UK: The Next Step In Improving Transparency And Corporate Governance Of UK Companies

Last Updated: 4 April 2014
Article by TMF Group

Preparing for the new Annual Report requirements for listed companies

The next step in improving transparency and corporate governance of UK companies brings a number of changes to both the narrative reporting and the remuneration reporting frameworks which came into effect in the UK on 1 October 2013 and will apply to financial years ending on or after 30 September 2013. While the remuneration reporting changes will only apply to UK quoted companies, some of the narrative reporting changes will impact all companies.

TMF Group UK Company Secretarial and Computershare recently held a round table event with company secretaries and deputy secretaries of FTSE 350 clients on how companies were approaching the new requirements for a Strategic Report and enhanced Remuneration reporting.

Madeleine Cordes, Senior Manager with TMF Group UK Company Secretarial, highlights some of the key issues which were shared and discussed:

Strategic Report

  1. With the new requirement for the whole Annual Report to be fair, balanced and understandable, contributors to the Annual Report have been given briefings by the Company Secretariat in some cases on what impact this will have on preparation of the Report in future.  One attendee has asked all the divisions to provide a summary of both the highlights and the lowlights of the year. It is hoped that this will help when drafting the summary material information for the Strategic Report and improve the "balance" of the disclosures. The sign off process will require additional confirmation from each contributor that they consider their section to be "fair, balanced and understandable".
  2. Everyone agreed that the Company Secretariat can play a proactive role in constructively challenging the drafting of the Annual Report if it does not meet the new requirements. It was also agreed that we and the company have the opportunity to be innovative and start afresh rather than updating old boiler plate disclosures which may have become stale and meaningless. It will be important to suggest changes to more balanced disclosures in a positive manner as there will be a natural tendency to highlight the successes of the year.
  3. The group was asked whether they would increase disclosure on human rights issues or if they are working on developing or implementing a human rights policy as a result of the contents requirements of the Strategic Report for disclosures on the environment, employees, social issues and diversity.  Some attendees were introducing a separate section in the Report or expanding their disclosures. Typically, human rights already fall within a code of conduct or similar group policy but attendees were definitely focusing on this area and drafting separate human rights policies.
  4. With the requirement for principal risks to be set out in the Strategic Report, it was the intention of some to disclose "super key risks" in this report and leave the other more generic risks in the governance report. Others had not made a decision as yet.
  5. It was felt that a move to more online reporting would have been welcome as a result of the recent consultation and the group hoped that this would follow in time.

Remuneration reporting

  1. It is key that the Chairman of the Remuneration Committee is engaged in relation to the new requirements and there is a need to look further ahead when developing remuneration policies for approval by shareholders, especially if recruitment of new directors is anticipated in the short term.
  2. It was generally felt that investors need not be approached unless any aspects of remuneration policies are controversial and indeed investors who the group had talked to had indicated they were not expecting many companies to approach them.
  3. Some companies would be seeking assistance from their remuneration consultants on reviewing drafting but it was noted that investors and voting agencies are keen to engage with companies directly and not through consultants.
  4. There was a focus on getting it right now in order to avoid having to update the policy annually and have it approved by shareholders.

General approaches

With a number of changes in disclosure requirements having an impact at the same time, some group members will be carrying out a "page turn" exercise with their lawyers and/or giving the Report an internal legal review to identify any disclosure gaps or discrepancies across the various sections of the Report. It was also seen as key to engage the Investor Relations team who may be involved in drafting copy or liaising with contributors to ensure that care is taken in disclosures and that the new requirements are taken into account. 

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.

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