25 July 2018 by Lorraine Young
Reflections on changes faced by company secretaries over the past twelve years
After almost 12 years of writing this column I have decided to pass on the baton to someone else. So this month is a look back at some of the topics I have written about for Governance and Compliance over the years and how things have evolved.
The very first briefings in 2006 looked at the listing regime, when the UK Listing Authority (UKLA – then part of the Financial Services Authority) still published its occasional digest called List! This mentioned the ‘annual information update’, which was required under the Prospectus Rules but has now (thankfully) been dropped.
At that time the UKLA still ran a helpdesk and tried to respond to written enquiries within five days. It seems that lots of companies wanted something quicker. Sound familiar?
There were also some changes to the Model Code – sadly missed – and a proposal to make the listing applications process more ‘user-friendly’.
In 2007 the disclosure and transparency rules (DTRs) came into force. This was another upheaval for listed companies, only two years after the changes which introduced the disclosure rules.
The new interim management statement came into being – since dropped because it encouraged ‘short-termism’. Investors were affected too, with the new rules for the disclosure of large shareholdings under DTR5.
Also in 2007, the AIM rules had a major overhaul, with separate rulebooks introduced for companies and nomads. Rule 26 about website disclosure was introduced – and there was a paragraph in one article which read: ‘The Exchange rejected calls from some quarters that there should be rules on corporate governance disclosures for AIM companies, preferring instead to leave this as an area on which the Nomad should advise the company; since there is such a wide range of companies on AIM and they are at different stages in their business development.'
How things have changed – from 28 September this year, companies on AIM will have to include in their Rule 26 website disclosure which corporate governance code they follow and how they comply with it. This is causing a lot of work for smaller companies, which I suspect may result in some box ticking and not necessarily better run companies. Maybe the Exchange should have stuck to its original viewpoint.
In 2008, corporate governance requirements crept into the DTRs with a new chapter, DTR7. This ramped up the best practice recommendations under the Combined Code (as the UK Corporate Governance Code was then called) to include several requirements from EU Directives.
One of these was from the Takeovers Directive, where many of the provisions of the company’s articles had to be described in the annual report – one of the more tedious and pointless disclosure requirements, particularly when a company’s articles are accessible at Companies House.
Changes to company law came thick and fast as the final stages of the Companies Act implementation loomed in 2009. Implementation had been phased in from 2007, with many complex transitional provisions to keep us on our toes.
There was a great deal of publicity about filing documents and forming new companies close to the 1 October date when Companies House systems changed over. The Registrar’s rules were introduced, which dealt with certain administrative matters at Companies House. The statement of capital came into being – and we will not mention the unintended consequences of that in having to keep track of the issue price of every share until some later regulations fixed the problem.
Alongside this, all of the forms relating to share capital changes were updated – and how they multiplied – you can be forgiven if you have not quite worked them all out even now.
“As the changes keep coming, it is worth noting that the troublesome ones do not always remain”
October 2009 also brought in the SAIL (Single Alternative Inspection Location) and the regulations about inspecting and copying company registers. Only the very dedicated company law practitioner will have read those in their entirety and lived to tell the tale. This was when the memorandum of association as we knew it disappeared (along with authorised capital) and Table A was retired in favour of the new model articles. I do hope that all our readers have updated their companies’ articles.
Table A and the Companies Act 2006 are not particularly compatible, especially in the area of shareholder meetings.
2010 began with consultations about proposed amendments to the brand new legislation to fix a few unexpected problems – and changes have continued ever since.
The UKLA regime introduced the ‘premium’ and ‘standard’ listing segments in 2010 and the rules on issuer liability were updated.
Towards the end of the year the NSM (National Storage Mechanism) arrived, where main market companies have to upload certain documents that were previously sent to the UKLA at Canary Wharf. This is also a place where the regulatory announcements for all listed companies are stored – which can be a very useful source of announcements you have not come across before. Do be sure to look at several examples, there is no guarantee that the first one you pick will represent best practice.
We considered the Hannam ruling in 2012, which is still referred to in relation to market abuse, and again in 2014, after his unsuccessful appeal against the original findings.
Market abuse came around again with a couple of briefings on the new Market Abuse Regulation in 2016 and a follow up on how it was being implemented in 2017.
At the start of 2011 we reviewed the QCA corporate governance guidelines for smaller quoted companies, which was designed to be a simpler version of the main governance code and more appropriate for smaller companies to follow. We also reviewed the British Standard (13500) on corporate governance, just for a different perspective.
There have also been reviews of reported compliance with the Stewardship Code, the many iterations of the UK Corporate Governance Code and its related guidance.
There have been several years when we have considered different aspects of AGMs – including a horrible issue around multiple corporate reps on which we rushed out a guidance note, about the time of the Northern Rock (E)GM at the start of 2008. This problem was fixed by the regulations that introduced the requirements of the Shareholder Rights Directive. We have also looked at calculating notice periods, voting, practical arrangements and the voting guidelines issued by various investor bodies.
For directors, we have looked at the whole ‘lifecycle’ – from due diligence before joining a board, appointment letters and induction, duties, what to do when a company faces insolvency, disqualification and most recently ‘overboarding’.
And of course we could not ignore remuneration, with the FSA Code on remuneration, the QCA remuneration code for smaller companies as well as the regularly updated investor guidance on pay.
So as the changes keep coming and we have to keep up with them, it is worth noting that the troublesome ones do not always remain. I am hopeful that at some point in the future we might lose some of that MAR red tape.