UK: Corporate Governance - The Latest News

Last Updated: 3 May 2012
Article by Marlies Braun

Corporate governance remains at the top of the political and business agenda. There are several consultations about to close or, having recently closed, the Government's response published. In this update we will highlight the key developments in this area, in particular, the recently published interim report of Professor John Kay on his review of UK equity markets and long-term decision making, the results of the Financial Reporting Council's discussions with companies and investors as to what constitutes a 'meaningful explanation' under comply-or-explain, the Government's initiatives on executive pay, and the next steps of reforming narrative reporting.

Kay Review of UK equity markets and long-term decision making – the interim report

In February 2012 Professor John Kay published the interim report of his review of UK equity markets and long-term decision making (the Interim Report)1. The Interim Report sets out the submissions received in response to the call for evidence launched in September 2011 and the discussions and research conducted by the review team.

The report states that "the long term public goal for equity markets is in securing the public purposes of high performing companies and strong returns to savers through an effective asset management industry, and in ensuring that the profits earned by companies are as far as possible translated into returns to beneficiaries by minimising the costs of intermediation." To that end, the report focuses on the following areas:

  • The company and the board
  • Measurement and reporting
  • Market practice
  • Asset managers, and
  • Intermediaries

Given the broad remit of the review, the Interim Report is attempting to cover a wide spectrum of policy issues affecting the effective functioning of UK equity markets and long-term decision making. It does not contain conclusions or recommendations but instead outlines the issues which will be considered in the second phase of the review leading up to the submission of the final report (the Final Report) which is due this summer.

However, based on the findings of the Interim Report, the Final Report may make recommendations for reform in the following key areas:

The company and the board

  • Directors' duties. The Final Report may recommend putting a greater emphasis on the directors' duty to promote the long-term success of the company. It may even recommend that the Takeover Panel consider offering greater opportunity for boards to reject bids which do not promote the long term success of either the acquirer or the acquire. It is unlikely, however, that the Final Report will recommend that long-term shareholders should receive enhanced voting rights as such differential rights between shareholders are traditionally strongly opposed by large institutional shareholders. Such measures could of course be implemented by companies themselves.
  • CREST membership. The Final Report may recommend changes to enable personal CREST membership to become the normal means by which UK private individuals hold UK equities as a means to strengthen the position of beneficial owners of shares held through a nominee account. Currently, personal CREST membership requires sponsorship by a broker.

Measurement and reporting

  • Quarterly reporting and interim management statements. It seems likely that the Final Report will recommend removing the requirement for companies to report quarterly and produce interim management statements. The removal of the requirement for listed companies to publish interim management statements has already been proposed by the European Commission in its review of the Transparency Directive.

Market practice

  • Tax treatment of corporate debt and equity. The Interim Report recognizes that any reform of the preferential tax treatment of debt over equity by, for instance restricting the deductibility of debt interest or increasing the attractiveness of equity financing or a combination of the two can only be achieved by international agreement.
  • High frequency trading. High frequency trading has been criticised by a majority of the respondents. The Government Office for Science is currently examining the future of computerised trading in financial markets and the recommendations in the Final Report will reflect the conclusions of that examination.
  • Insider trading and concert party rules. Both sets of rules have been criticised by some respondents for inhibiting shareholder engagement. The Takeover Panel clarified in a 2009 Practice Statement that the concert party rule "is not intended to restrict the ability of major shareholders or asset managers to act together to improve company performance" and will give clearance in such cases2. The Final Report may recommend strengthening minority shareholder protection to address possible abuse by shareholders using such control to advance their own interests rather than those of shareholders as a whole.

Asset managers

  • Trading versus investing. The Interim Report points out that the average holding period of shares has fallen steeply due to the expansion of the volume of trading relative to investing. This may be one of the factors which, along with the increased fragmentation of share ownership, contribute to the current lack of incentive for shareholder engagement. Measures the Final Report may recommend to counteract this development include offering enhanced rights to engaged and long-term shareholders, requiring shareholders to act collectively, and encouraging fund managers to hold more concentrated positions.

Intermediaries

  • Fees and charges. In response to the "widespread and vehement criticism of investment banking fees" and excessive costs of intermediation generally, the Final Report may recommend requiring greater transparency and disclosure about charges of certain intermediaries. Greater transparency of fees was recently introduced in the context of takeovers (see the April and October 2011 In Counsel updates).
  • Fiduciary relationship. The Final Report may recommend extending the concept of fiduciary duty to the relationship between fund manager and client, and applying a version of the 'enlightened shareholder value' concept of the Companies Act 2006 in relation to directors' duties to certain intermediaries.

Footnotes

1 The Interim Report is available at http://www.bis.gov.uk/assets/biscore/business-law/docs/k/12-631-kay-review-of-equity-markets-interim-report .

2 The Takeover Panel's Practice Statement 2009/26 is available at http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/ps26.pdf.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.