Legal development

Ashurst Governance & Compliance Update – Issue 44

Ashurst Governance & Compliance Update – Issue 44

    Narrative and financial reporting

    1. FRC publishes 2023 review of Corporate Governance Reporting

    The Financial Reporting Council has published its annual Review of Corporate Governance Reporting assessing the quality of reporting against the UK Corporate Governance Code. This follows its Annual Review of Corporate Reporting for 2022/2023 (see AGC Update, Issue 42). Both reviews are required reading for those preparing annual reports, particularly for companies with securities admitted to trading on the main market. 

    Our briefing on the review and its key recommendations is here.

    Corporate governance

    2. The QCA Corporate Governance Code 2023 – overview of changes

    The Quoted Companies Alliance has published the latest version of its corporate governance code to supersede the 2018 version.

    The 2023 iteration, which will apply to financial years beginning on or after 1 April 2024, updates and expands the current code which has been adopted by nearly 900 companies whose securities are admitted to trading on AIM, the standard segment of the main market and on Aquis.   

    Our overview of the 2023 version, and the key changes it makes, is here.

    AGMs in 2024

    3. Glass Lewis publishes voting guidelines for 2024

    Proxy advisory service Glass Lewis has published its 2024 UK Proxy Voting Policy Guidelines and its 2024 Shareholder Proposals & ESG-Related Issues.

    Both guidelines will apply for meetings from 1 January 2024.

    Proxy Voting Guidelines

    The key amendments to the 2023 proxy voting guidelines, which focus on executive share ownership rules, clawback provisions, and board oversight of cyber and climate risk, include the following: 

    • Director attendance - Glass Lewis generally recommends voting against the re-election of directors that failed to attend either at least 75% of board meetings or an aggregate of 75% of board and applicable committee meetings. Exceptions are normally granted to directors in their first year on a board or when the company discloses mitigating circumstances.
    • Interlocking directorships - The guidelines on interlocking directorships have been expanded to state that they apply to both public and private companies, that other types of interlocking relationships are assessed on a case-by-case basis, and that multiple board interlocks among non-insiders will be reviewed for evidence of a pattern of poor oversight.
    • Director accountability for climate-related issues - The guidelines on director accountability for climate-related issues will apply to FTSE 100 companies operating in industries where the Sustainability Accounting Standards Board has determined that companies' greenhouse gas emissions represent a financially material risk.
    • Cyber risk - The guidelines on cyber risk oversight have been amended to suggest that, where a company has been materially impacted by a cyber-attack, shareholders can reasonably expect periodic updates communicating the company's ongoing process towards resolving and remediating the impact of the attack. In instances where a company has been materially impacted by a cyber-attack, Glass Lewis may recommend against appropriate directors should it find the board’s oversight, response or disclosures concerning cyber-security related issues are insufficient, or not provided to shareholders.
    • Accounts and reports - Glass Lewis may, on a case-by-case basis, recommend that shareholders vote against proposals to approve or acknowledge a company's accounts and reports where the auditor did not provide an unqualified opinion on the financial statements.
    • Executive shareholding requirements - Glass Lewis has introduced a new section of the guidelines which indicates that companies should generally adopt minimum executive share ownership requirements which should apply for the duration of an executive's tenure, and for a period of time post-employment.
    • Remuneration relative to ownership structure - The guidelines have been expanded to outline a number of company practices that may mitigate concerns when a significant equity award is made to an executive who is also a major shareholder.
    • Remuneration relative to peers - In a new section of the guidelines, Glass Lewis has outlined its expectations on setting remuneration levels relative to peers.
    • Standard listed issuers - Glass Lewis has clarified that it generally applies its policies for those listed on the standard segment of the main market of the London Stock Exchange in the same way as for AIM-traded companies, but that ultimately it will approach such issuers on a case-by-case basis.

    ESG Guidelines

    The key amendments to the 2023 ESG Guidelines include the following:

    • Board accountability for climate-related issues - Glass Lewis believes companies with material exposure to climate risk stemming from their own operations should provide thorough climate-related disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures. Accordingly, Glass Lewis will apply its policy on director accountability for climate-related issues to those large-cap companies which the Sustainability Accounting Standards Board has determined represent a financially material risk.
    • Engagement considerations - the Guidelines have been updated to include consideration for engagement between companies and investors. Glass Lewis also believes that companies should make a concerted effort to provide disclosure in their proxy statements concerning their engagements with their broader shareholder bases on issues raised by shareholder proposals.
    • Non-financial reporting - Glass Lewis has updated its Guidelines on management-proposed ESG resolutions to reflect its approach to mandatory proposals in Spain and Switzerland asking shareholders to approve non-financial reporting. In addition, for large-cap companies and in instances where Glass Lewis identifies material ESG oversight concerns, it will review how the board oversees ESG issues. In instances where the board has failed to provide explicit disclosure concerning its role in overseeing material ESG issues, Glass Lewis may recommend that shareholders vote against the approval of a company’s non-financial reporting instead of or in addition to a recommendation to vote against accountable directors.

    ESG - Transition Plans

    4. Transition Plan Taskforce consults on sector-specific guidance

    The Transition Plan Taskforce (TPT) has published draft guidance for transition plan preparers to interpret the disclosure framework in seven key sectors. Those sectors are banks, asset owners, asset managers, electric utilities & power generators, food & beverage, metals & mining, and oil & gas. 

    The consultation is open for comment until 29 December 2023.

    The draft sector specific guidance provides further detail for these sectors in addition to the TPT Disclosure Framework and Implementation Guidance issued in October 2023 (see Transition Plan Taskforce issues Disclosure Framework and consults on sector guidance)

    The latest 'deep-dive' guidance has been created for each of the seven sectors owing to their greenhouse gas emissions, their need for additional transition finance in the UK and the quality of existing available guidance. 

    Each sector guidance document:

    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