Equiniti ezine | January 2012

EZINE > JANUARY 2012 INSIDE THIS ISSUE: WEBCAST Eddie Gray shares some recent examples of successful Employee Share Plan launches A BIG YEAR FOR COMPANY SECRETARIES Key developments to watch out for in 2012 WHAT'S HAPPENING IN EUROPE? The ripple effect of proposed changes to corporate governance THE COMPELLING CASE FOR SHARE PLANS Renewed political support for employee share plans WHAT WILL THE OLYMPICS LEAVE US WITH? Economy legacy of London 2012 NO CAUSE FOR COMPLAINT Advice on new complaint-handling procedures

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WEBCAST

Eddie Gray, Head of Service Delivery at Equiniti, shares some recent examples of successful Employee Share Plan launches

WEBCAST: SHARE PLAN LAUNCHES

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EXECUTIVE REMUNERATION > ON PAGE 3

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EXECUTIVE REMUNERATION

David Venus, of David Venus & Company, looks at the key issues cropping up this year – starting with that bone of contention otherwise known as directors’ remuneration

A BIG YEAR FOR COMPANY SECRETARIES Top of the list for company secretaries to look out for this year is executive remuneration. On 23 January 2012, Vince Cable, the Business Secretary announced a raft of measures to justify the 'fat cat' salaries that many large companies are accused of paying their top executives. He said that secondary legislation will be introduced later this year to require listed companies to publish simplified remuneration reports, so that a reader can see a single figure for the value of an executive’s pay package, glean details of future pay policy, find out how the company has consulted employees and taken their views into account, and read how pay awards relate to the company’s performance and other costs such as dividends, business investment, taxation and staff costs.

Mr Cable also announced that he will be consulting on new powers to hold listed

company boards to account. Matters to be considered will include: ■■ Giving shareholders a binding vote on future pay policy, any director’s notice period of more than one year and exit payments of more than one year. He will consider if 75% shareholder approval should be necessary rather than the 50% that now applies to the advisory vote.

■■ Promoting

more diverse boards by requiring at least two board members to be appointed who have never previously been members of a board. These might include “people from the professions, public servants, academics or lawyers”.

■■ Requiring

greater transparency on the role of remuneration consultants, how they are appointed, their fees and whom they advise and report to.

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EXECUTIVE REMUNERATION ■■ Limiting

membership of executives of other companies on remuneration committees so to eliminate possible conflicts.

■■ Introducing

'clawback' provisions to require companies to recoup bonuses from executives when they are subsequently shown to have been unwarranted.

Closely linked to executive remuneration is narrative reporting. The current Business Review and the Directors’ Report will be replaced with two documents – a Strategic Report and an Annual Directors’ Statement.

The Strategic Report will need to be signed off by each individual director and the company secretary. It’s really pinning responsibility for strategy on each director. There will be some simplifications for unlisted companies, but for listed companies, there will be increased disclosure on gender, diversity and remuneration. The Annual Directors’ Statement will contain formal reports – such as the existing remuneration reports, corporate governance statement and the audit committee report.

The new provisions on remuneration reports and on narrative reporting are likely

to be introduced for the accounting years beginning 1 October 2012.

Other key issues for company secretaries to keep an eye on are as follows:

Equity markets

Professor John Kay’s report into equity markets will look at all aspects of the UK equity market and their impact on long-term competitive performance of UK business. Final conclusions are expected in July.

EU Prospectus Directive

Amendments to the EU Prospectus Directive are due in July. These will include a list of matters that EU companies will have to disclose in their base prospectus.

EU Transparency Directive proposals

The key aim here is to replace quarterly reporting for quoted companies with halfyearly reporting. There will be new provisions on notification of interests on shares and greater penalties for non-disclosure.

Mandatory audit company rotation

The EU is proposing that listed and financial

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services companies will have to change their audit firm every six years. Large audit firms may also be banned from doing non-audit work for the same company. Naturally, the audit firms are unimpressed about all this!

Foreign Account Tax Compliance Act

This US legislation requires foreign financial institutions to report all US nationals who invest with them to the IRS. The National Association of Pension Funds believes this is unworkable and is seeking a full exemption for UK financial institutions.

Vickers Report

A White Paper on the Independent Banking Commission’s Report is expected in the spring, setting out the Government’s plan for implementation.

Retail investment products

There is an EU proposal to ensure consistent and effective standards for “packaged retail investment products” such as annuities and life insurance policies. Part of the aim is to rein in sales malpractices.

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EXECUTIVE REMUNERATION

Competition and Markets Authority

Striking off

Data protection laws

Dividends

Two UK agencies – the Office of Fair Trading and the Competition Commission – are due to merge to create a single Competition and Markets Authority.

EU proposals for reform of data protection laws will include increased fining powers for data protection breaches. All companies with more than 250 employees will also have to appoint a data protection officer.

Gender diversity

From October 2012, the UK Corporate Governance Code will require companies to disclose the percentage of women in their organisation, as well as fuller reporting in their accounts of its diversity policy.

New guidelines for “striking off” companies.

Smaller companies will now have to reduce their share capital in accordance with the provisions of the Companies Act.

The European Securities and Markets Authority announced new guidance on dividend policy.

It makes clear that company pronouncements on dividend policy may constitute inside information. Care should be taken by listed companies when making statements on future dividend policy.

What’s an SME?

Simplification of the EU’s definition for “small” and “medium” sized enterprises is being brought in. This will allow more small companies to take advantage of accounting exemptions.

IF YOU WOULD LIKE MORE INFORMATION: For more information please contact david.venus@ davidvenus.com

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EUROPEAN REFORM > ON PAGE 6

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EUROPEAN REFORM

Peter Swabey discusses the ripple effect of proposed changes to corporate governance practices in Europe

WHAT’S HAPPENING IN EUROPE? The year ahead is one of extensive change in legislation, regulation and corporate governance. Among the most contentious of the changes is the proposed regulation and directive on audit reform, which were published by the European Commission in November and can be found at: ■■ http://ec.europa.eu/internal_market/ auditing/docs/reform/regulation_en.pdf ■■ http://ec.europa.eu/internal_market/ auditing/docs/reform/directive_en.pdf.

Proposals include a ban on the auditors of listed companies providing non-audit services, and the mandatory rotation of audit firms. The Commission has always been nervous about the practice of the former – after all, if the business pays higher fees for other services, the auditor might well be tempted to ‘look the other way’.

This year will also see an even greater drive to harmonise share transactions across

Europe. In the UK, a share transaction is considered effective only when it is settled in our security system, CREST. However, practices diverge greatly in different European countries where, for example, ownership can change when the transaction is agreed.

In practice, this creates a system where if a shareholder is buying UK shares from a broker in another member state, there could be a period of time where both buyer and seller believe that they own those shares. It hardly

If a shareholder is buying UK shares from a broker in another member state, there could be a period of time where both buyer and seller believe that they own those shares

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needs saying that this can cause a problem if a liability or shareholder benefit crops up.

We saw evidence of this when Lehman’s went bust, and it has been claimed that many shareholders believed they owned more shares than were actually held on their behalf.

The directive on Securities Law – sometimes called the Post-Lehman’s Directive – seeks to address this inconsistency but could spell major (and unnecessary) changes for the UK market.

Another initiative intended to reduce counterparty risk is the move towards T+2 settlement across Europe. Currently the UK, and most other member state markets, operate on a T+3 model, meaning that market participants have three days to settle the transaction from the date of the deal. Since transactions are not considered complete until they are settled in CREST, there is little risk associated with this practice in the UK. However, the Commission believes there is a material settlement risk in other territories, so CONTINUED ON PAGE 7

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EUROPEAN REFORM it wants to speed things up by moving to the German model of T+2.

This can easily be achieved, but only at the cost of changing market structure, and the question has to be asked whether the benefit of harmonisation justifies the cost of this change. In my view, many of the challenges associated with pan-European trading and settlement are directly derived from a desire to shoe-horn a wide variety of market structures into a single one-size-fitsall model. There are significant differences between market structures – for example in the UK we are unusual in having large numbers of certificated retail investors with a direct relationship with the issuer. However, these certificated retail investors typically trade on a T+10 basis to allow time for them to receive a stock transfer form and return it, with their share certificate, to their broker.

One way in which this change could be facilitated would be to get rid of share certificates, and the Commission are working on legislation to regulate Central Securities Depositories (i.e. CREST in the UK), early drafts of which have proposed mandating dematerialisation across Europe.

We also expect to see the implementation

of changes to the Markets in Financial Instruments Directive (MiFID) and the Market Abuse Directive (MAD), and a communication on corporate social responsibility. Finally, but by no means least, we expect to see a Green Paper on corporate governance and a consultation on company law in the early part of 2012. It is likely that these will address some of the issues around narrative reporting and executive remuneration that are currently exercising the UK Government and which are expected to impact UK reporting from financial years beginning on or after October 2012.

It’s safe to say that 2012 will be a busy year for company secretaries, as we keep pace with a landscape that’s constantly changing, in an attempt to minimise risk and harmonise practices across Europe.

IF YOU WOULD LIKE MORE INFORMATION: If you would like more information regarding the issue raised in this article, please contact your Relationship Manager or Peter.Swabey@ equiniti.com

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EMPLOYEE SHARE PLANS > ON PAGE 8

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EMPLOYEE SHARE PLANS

Phil Ainsley, Director of Employee Share Plans & Benefits, highlights renewed political support for share plans and the benefits of the Employee Share Plan portal

THE COMPELLING CASE FOR SHARE PLANS Nick Clegg has recently been flying the flag for employees to be offered a stake in the company they work for to improve productivity and unlock growth.

At a time when the press continue to highlight the boardroom excesses of capitalism, he believes “our problem is (not) too much capitalism - we think it’s that too few people have capital”. His focus on wider share participation urges more companies to offer shares to their employees and considers introducing a right for workers to do so.

Our clients already recognise the value that share plans bring to their organisation and our role is to make the whole process from start to finish as simple, engaging and hassle free as possible for both corporate and participant. Key for us this year is continuing our work on expanding the ESP (Employee Share Plan) portal. This is ground-breaking technology – a place where employees can

Nick Clegg is urging more companies to offer shares to their employees access their share plans using a single log-on, make enquiries and carry out transactions.

Sharesave, SIP & Executive plans; everything is in one place for them. It has been incredibly well received and the continuing rollout will be

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a key priority over the next six months.

A big part of the project concerns the series of functionality releases that we are making available. The latest one provides online real-time sales for the share incentive plan. We’re also looking to develop online dealing at maturity for Sharesave.

Client involvement and feedback is very important to the way that we have developed the portal. We’re constantly looking for new ways to develop the service and have created a client focus group that refines what we deliver and prioritises the releases.

We already have ten clients using the portal, but we’re steadily making it available across the rest of our client base as well. There are two clients using it to full capacity at the moment: BT and, most recently, BSkyB. They use what we call ‘federation’ where people log on at work to their normal secure intranet but can gain immediate access to the secure CONTINUED ON PAGE 9

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EMPLOYEE SHARE PLANS Equiniti ESP portal without any further ID. This makes it so easy to use and many participants don’t even realise that they’re moving out of their corporate environment and into ours because their own branding, look and feel is carried across into our world adding value to the company’s total reward proposition.

It harmonises the whole experience, which is very important for the client from a brand perspective, and for the employee on a user experience level. And this is an ongoing process – we will continue to work on refining the concept of everything the share planholder needs being in one place, accessible in a way that is quick, simple and seamless.

There is understandably an element of uncertainty in the market-place at the moment, but we’re finding that share plans are proving remarkably resilient. Many Sharesave plans entered into three years ago will be maturing this year at a significant premium and the tax advantages of shares delivered through SIPs continue to make the vast majority of plans profitable for their participants. Those believers who have kept the faith with equity reward are seeing the benefit and can use this as a platform to build on for the future.

We will continue to work on refining the concept of everything the share planholder needs being in one place, accessible in a way that is quick, simple and seamless

IF YOU WOULD LIKE MORE INFORMATION: Please contact your Relationship Manager or Phil.Ainsley@equiniti.com

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BEYOND THE OLYMPICS

Can Britain win Gold in the race to economic regeneration?

LONDON’S LEGACY It’s curious that at a time when the UK continues to debate the possibility of Scottish independence, the British ‘brand’ has never been more popular. The wartime slogan ‘keep calm and carry on’ is emblazoned on our merchandise, the Union Jack print dominates the design world and even the London tube map has become a coveted piece of retro art. Ironically, the recession is helping to drive this retail success story, as the nation taps into its sense of solidarity in these times of economic strife (‘make do and mend’ is another wartime slogan that recently re-entered the consumer psyche).

Major events also play their part. In April last year, the eyes of the world turned to London for the wedding of Prince William and Kate Middleton. The streets of Britain turned blue, white and red as people seized the opportunity to celebrate with quintessentially British street parties. The Royal Wedding

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BEYOND THE OLYMPICS

Infrastructure

With the Olympics budget having ballooned from £2.4bn to £9.3bn, there has been justified concern about what will ultimately become of the costly new venues constructed for this massive, one-off event. The good news is that contracts have already been secured on six of the eight venues, the majority of which have been sold on to private companies who will maintain them as public centres. Only the fate of the Stadium and Media Centre is yet to be decided. These sites have provided employment for some 9,000

infrastructure greatly enhance the urban environment in the long term.

Tourism

LONDON 2012

brought a ‘feel good’ factor to the UK and presented London with an international marketing opportunity.

Against that backdrop, it’s little wonder the Olympic Games has heralded such excitement and anticipation in the media – particularly coming as it does just two months after the Queen’s Diamond Jubilee.

Yet amongst the buzz, there has been a persistent voice of doubt: given the massive costs involved, can London 2012 benefit our long-term economic prospects? The question of the Olympic ‘legacy’ is one that continues to divide economists.

The future use for the Olympic Stadium is yet to be decided construction workers, providing a muchneeded boost to an ailing industry.

Transport is however one of the key infrastructure requirements for any host city, and Jeremy Cook, Chief Economist at World First, predicts that the capital’s transport system will be unable to cope with the influx of visitors. Other commentators disagree, arguing that preparations so far have been smooth and the logistics of transport are well in-hand. Jones Lang LaSalle argues that improvements to transport networks and

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It is anticipated that 5.5 million day visitors will attend the London Olympics, including 294,000 international visitors. The ticket sales from those attendance figures alone result in a 0.1% increase in UK economic growth next year, contributing to an overall growth rate of 0.7% in 2012 (Source: Office of Budget Responsibility).

In its UK Hotels Forecast PricewaterhouseCoopers (PwC) predicts that London hotels will “continue to shrug off the recession and enjoy yet another bumper summer.” In July 2011 occupancy rates hit 92%, and PwC expects 2012 to be another strong year. The Olympics has attracted extensive new luxury hotel developments, which are expected to pay off with record occupancy rates in quarter three. “A large amount of additional supply is coming on line in the capital, bringing new names and brands to the scene,” says Liz Hall, head of hospitality and leisure research at PwC. “London needed an injection of stylish new products and this has strengthened the capital’s appeal, putting CONTINUED ON PAGE 12

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BEYOND THE OLYMPICS parts of East London on the hotel map for the first time.”

Indeed, Jones Lang LaSalle points to huge investment in residential 1-2 bedroom apartments in East London, although it cautions that this growth will need to be supported by investment in the social infrastructure to continue the regeneration in the long-term.

Businesses

Prime Minister David Cameron predicts that trade events will generate £1bn for British businesses around London 2012, but there are some concerns amongst SMEs, according to Andrew Cave of the Federation of Small Businesses: “Small businesses keep hearing about the spiralling of costs and the disruption that will be associated with the Olympics, so it’s not surprising that when we ask our members, more than 60% of them are sceptical about the long-term benefits that the Games will bring to their businesses.”

With stringent rules around Olympic-related publicity, formal business sponsors are likely to reap most of the rewards, though many commentators argue that enterprising businesses will find a way to tap into the

Jones Lang LaSalle’s Property Predictions 2012 reports that British construction expertise is already being exported throughout the world and on to Rio de Janeiro, the 2016 Olympic Games host increased profile and buzz around the Games.

The experience of former host cities also suggests that construction firms will greatly benefit, and Jones Lang LaSalle’s Property Predictions 2012 reports that British construction expertise is already being exported throughout the world and on to Rio de Janeiro, the 2016 Olympic Games host.

good factor’ inspiring consumer confidence.

For example, if the next generation, inspired

by London 2012, leads a more active lifestyle, what impact might that have on NHS costs?

How many more visitors might the UK welcome thanks to the publicity associated with events like the Olympics and (to a lesser extent) the Diamond Jubilee? What impact – if any – does a public mood of participation and celebration have on the economy? “It’s really hard to quantify the price of a feel good factor that will help lift spirits and perhaps life the UK out of the current doldrums,” says Katie Kopec of Jones Lang LaSalle. “During Sydney it was estimated that 3.7 billion of the world’s 6.6 billion tuned in… so the one thing we can be sure of is that the world will be watching London and UK Plc.”

The ‘feel-good factor’

The Olympic legacy is notoriously difficult to calculate, partly because of unquantifiable benefits such as exporting the London/UK ‘brand’ internationally; catalysing increased participation in sports; and an intangible ‘feel

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COMPLAINT HANDLING > ON PAGE 13

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COMPLAINT HANDLING

Are you ready to implement a one-stage complaints-handling procedure? If not, Equiniti can help

NO CAUSE FOR COMPLAINT? As of the 1st July this year, changes in complaints-handling procedures will come into effect in accordance with new guidelines from the FSA. The proposed changes will: ■■ Replace the existing two-stage process for handling complaints with a one-stage process to make sure firms do not dismiss a complaint when first received which leads to the customer having to persist for a response.

■■ Require

firms to take account of Financial Ombudsman decisions and previous customer complaints.

■■ Emphasise

the obligation of firms to undertake root-cause analysis of the complaints they receive and to take action as appropriate.

■■ Require

firms to nominate a senior individual to take responsibility for the complaints-handling function within the firm.

“The aim is to provide confidence to customers that their complaint is being dealt with effectively,” explains Letitia Trimmer, Head of Quality Assurance and Complaints Management at Equiniti. “The FSA wants to achieve a much better standard across the board, ensuring that customers receive a prompt and fair response.

“The biggest change is moving from a two-step to one-step process,” she adds.

“Some firms currently use the two-stage process appropriately, but it’s prone to misuse. It effectively gives companies an incentive to deal with complaints to a lower than satisfactory standard at the first stage on the basis that only a relatively small number of consumers will take their complaint further.”

The FSA anticipates that, because

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COMPLAINT HANDLING businesses will have to focus more attention on providing accurate and full responses in the first instance, the quality of responses should improve. Once customers have received their response (within eight weeks), they then have the option of referring to the Financial Ombudsman Service immediately.

Equiniti already operates a one-stage complaints process, and has done for some time. Standard practice is to issue a full and final response to any complaint within 20 working days, but the majority of complainants receive a final response within 5 days. “We’ve actually reduced the number of complaints referred to the Financial Ombudsman Service by 60% since 2010. This is obviously a significant reduction, and we hope to sustain that in 2012,” says Letitia.

If you would like to discuss how Equiniti’s successful procedures for handling complaints (and avoiding them in the first place) could help your business, please contact Letitia for more information.

We’ve actually reduced the number of complaints referred to the Financial Ombudsman Service by 60% since 2010

IF YOU WOULD LIKE MORE INFORMATION: Please contact your Relationship Manager or Letitia.Trimmer@equiniti.com CLICK HERE TO READ THIS STORY ON THE EQUINITI WEBSITE