Legal development

Ashurst Governance and Compliance Update Issue 15

Insight Hero Image

    Economic crime

    1. Economic Crime Bill received Royal Assent


    2. Parker Review 2022 shows progress on ethnic diversity but work still to do

    Narrative Financial Reporting

    3. PLSA analyses workforce reporting in FTSE 100


    4. FRC publishes latest signatories to UK Stewardship Code

    ESG and activism

    5. ClientEarth alleges breach of directors' duties by Shell board

    6. ShareAction publishes expectations of asset managers in 2022



    1. Economic Crime Bill receives Royal Assent

    We reported in Ashurst Governance & Compliance Update, Issue 14 that the Economic Crime (Transparency and Enforcement) Bill was being fast-tracked through Parliament partly in response to the invasion of Ukraine. The Bill has received Royal Assent and is now the Economic Crime (Transparency and Enforcement) Act 2022.

    Register of overseas entities holding UK property

    Part 1 of the Act aims to prevent money laundering by requiring overseas entities purchasing UK property to provide details of any beneficial owners with significant influence or control. This information will be held at Companies House in a new Register of Overseas Entities. Information supplied by an overseas company or entity will need to be verified and updated annually. Supplying false or misleading information or failing to update the Register will be an offence. The requirement to register will apply retrospectively to property purchased in England and Wales by overseas buyers up to 20 years ago (and since December 2014 in Scotland).

    Unexplained Wealth Orders

    Part 2 of the Act reforms the Unexplained Wealth Order (UWO) regime by bringing those who hold property in the UK in a trust within the scope of UWOs and increasing the time available to law enforcement agencies to review material provided in response to a UWO.


    Part 3 of the Act introduces a new streamlined procedure for implementing sanctions against individuals and a strict liability test for monetary penalties imposed for breaches of sanctions legislation.

    In this context, the Chartered Governance Institute for UK & Ireland has issued a reminder of considerations for listed companies with regard to sanctions. This includes issues in relation to distributions of capital, including the payment of dividends in the current AGM season, and further equity issuances.

    In summary, and as with sanctions in the past, companies will need to check their shareholder registers to ascertain whether they contain proscribed individuals. This is to ensure that they do not make distributions to them and that their assets are frozen, whether those assets are held by individuals or entities. The use of section 793, Companies Act 2006 procedures to identify underlying beneficial owners of shares may need to be contemplated and in relation to which a company's registrars will clearly play a significant role. Corporate action timetables will also need to be calibrated to enable sufficient time to interrogate registers and deploy section 793 notices if needs be.


    The procedure for implementing sanctions against individuals are in force but the other provisions of the Act will be brought into force by commencement regulations, which are yet to be published. More detailed briefings will be published in due course.


    2. Parker Review 2022 shows progress on ethnic diversity but work still to do

    The Parker Review committee has published the results of its latest review of ethnic diversity in the FTSE 350, in conjunction with the Department of Business, Energy and Industrial Strategy. The Review found that:

    •  89 FTSE 100 companies had at least one director from a minority ethnic group on their boards by 31 December 2021, compared to 74 in November 2020. The Review's aspirational target for the FTSE 100 was for every board to have a director from an ethnic minority background on the board by the end of 2021.
    • By March 2022, another five FTSE 100 companies announced the appointment of a director from a minority ethnic group, with a further three committing to the Parker Review target in the short term.
    • FTSE 250 companies appear to be making progress towards the 2024 deadline to appoint at least one minority ethnic director with 128 FTSE 250 companies (55 per cent) having minority ethnic representation on their boards as at 31 December 2021.
    • However, progress on increasing diversity among executives is slow. Only six FTSE 100 and 16 FTSE 250 CEOs are from minority ethnic backgrounds. This is one of the principal areas where the Review believes that companies now need to focus, in addition to enhancing transparency and improving disclosure.

    Now that the FTSE 100 milestone has passed, Sir John Parker has passed the role of Chair to his current Co-Chair, David Tyler.

    The Review also summarises some of the preliminary findings of research undertaken for the FRC by the Gender, Leadership and Inclusion Research Centre (GLIC) at Cranfield University. The research is focused on the barriers preventing individuals from minority ethnic groups achieving senior representation in FTSE 100 and FTSE 250 companies. The Review summarises findings based on a review of annal reports and participant data.

    A reminder of voting intentions in 2022

    By way of reminder, as regards ethnic diversity on boards:

    • IVIS, the governance arm of the Investment Association, has stated that it will 'red top' any FTSE 100 company which has not met the Parker Review target and 'amber top' any FTSE 250 company which fails to disclose either the ethnic diversity of their board or a credible action plan to achieve the Parker Review target by 2024.
    • ISS have stated that it will generally recommend against the nomination committee chair (or other directors on a case-by-case basis) of a FTSE 100 company which has not appointed at least one director from a minority ethnic group to the board. ISS also expects FTSE 250 and FTSE SmallCap constituents, as well as AIM companies with a market capitalisation over £500 million, to appoint at least one director from a minority ethnic group by 2024.
    • Glass Lewis have stated that they will generally recommend against the re-election of the chair of the nomination committee at any FTSE 100 board that has failed to appoint at least one director from a minority ethnic group and has failed to provide clear and compelling disclosure for why it has been unable to do so.
    • The PLSA continues to focus on 'ensuring diversity'. FTSE 100 companies which are failing to meet the Parker Review target should expect to see this challenged by investors. The importance of a clear description of the board's policy on diversity is highlighted and the PLSA's Guidelines recommend that investors consider voting against the re-election of the chair and the chair of the nomination committee if a board has not established a such a policy and strategy.

    As regards gender diversity, please see Ashurst Governance & Compliance update, Issue 13 for an overview of the launch of the FTSE Women Leaders Report which set a revised aspirational target for the FTSE 350 of 40 per cent women on boards by 2025. More recently, the Chartered Governance Institute for UK & Ireland released the results of a 'snapshot' survey of governance professionals which revealed that, notwithstanding the FTSE Women Leaders target, more than 50 per cent of UK companies and not for profits have plans to reach gender parity, with 75 per cent of respondents reporting the fact of their company supporting women into senior leadership roles.


    3. PLSA analyses workforce reporting in FTSE 100

    The PLSA has published a report, produced in partnership with the CIPD, and Railpen, which analyses the quality of workforce-related reporting in FTSE 100 2021 annual reports. The report focuses on seven key themes in relation to a company's 'most important asset':

    • Workforce cost and composition.
    • Employee relations and wellbeing.
    • Reward.
    • Employee 'voice'.
    • Skills.
    • Capabilities and recruitment.
    • Response to COVID-19.

    The report makes the following observations:

    • Inclusion/make-up of the workforce: While 93 per cent of companies provide evidence of investment in inclusion and diversity, only one in five (22 per cent) FTSE 100 employers reported the ethnic breakdown of their workforce, up from just 10 per cent in 2019.
    • Skills and training: Almost all companies (97 per cent) mention investment in skills or training, but only a few provided concrete evidence of this.
    • Reward: Overall, there is a lack of reporting on pay and reward beyond gender and ethnicity pay gap reporting.
    • Wellbeing: Only 13 per cent of annual reports discussed mental wellbeing in relation to health and safety or risk assessments.

    4. FRC publishes latest signatories to UK Stewardship Code

    The FRC has published an updated list of signatories to the UK Stewardship Code. The number of those with signatory status now stands at 199, swelled by the 74 successful applicants who submitted their stewardship reports at the end of October 2021. A proportionately similar number of applicants were successful as in September 2021, which means that approximately one third failed to make the grade.

    Of the latest cohort admitted to signatory status, many had been unsuccessful in September 2021. According to the FRC, they had addressed not only the feedback provided to them at the time, but also taken on board the content of the FRC's 'Effective Stewardship Reporting: Examples from 2021 and expectations for 2022' which contains guidance on good practice reporting.


    5. ClientEarth alleges breach of directors' duties by Shell board

    The environmental law charity, ClientEarth, has taken the first step in bringing a derivative claim against the board of directors of Shell plc alleging that they have breached their duties in failing to manage the company's climate risk and prepare the company for the transition to net zero emissions as 'mandated' by the Paris Climate Agreement. In doing so, ClientEarth has issued the company with a letter before action which it believes to be the first of its kind in these circumstances.

    Depending on the response received, it may apply to the Courts for permission to bring a claim against the directors. If granted, this would ultimately be a claim in the name of the company itself and focus on a director's duty under the Companies Act 2006 to promote the success of the company and exercise reasonable care, skill and diligence.

    We will issue further updates as the matter progresses as, if successful, the claim is likely to be a template that other activists may follow.

    6. ShareAction publishes expectations of asset managers in 2022

    ShareAction, the NGO which seeks to promote responsible investment, has published its '2022 Voting Expectations of Asset Managers' in which it focuses on shareholder voting on ESG-related resolutions. Its expectations are based on analysis of voting in 2021 by 65 of the world's largest asset managers in relation to 146 'environmental and social resolutions', where only 20 per cent received majority support.

    In 2022, ShareAction expects asset managers to:

    • Set public and ambitious ESG-related expectations for investee companies with explicit voting recommendations. These expectations should be sector-relevant and focus on systemically important ESG topics including climate change; biodiversity loss; human and labour rights; and population health. They should also utilise standing AGM agenda items, such as the re-election of directors, the approval of financial statements, and remuneration packages / policies, where ESG-related performance is considered unsatisfactory.
    • Promote these voting standards within 'investor ESG-related coalitions', such as Climate Action 100+ and the Net-Zero Asset Managers initiative.
    • Offer all clients a range of options on voting services, such as allowing pension scheme clients to select a voting policy aligned to their stated stewardship preferences.
    • Be transparent to all stakeholders across all 'dimensions of voting' including voting policies and records.


    If you would like to receive future updates on Corporate Governance & Compliance please contact our Data Compliance Team

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest