (eg insurance companies and pension funds) and investee companies. It is hoped that the Stewardship Code will improve the quality of corporate governance by promoting better dialogue between shareholders and company boards and more transparency about the way in which investors oversee the companies they own.

UK authorised asset managers must produce a statement of commitment to the Stewardship Code or explain why it is not appropriate to their business model. These statements can be accessed via the FRC's website.

NAPF Corporate Governance Policy and Voting Guidelines

The NAPF updated its Corporate Governance Policy and Voting Guidelines (Guidelines) in November 2010 in light of the new Code. The Guidelines address board diversity and external evaluation of directors. They also focus on shareholders' voting sanctions for non-compliance.

ICSA Terms of Reference

ICSA Terms of Reference

In October 2010, the Institute of Chartered Secretaries and Administrators (ICSA) published revised terms of reference for audit, remuneration and nomination committees to reflect the Code along with a number of other amendments. Companies should consider whether to update their terms of reference accordingly.

Narrative reporting and short-termism

The Government has published proposals for the reform of narrative reporting and a call for evidence on the existence of short-termism and market failures in UK equity markets. The latter examines boards of directors and directors' remuneration, the changing nature of UK share ownership, shareholder engagement and takeovers of public companies.

The Government's proposals on both of these are expected in April of this year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.