UK: UK Corporate Update - February 2017

Last Updated: 16 March 2017
Article by Lucy Fergusson and Lucy Reeve

High Court considers parent company liability in a multi-national group

The High Court has indicated that general manifestations of a group identity should not be enough to fix a parent company with a duty of care for its foreign subsidiaries. This is consistent with previous authority.

A detailed note is available on the Linklaters Knowledge Portal here.

FRC calls for greater enforcement powers over directors and announces review of UK Corporate Governance Code

The Financial Reporting Council has announced plans for a "fundamental review" of the UK Corporate Governance Code. This will take into account the work done by the FRC on corporate culture and succession planning, as well as the issues raised in the Government's Green Paper on Corporate Governance and the BEIS select committee inquiry. It will also consider the balance between the Code's principles and provisions. However, there is no intention to amend what the FRC refers to as the strengths of the UK corporate governance framework such as the unitary board or the comply or explain approach.

To guide the review, the FRC will seek input from a wide range of stakeholders, including its recently established Stakeholder Advisory Panel. The Panel is drawn from a wide range of sectors including the Chartered Institute of Internal Auditors, Share Action, CIMA, Barclays, Co-operative UK, TUC, RPMI Railpen, Institute of Customer Services, Centre for Corporate Governance, London Business School, CIPD, IBE, ACAS, High Pay Centre, Resolution Foundation, City Values Forum, CBI, Joseph Rowntree Foundation, GHO Capital Partners.

In its response to the Government's Green Paper on Corporate Governance, the FRC will highlight the importance of helping boards take better account of stakeholder views, linking executive pay with performance, and extending the FRC's enforcement powers to ensure that disciplinary action can be taken against all directors where there have been financial reporting breaches.

The FRC will commence a consultation later in 2017 based on the outcome of the review and the Government's response to its Green Paper.

Further details can be found in the FRC's press release, here.

Corporate Governance Matrix 2017 published

Brexit, Theresa May's push for an economy that works for everyone and the unpredictable administration of Donald Trump make keeping track of regulatory developments concerning corporate governance more challenging than ever.

Our updated Matrix provides an index of corporate governance developments affecting listed companies. This aims to put into context UK, US and EU regulatory developments relating to directors, risk management, corporate social responsibility and other corporate governance matters.

New topics covered include:

  • the increased focus in the UK on "stakeholder voice" and the responsibility of business to wider society, including the government's green paper on corporate governance reform;
  • the plans by the FRC to review the UK Corporate Governance Code and its guidance on board effectiveness in 2017;
  • new UK reporting requirements in the pipeline, including on pay by gender, supplier payment practices, tax strategy, diversity and anti-bribery policies; and
  • the Trump administration's initial steps to roll back portions of the Dodd- Frank Act, including the resource extraction payments disclosure rule, the conflict minerals rule and the pay ratio disclosure rule.

The Matrix is available on the Linklaters Knowledge Portal here.

AGM Alert 2017 client guide published

We have published our AGM Alert 2017 guide for company secretaries and general counsel of UK premium-listed companies. This covers legal and regulatory changes, market practice and recent guidance on topical issues, including the government's Green Paper proposals for corporate governance reform.

Key points for 2017 are as follows.

AGM business

  • The Pre-Emption Group now expects companies seeking an enhanced pre-emption disapplication authority to split the request into two resolutions.
  • In selecting new officers, companies are asked to consider diversity of ethnic origin as well as gender. Updated investor guidelines suggest that there may be voting against director resolutions for corporate governance failures.
  • Amendments to articles are not required, but companies should review any borrowing limits and may also want to consider updates which give greater flexibility.

Company reporting

  • The Financial Reporting Council review of the viability statements published so far found that, while many are satisfactory, there is room for improvement.
  • Companies need to consider how to report on the effect of Brexit on their business and those with an autumn year-end have started to do so.
  • Outside the annual report, large organisations must now make a slavery and human trafficking statement. Companies should also consider whether to link this to the information in the annual report.
  • Updated rules and recommendations require audit committees to consider the clarity of their reporting and say more about their work.
  • Further disclosure requirements will mean information must be published about payment practices, gender pay gaps, tax strategy, further non-financial reporting (on human rights, anti-bribery and diversity) and country-by-country reporting on tax.

Directors' remuneration

  • This year sees a renewed interest in remuneration, with the government's Green Paper on corporate governance looking at executive pay reform as a key issue.
  • Many companies will be putting a revised binding remuneration policy before the AGM this year and will need to take into account calls for greater pay restraint.
  • Companies should also take note of the updated remuneration guidance issued by a number of investor groups. Topics to consider include: making pay ratios available, disclosing variable pay targets more promptly, reviewing the use of remuneration discretion and reducing pension entitlement disparities.

AGM Alert 2017 is available on the Linklaters Knowledge Portal here.

ESMA publishes Q&A to clarify application of its guidelines on alternative performance measures

The European Securities and Markets Authority has published some new Q&A to assist with the interpretation of its Guidelines on Alternative Performance Measures.

Alternative performance measures are a "financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs include measures such as EBITDA or sales per square metre. ESMA's APM Guidelines apply to regulated information or prospectuses (but not financial statements) published on or after 3 July 2016 and seek to improve the usefulness, transparency and comparability of APMs.

FCA confirms that list of reasons to delay disclosure is not exhaustive

The Financial Conduct Authority has now adopted in full the European Securities and Markets Authority's guidelines issued under the Market Abuse Regulation and made changes to its Disclosure Guidance in DTR 2 to bring it in line with ESMA's guidelines. The main change is the removal of a statement that delaying disclosure of inside information is only likely to be allowed where there is an ongoing negotiation that would be jeopardised by early disclosure, as this conflicts with ESMA's non-exhaustive list of situations when delay might be permissible.


Under Article 17 MAR, an issuer must announce inside information as soon as possible unless it can satisfy three criteria: that immediate disclosure would prejudice the issuer's legitimate interests, that delay is not likely to mislead the public and that confidentiality will be preserved. ESMA issued guidelines under MAR which include a non-exhaustive list of situations where an issuer might delay to protect its legitimate interests, as well as guidance on misleading the public.

Conflict between ESMA guidelines and DTR 2.5.5G

The FCA's Disclosure Guidance contained a statement that, other than in relation to ongoing negotiations, there are unlikely to be other situations in which delay might be possible to protect the issuer's legitimate interests. The FCA has now deleted this statement, following a consultation.

This change is welcome as it clarifies once and for all that the ESMA list of legitimate reasons for delay is indicative and non-exhaustive. It will allow issuers to delay in the other circumstances specified in the ESMA guidelines, and it potentially opens the door to delaying disclosure in circumstances not set out in the guidelines, as the list is non-exhaustive. However, the FCA has said that it and ESMA both interpret Article 17(4) MAR (ability to delay) narrowly.

The changes to DTR 2 took effect on 24 February 2017. Click here for the FCA's policy statement.

To read this Update in full, please click here.

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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