Corporate Law Update
- The latest Hampton-Alexander Review report on gender balance on boards has been published
- The GC100 has published the results of a poll on how FTSE 100 companies are intending to engage with their workforce
- Glass Lewis has published its guidelines for how it will recommend shareholders vote on listed company resolutions during 2020
- A few other items
The Hampton-Alexander Review has published its fourth annual report on improving gender balance in FTSE leadership. The report is an annual summary of progress made by FTSE 350 companies towards achieving the Review’s target of 33% of all boards comprising women by the end of 2020.
The report shows that there has been some progress among the FTSE 100 since 2018, albeit slight. Progress in the FTSE 250 was more significant. The key points from the report are:
- The number of women in excom or direct report roles has increased from 27% to 28.6% in the FTSE 100 and from 24.9% to 27.9% in the FTSE 250.
- The proportion of women on boards in the FTSE 100 increased from 30.2% to 32.4%, which means the index has almost reached the target. Encouragingly, the top 25 companies’ boards now comprise at least 40% women, and half of the FTSE 100 have met the 2020 target already.
- The proportion of women on boards in the FTSE 250 also increased, from 24.9% to 29.6%. 45 more boards have now met the 2020 target already, bringing the total number of successful boards to 111 (44.4%). However, the other 139 FTSE 250 companies “still have work to do”.
- The number of boards with one woman or no women reduced from 79 to 41, but 28 boards still had only one woman for the second year running.
- The appointment rate for women in senior roles was 36% in the FTSE 100 and 35% in the FTSE 250, meaning that around two thirds of senior roles still go to men. These need to rise to 50% in the coming year for the FTSE 100 and FTSE 250 to meet the target.
- However, generally the outlook is positive, and the Review concludes that the FTSE 100 is likely to achieve its target in the coming months. If the FTSE 250 continues the trend it has shown over the last 12 months, the FTSE 350 as a whole should also meet the target.
The GC100 has published the results of a poll of its members on how FTSE 100 companies are implementing Provision 5 of the UK Corporate Governance Code.
The GC100 represents general counsel and company secretaries of the FTSE 100. It currently comprises 83 FTSE 100 companies and 42 former FTSE 100 companies.
Provision 5 states that a company should implement one or a combination of the three specific models for engaging with its workforce, or explain what alternative arrangements it has adopted and why they are effective. The three specific models in the Code are:
- Appointing a director from the workforce.
- Establishing a formal workforce advisory panel.
- Designating a non-executive director (NED) responsible for workforce engagement.
36 GC100 members responded to the poll, although not every respondent answered every question. The results are useful reading for any Code-governed company that has yet to decide which method(s) to adopt. The key points from the poll are as follows:
- 34 companies (94%) have chosen their workforce engagement method for 2020.
- Half of those 34 companies have chosen to appoint a designated NED, either as their sole method (29%) or in combination with either a workforce advisory panel or some other arrangement (21%). In some cases, that NED is the company’s board chair, remcom chair or senior independent director.
- 26% of companies have chosen to establish a workforce panel, either as their sole method (9%) or alongside a designated NED (15%) or some other arrangement (6%). In addition, several companies have chosen alternative arrangements that resemble a workforce panel (see below).
- No company has chosen to appoint a director from the workforce, although 4 companies (12%) have decided to appoint an employee to sit on their workforce panel or employee forum. (However, it is worth noting that, according to Practical Law, during the 2019 reporting season, 5 companies (1 FTSE 100 and 4 FTSE 250) appointed a director from the workforce.)
- Interestingly, half of companies have chosen to implement alternative arrangements, either as their sole method (39%) or alongside a designated NED (9%) or workforce panel (6%). The poll results explain the various alternative arrangements that have been chosen.
Many of these alternatives are variations on the Code models. For example, some companies have adopted employee forums, works councils, employee advisory networks and local consultation committees, which may well function similarly to a workforce panel.
Likewise, some companies have delegated responsibility for workforce engagement to a CSR committee, a senior management panel, their remuneration or nomination committee or their NEDs collectively, rather than to a single NED.
Other methods of engagement include employee surveys, town hall meetings, site visits, dinners with local management, webinars, webcasts and enhanced whistleblowing facilities.
- 31 companies (91%) intend to disclose their engagement method in their annual report. 20 companies (71%) intend to set out the outcomes from their workforce engagement and the actions they intend to take in response in their annual report.
Shareholder proxy advisor Glass Lewis (GL) has published its 2020 UK Proxy Paper Guidelines. The Guidelines set out the basis on which GL will advise shareholders how to vote on resolutions proposed by a FTSE listed company.
The Guidelines set out the changes for the 2020 AGM season. The key changes (which apply only to FTSE 350 companies unless stated) are as follows:
- Gender diversity. GL will consider recommending voting against the chair of the nomination committee of a company that has neither met the Hampton-Alexander Review target nor explained its reason for not doing so.
- Board skills. GL may recommend voting against the chair of the nomination committee if the board has not addressed major issues of board composition (including the need for a mix of skills).
- Audit committee meetings. GL will consider recommending voting against the chair of the audit committee if the committee has held fewer than three meetings during the year in question.
- Smaller companies. In line with the new UK Corporate Governance Code, GL now expects boards of premium-listed companies outside the FTSE 350 to be at least 50% independent and to hold annual director elections.
- Executive remuneration. Salary increase and pension contribution levels should reflect those awarded to the wider workforce. Incentive plans should feature transparent award limits (ideally expressed as a multiple of salary) with no more than 25% vesting for threshold performance.
- Remuneration committee discretion. GL expects remcoms to consider exercising downward discretion where the company suffers an “exceptional negative event”, even if targets are met.
- Sustainable investment. The Investment Association has published its final report on a responsible investment framework. The report accompanies the launch of the first industry-agreed framework for common approaches to responsible investment. It is intended to provide context, guidance and uses for that framework.
- Cryptoassets. The LawTech Delivery Panel has published a legal statement on the status of cryptoassets (including cryptocurrencies) and smart contracts under English law. The statement concludes that cryptoassets can (in principle) be treated as property, and that smart contracts can (in principle) constitute binding contracts under English. For more information see this blog by our colleague, Rob Grant.