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Recent Developments for UK PLCs — March Edition

March 5, 2024
An update on legal and regulatory developments for UK public companies.

Investment Association Softens Approach to Remuneration to Support UK Competitiveness

On 23 February 2024, the Investment Association (IA) issued its annual letter to FTSE 350 remuneration committee chairs providing an update on the IA’s Principles of Remuneration and emerging views on remuneration matters.

Key points:

  • Competitiveness of UK remuneration practices — the IA noted the considerable debate and diverse views on the competitiveness of remuneration in the UK and the impact of investor expectations on remuneration compared to other jurisdictions.

In particular, the IA flagged three themes that companies highlighted at the IA’s meetings with FTSE 350 constituents in September 2023:

  • Need to increase pay opportunities through LTIP grant levels (to attract US executives and compete in the US market).
  • Companies wanting to use hybrid schemes which incorporate both performance and restricted shares (and which are used in the US and other jurisdictions). The IA mentioned that some shareholders are willing to consider proposals on quantum and hybrid schemes depending on the individual circumstances of the companies.
  • Some companies take the view that requirements in the UK Corporate Governance Code which extend the long-term perspective of directors through remuneration (such as increased holding periods, shareholding guidelines, post-employment shareholding guidelines, and malus and clawback) reduce the perceived value of remuneration.

The IA anticipates that these themes would be a key focus for the 2024 AGM season, in addition to how Remuneration Committees are adapting to the inflationary environment.

  • Review of the IA principles of remuneration — given these discussions, the IA has delayed the publication of its principles for 2024 to address the evolving views on quantum and hybrid schemes. In its letter, the IA announced that it will simplify and adapt its principles to ensure that they support a competitive market.

FRC Launches UK Stewardship Code Review

On 27 February 2024, the Financial Reporting Council (FRC) announced the launch of its fundamental review of the UK Stewardship Code 2020 (the Stewardship Code) to ensure it supports growth and the UK’s competitiveness. The review will consider the extent to which the Stewardship Code:

  • supports long-term value creation through appropriate investor-issuer engagement that drives issuers’ prospects and performance;
  • creates reporting burdens on issuers as well as Stewardship Code signatories; and
  • has led to any unintended consequences, such as short-termism in targets and outlook for issuers.

The FRC will undertake the review using a phased approach, initially with a targeted outreach to key stakeholders (including issuers) to be followed by a public consultation launched in the summer of 2024. The revised Stewardship Code is expected to be published in early 2025.

PLSA Reveals Voting Guidelines for the 2024 AGM Season

On 15 February 2024, the Pensions and Lifetime Savings Association (PLSA) published the 2024 edition of its Stewardship and Voting Guidelines. This latest edition takes into account recent political and economic events and circumstances which impact the evolving topics investors engage with when it comes to stewardship.

Key points:

  • Climate change — the PLSA continues to shine a spotlight on climate change issues. In addition to compliance with the Task Force on Climate-related Financial Disclosures (TCFD) as required under the UK listing rules, the PLSA expects companies to start preparing credible transition plans, given the likelihood that it will soon be a mandatory requirement in the UK. Companies facing biodiversity risks are also encouraged to engage with the Taskforce on Nature-related Financial Disclosures (TNFD) on approaches to better integrate their impact on nature into decision-making. The guidelines further include a new section which tracks recent developments relating to ESG.
  • Social factors — the guidelines include a new section on social factors focusing on workforce and well-being practices. This section provides guidance on best practices and emerging areas of interest, such as the need to increase awareness of and support for mental health and menopause.
  • Remuneration — the PLSA continues to call on companies to exercise restraint in executive pay, citing the cost-of-living crisis and taking the view that limited evidence supports the notion that the increase in executive pay over the years genuinely reflects performance.
  • Cybersecurity and AI — the “Audit, risk and internal control” section has been updated to reflect increased awareness and interest in cybersecurity and artificial intelligence (AI). Companies are encouraged to disclose their governance and oversight structures to identify and manage cybersecurity risks, as well as provide timely reporting of breaches. Companies are also expected to take responsibility for their social impacts resulting from AI and comply with new standards and requirements in this space once these are introduced.
  • Structure — the latest guidance contains an extended summary section with a table which outlines (for ease of reference) the PLSA’s voting recommendations on each issue.

CGI Publishes Model Terms of Reference for Sustainability or ESG Committees

On 31 January 2024, the Chartered Governance Institute UK & Ireland (CGI) published its model terms of reference for a board-level sustainability or ESG committee which sets out an approach to ensuring that any such committee adopts good practice. This document aims to capture a broad array of issues that may fall under the purview of such a committee. It is essential that the duties of the committee are tailored to the business needs and context of each company.

An increasing number of UK listed companies are setting up such committees although they are not required to do so. The CGI notes that by the end of April 2023, 37% of the UK’s 150 largest listed companies had a board committee dedicated to ESG, sustainability, or corporate social responsibility issues. The FRC’s latest 2024 guidance for the Corporate Governance Code states that companies may find it helpful to form a sustainability committee to oversee ESG issues.

The new terms of reference are available in the members section of the CGI website.

Trading Thoughts: Latham Capital Markets Partner Speaks With London Stock Exchange CEO

In the LSE’s latest Marketplace Matters CMIT Series interview, Julia Hoggett, CEO of the London Stock Exchange, spoke with Latham partner Mark Austin.

The interview covered a number of topics including:

  • why the Capital Markets Industry Taskforce (CMIT) was formed, its agenda, and its vision for the future;
  • the reform journey of the UK’s capital markets since the EU referendum in 2016; and
  • the world’s first regulated public/private crossover market and the opportunities it will create.


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