PLC QTRLY - Q4 2024

This is our regular quarterly update to help our listed company clients and other market participants keep up to date with key developments relevant to issuers on the Main Market and AIM market of the London Stock Exchange.

Pre-Emption Group report on use of updated Statement of Principles

On 22 November 2024, the Pre-Emption Group published its second report monitoring the use of its Statement of Principles on the disapplication of pre-emption rights for UK listed companies since it was revised in 2022 to increase the level of disapplication authority that companies can request routinely to 20% (see PLC QTRLY Q4 2022).

The report examined adoption of the revised Statement of Principles by FTSE 350 companies for AGMs held between 1 August 2023 and 31 July 2024 and indicates growing confidence by UK companies in embracing the enhanced capital raising flexibility provided. In particular:

• 67.1% of FTSE 350 companies with AGMs during the relevant period sought enhanced disapplication authority as permitted under the revised Statement of Principles (up from 55.7% the previous year).
  
  
• 64.1% requested authority for a specified capital investment, in addition to authority for general corporate purposes.
  
  
• 99.4% had all disapplication resolutions passed, with an average of only 4.7% votes against.

Investment Association publishes 2025 Principles of Remuneration

The Investment Association has published its updated Principles of Remuneration for the 2025 AGM season, outlining member views on the commonly accepted approach to executive pay for the majority of companies.

The updated Principles contain three overarching principles, namely that remuneration policies should:

• Promote long-term value creation through transparent alignment with the board's agreed corporate strategy.
  
  
• Support individual and corporate performance, encourage the sustainable long-term financial health of the business and promote sound risk management for the benefit of material stakeholders.
  
  
• Seek to deliver remuneration levels which are clearly linked to company performance.

They also include a number of factors relating to remuneration committees; remuneration philosophy and structures; and levels of remuneration that remuneration committees should consider to best meet these overarching objectives.

The Principles do not seek to prescribe any particular remuneration structure or quantum and are intended to assist remuneration committees in making informed and responsible decisions that are consistent with the long-term interests of the company and its shareholders. Investors will analyse the suitability of remuneration proposals on a case-by-case basis, making it crucial for remuneration committees to engage with the major shareholders to understand their views and provide clear explanations why the remuneration policy and approach is right for their business, company strategy and shareholders.

The revised Principles of Remuneration build on the remuneration expectations set out in the UK Corporate Governance Code and should be read in conjunction with them.

Takeover Panel narrows scope of UK Takeover Code

On 6 November 2024, the Takeover Panel confirmed that it will narrow the jurisdictional scope of the Takeover Code (Code) with effect from 3 February 2025 to refocus the application of the Code on companies which are registered and listed (or were recently listed) in the UK.

The changes to the Code's jurisdiction largely match the proposed changes included in its April 2024 consultation (as reported in PLC QTRLY Q2 2024).

The Code currently applies to offers for public or private companies which have their registered office in the UK, the Channel Islands or the Isle of Man if:

• Any of their securities are admitted to trading on a UK regulated market such as the Main Market of the London Stock Exchange, a UK multilateral trading facility such as AIM or a stock exchange in the Channel Islands or the Isle of Man, or
  
  
• They are considered by the Panel to have their place of central management and control in the United Kingdom, the Channel Islands or the Isle of Man and, in the case of private companies, any of their securities have been admitted to trading on a UK regulated market or a UK multilateral trading facility or on any stock exchange in the Channel Islands or the Isle of Man at any time during the 10 years prior to the relevant date (or if certain other conditions are satisfied).

Once the changes take effect, the Code will only apply to companies which fall within the first of these two limbs (or did within the last two years). This change will reduce the risk of companies being unaware that they are subject to the Code and provide clarity that UK-incorporated companies with only overseas listings will not be subject to the Code.

Transitional arrangements will apply for two years (until 3 February 2027) to companies to which the Code will cease to apply as a result of the proposed changes.

FCA publishes guidance on compliance with Market Abuse Regulation

On 15 November 2024, the FCA published Primary Market Bulletin 52, providing guidance to issuers on compliance with the UK Market Abuse Regulation (MAR).

The bulletin covers:

• Issuers' ability to identify and make public information that is inside information under MAR in relation to offer processes; preparation of periodic financial information; and CEO resignations and appointments, since the FCA has seen differing approaches by issuers in identifying when information may constitute inside information in each of these three common scenarios. The FCA also includes steps issuers can take to make sure they are prepared to correctly identify inside information.
  
  
• The dissemination of information by issuers during shareholder calls and meetings, including using communication apps to interact with groups of smaller private shareholders. The FCA reminds issuers of the application of MAR in this context and sets out steps issuers can take to limit the risk of unlawful disclosure of inside information or market manipulation through misleading statements.
  
  
• The dissemination of regulatory information by issuers during interruptions to Primary Information Provider (PIP) services, following the FCA's observations during the July 2024 Crowdstrike-related IT outage which affected a number of PIPs. The FCA includes actions for issuers to consider to be prepared in the event of future PIP outages.

FRC publishes annual review of corporate governance reporting

The FRC has published its annual review of corporate governance reporting against the UK Corporate Governance Code (the UKCG Code). The review showcases examples of good reporting and explores possible improvements to help companies prepare to implement the new 2024 UK Corporate Governance Code which will apply to financial years beginning on or after 1 January 2025 (see PLC QTRLY Q1 2024). 

The review emphasises the UKCG Code's flexibility and its 'comply or explain' approach, and notes that the FRC supports departures from the UKCG Code where there is a cogent explanation given and that an explanation can give additional insight into the governance of the company.

The review finds that, while overall reporting quality remains strong, there is still a need for more concise, outcomes-focused disclosure and enhanced reporting on risk management and internal controls.

Specific findings in this year's review include:

• Fewer companies chose to depart from the UKCG Code, which can primarily be attributed to increased compliance with the provision related to alignment of executive pension contributions with those of the workforce generally. When departing from the UKCG Code, the FRC reminds companies that the explanation should be clear and provide sufficient detail.
  
  
• Risk management and internal controls reporting remained an area of focus. Many companies had updated their risk reporting over time, particularly in relation to mitigations put in place to manage their principal risks. However, reporting on the effectiveness of internal controls remains at an early stage, with a number of companies not reporting clearly on this aspect. There were no early adopters of Provision 29 of the 2024 UK Corporate Governance Code, which will require strengthened reporting on risk management and internal controls for financial years beginning on or after 1 January 2026, but a number of companies did refer to the new provision and outlined the ongoing work to prepare for it.
  
  
• Many companies reported on their shareholder engagement, but there was little improvement in the quality of reporting, with few details on the nature of the engagement, feedback from shareholders or examples of outcomes. However, reporting on stakeholder and workforce engagement was generally of high quality, with examples of effective reporting on the outcomes of stakeholder engagement identified.
  
  
• There was some evidence of early adoption of the FRC's Audit Committees and the External Audit: Minimum Standard, which is referenced in the 2024 UK Corporate Governance Code. There had also been an increase in the level of disclosure by audit committees of the results of Audit Quality Reviews.
  
  
• While the 2024 UK Corporate Governance Code did not include proposals to amend existing provisions on 'over-boarding', the FRC was pleased to see good reporting in this area with companies generally setting out clearly the other commitments of their board members.

The FRC has also made available a series of videos and podcasts to support the implementation of the 2024 UK Corporate Governance Code.

Updates to 2025 proxy voting guidelines

Glass Lewis

On 14 November 2024, Glass Lewis published its 2025 UK Benchmark Policy Guidelines, which will apply to shareholder meetings from 1 January 2025.

Key updates include:

• Director tenure: From 2025, Glass Lewis will assess reasons for extending the tenure of a board chair beyond nine years on a case-by-case basis (rather than generally recommending voting against re-election of the nomination committee chair where the tenure of the board chair exceeded nine years and a delineated timeline for succession was not provided).
  
  
• Board level diversity: Glass Lewis will generally recommend against the re-election of the nomination committee chair of any main market board that has failed to appoint at least two gender diverse directors and of any FTSE 250 board that has failed to appoint at least one director from an ethnic minority background, unless in each case the board has provided a clear and compelling rationale for the lack of board-level diversity.
  
  
• Board oversight of artificial intelligence: Glass Lewis expects boards to mitigate exposure to material risks that could arise from their use or development of AI and may recommend that shareholders vote against the re-election of accountable directors (or other matters up for a shareholder vote as appropriate) where there is evidence that insufficient oversight and/or management of AI technologies has resulted in material harm to shareholders.
  
  
• Pension contributions and executive remuneration: Glass Lewis will generally recommend voting against the relevant remuneration proposal where executive pension contribution rates exceed those applying to the majority of the workforce. No element of variable pay should be pensionable. Various disclosure expectations apply to hybrid incentive plans in executive remuneration policies, and dilution of over 5% over a ten-year period in relation to executive (discretionary) share schemes will no longer generally lead to a recommendation to oppose equity awards.

The guidelines also include new sections on multi-class share structures and SPACs and clarifying amendments on conflicts of interest, proxy voting results, executive remuneration and virtual shareholder meetings.

ISS

On 17 December 2024, Institutional Shareholder Services (ISS) published its updated UK and Ireland Proxy Voting Guidelines, which will apply to shareholder meetings held on or after 1 February 2025.

Key updates include:

• Reflecting the Investment Association's new Principles of Remuneration (see separate section above) and the new UK Corporate Governance Code (see PLC QTRLY Q1 2024), including providing additional guidance on the disclosure of malus and clawback provisions and removing the share dilution limit applicable to executive (discretionary) share schemes.
  
  
• Reflecting the recommendation in the QCA Corporate Governance Code 2023 for smaller quoted companies to put remuneration reports and policies to advisory shareholder votes.
  
  
• Clarifying that listed companies are required to report against specific gender and ethnic diversity targets on a 'comply or explain' basis rather than being required to meet the targets.

UK endorsement of IFRS Sustainability Disclosure Standards

On 18 December 2024, the UK Sustainability Disclosure Technical Advisory Committee (TAC) published its final recommendations to the Secretary of State for Business and Trade, recommending endorsement of the first two IFRS Sustainability Disclosure Standards issued in June 2023 (see PLC QTRLY Q2 2023) for use in the UK.

The TAC's technical assessment of both IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) concluded that the standards meet the necessary endorsement criteria and that the creation of UK Sustainability Reporting Standards will support long-term public good in the UK.

In advising endorsement, the TAC has also recommended minor amendments to IFRS S1 and IFRS S2, including extending the 'climate first' reporting relief from one to two years and suggesting that the UK Sustainability Disclosure Policy and Implementation Committee develop guidance on implementing IFRS S1 to clarify how entities can align this standard with existing sustainability-related disclosure requirements under the current UK legal framework.