Equiniti Ezine July 2014

EZINE > july 2014 inside this issue: Share registration conference 2014 ● Discussing the biggest issues in the industry ● Board evaluation goes under the spotlight ● The changing role of the company secretary ● Talking corporate reporting with the FRC update ● John Heaton talks share register access requests ESSENTIALS ● Equiniti Employee Share Plans Discussion Forum ● SAYE bonus rate set to rise ● Finance Bill 2014-2015 ● HMRC employee share schemes statistics ● ESP Portal developments ● Service excellence

CONFERENCE

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Another impressive line-up of stimulating and informative speakers brought the industry’s biggest issues to life at our annual conference in London

The Equiniti Share Registration Conference 2014 After another year of change and challenge for company secretaries, the Equiniti Share Registration Conference 2014 offered a chance to catch up on the latest developments and touch base with colleagues across the industry.

Equiniti’s Stuart Ellen, Managing Director, Registration Services and new Chief Executive Officer, Guy Wakeley, welcomed a host of speakers to address a packed auditorium at The May Fair Hotel in London.

The agenda covered the future of board evaluation, an update on corporate reporting from the Financial Reporting Council and views for the evolving role of the company secretary.

An informative keynote address was delivered by BBC journalist Tanya Beckett on the state of the UK economy and its impact on UK PLCs. In this month’s e-zine we pick out some of the key issues covered.

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CONFERENCE

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With the board evaluation sector itself under close scrutiny, Seamus Gillen, a former Policy Director at the Institute of Chartered Secretaries and Administrators, opened the debate over plans for a new code of conduct at Equiniti’s Share Registration Conference

Who watches the watchmen?

“We need to restore the reputation of the board evaluation sector. It is damaged at the moment, and we need proper oversight and accountability,” Seamus Gillen told a packed audience at Equiniti’s recent Share Registration Conference.

Seamus was speaking on ‘The Future Direction of Board Evaluation’ and the topic could not have been more relevant, as the ICSA was within weeks of launching a consultation into a draft Code of Practice for Independent External Board Evaluations, conceived by Advanced Boardroom Excellence at the behest of Sir David Walker.

The code is a response to perceived shortcomings in the external board evaluation sector, which have resulted, in some cases, in confusion over costs, significant variation in the quality of providers, a lack of boardroom experience among some providers, conflicts of interest and loss of independence.

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“There is not a compelling board evaluation offering out there in the market and what that has led to is a loss of confidence in the sector and a loss of reputation in the sector,” Seamus told the conference.

He recounted several recent cases to illustrate these shortcomings including one FTSE 100 company being given three initial prices for an evaluation ranging from £30,000 to £170,000.

Seamus said: “Where do company secretaries or chairmen go when they don’t know what the end or the beginning of the limits of this exercise are?”

However, the room was in agreement that the principle of board evaluations was very important, regardless of any current difficulties in implementation. When done well, they offer a huge opportunity to improve performance, to help a board ‘secure assurance that it is delivering assurance of the company’s operations’, and to disclose how they are discharging their obligations.

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CONFERENCE The new proposed code, which goes out to consultation this month, would probably be the first of its kind in the world and would potentially be self-regulated. It comes under six headings: ■■ Professionalism of approach ■■ Competencies and capabilities ■■ Expectations of the client by the consultants ■■ Clarifying the terms of the engagement ■■ Efficient process ■■ Independent oversight of the code

“These are some of the provisions in the code, which are up for grabs, as to how we shake out a young industry. A young industry, but one that is engaged in such a strategically important activity that we need to make it grow up very quickly,” said Seamus, adding that the consultation would help decide on the more contentious points.

He said he expected “feathers to fly” over a point in the draft which stresses consultants shouldn’t have more than two consecutive assignments with the same plc, but acknowledged the counter-argument that it is hard to develop a relationship with a plc if a consultant must stop working with them after a possible three-year period. Other potential points for debate include: consultants not

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pursuing any other work within an organisation that may affect the board evaluation, all providers requiring professional indemnity insurance and executive search firms not being involved in board evaluation to avoid conflicts of interest.

Turning to the future of board evaluation Seamus predicted a similar scenario to the corporate reporting market with up to eight really good providers with transparent fees but retaining enough flexibility to accommodate boards at different stages of their own development.

If you would like more information Please contact doug.armour@ davidvenus.com

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CONFERENCE

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Chris Stamp, Managing Director, Prism Cosec talked about narrative reporting and remuneration reporting with Anthony Appleton, Director of Accounting and Reporting Policy and Deepa Raval, Project Director, Accounting and Reporting Policy Team, Financial Reporting Council (FRC)

In conversation with the FRC on corporate reporting Chris Stamp: Nine months ago there were a number of things for people to consider – strategic report, remuneration reporting and also thinking about how boards look at the annual report because of new requirements in the UK Corporate Governance Code. Can you explain the FRC’s role in these areas?

Anthony Appleton: The FRC has two main functions. One division sets standards and the other is involved in monitoring and enforcement. We have quite a unique opportunity globally in that we can see what it means to be a standard setter and understand the conceptual issues but also be alive to the practical limitations by being involved in the enforcement and monitoring side.

I direct the Accounting and Reporting Policy side of the Codes and Standards division. That covers UK accounting standards and narrative reporting. A significant part of my role is trying to influence developments internationally. Deepa leads on the annual report related projects, including the recently issued Guidance on the Strategic Report.

The implementation period for the 2013 changes in regulations including those for the strategic report was relatively short.

In line with the FRC’s due process we issued a consultation before publishing the final guidance. In the interim, this gave us an opportunity to hear about companies experiences of applying the regulations.

At the moment we are consulting on the Corporate Governance Code. That consultation closes at the end of this month.

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CS: A lot of companies have published annual reports and had AGMs. Are you looking at what’s been produced so far and evaluating it in light of the changes?

Deepa Raval: We have spent the last year talking to quite a few companies, my personal view is that in the first year it is quite hard to assess what the impact has been. In a year’s time we will consider a postimplementation review. My initial thoughts are that the new regulations have had a positive impact on the way companies report. A number of companies have restructured their reports bringing information that is important for investors to the fore in the strategic report.

Other complementary information is often relocated to the back of the annual report or included online.

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CS: The directors’ report has been raising some questions – what is the role of that report?

DR: I see the directors’ report as the repository for residual information required by law. It is not that useful for investors and ideally I would like to see it being moved online, but we have some way to go on that.

of the challenges that we face is a reporting environment where there are multiple regulators setting different requirements and that can change the focus.

AA: We see the strategic report as a catalyst to improve the quality of narrative reporting.

We often refer to the term ‘cutting clutter’ and the aim now is to remove those disclosures which are not adding value to shareholders.

The strategic report is the place for that clear, relatively high-level, narrative story of the performance of the business, its position and where it is going in the future.

CS: What is your view on remuneration reporting?

AA: It is a bit disappointing to find that remuneration reports have grown significantly.

Whilst remuneration is clearly an important issue for an annual report there is a risk it becomes so heavily weighted to that one section that the whole idea of fair, balanced and understandable reporting is lost. One

Chris Stamp Managing Director, Prism Cosec

Anthony Appleton Director, Accounting and Reporting Policy (FRC)

Deepa Raval Project Director, Accounting and Reporting Policy Team (FRC)

If you would like more information Please contact your relationship manager or chris@prismcosec.co.uk

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CONFERENCE

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Susan Swabey, Company Secretary of Smith and Nephew plc and ICSA President, David Venus outlined their vision for the rapidly changing company secretary role at Equiniti’s recent Share Registration Conference

The future role of the Company Secretary Do you think the role of the company secretary has evolved in recent years with a greater emphasis on corporate governance?

Susan Swabey: There have been many changes in the last few years affecting the company secretary. There is often no time to assimilate one change before something else comes down the line, often on the same topic but from a different source. The role is no longer the same year in, year out. When I started 30 years ago it was pretty much the same job every year.

Now there are new reporting requirements, hot topics and practicalities every year.

There is an increased focus on governance

by major investors and therefore company secretaries are called upon to engage with investors ahead of the AGM more than in the past. This year I was contacted by over 20 investors and investor bodies ahead of the AGM. This increased engagement in governance by investors has changed the role of the company secretary. We’re no longer just the ‘techie’ guys in the backroom. Even though we musn’t feel that this is our natural home, now we have got to get out and about and talk to people. We have to train our directors to talk about governance to investors. They don’t want to talk about it, they want to talk about strategy and products and markets and things like that. But, we have to train them to speak the governance language and that’s a new part of our role.

The company secretary is moving away from merely taking the minutes and recording

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the decisions others make, but is now writing papers, guiding the discussions and advising the board on governance matters.

David Venus: Not that long ago the company secretary was a mere servant of the board. Well within living memory company secretaries in some of the top 100 companies even sat on a different table to take the minutes. Things have changed. When did they change? They started to change before the Cadbury Report but that was the real catalyst. Corporate governance were two words we probably hadn’t heard much about before, and it quickly became part of the role of the company secretary to make sure appropriate corporate governance was

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CONFERENCE carried out through the organisation.

This has been hastened by the financial crisis. So we’ve certainly seen the company secretary move away from being chief administrative officer. We’re now seeing the company secretary as the chief governance officer, but they have to be much more than that. Now they need soft skills as well. The big thing that has changed in the last five years is boardroom behaviours and ICSA is in the forefront of that, we help write the papers. Now the company secretary needs to be psychic, needs to be a trusted advisor, éminence grise, truth-speaking under power, brave but diplomatic and the bearer of unwelcome advice. But, you’ll be respected for it, not always thanked, but respected. So it’s a very broad role indeed.

What are your thoughts on the future role of the company secretary?

Susan Swabey: It is going to continue to evolve. The issues of the financial crisis and public recognition that there’s something wrong with big business (whether right or wrong, there is that perception), mean governance is going to be around and impact our roles. Investors and the public are focusing on governance matters as well as the strategy and performance, so the board will be more

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interested. It is going to be up to us to make sure the board is equipped to tackle these questions when they meet the investors. We won’t have to just have the technical skills to write the corporate governance statement, but also the communication skills to engage with investors and explain the technical aspects, not just to them but to the board.

We’re now seeing the company secretary as the chief governance officer, but they have to be much more than that. Now they need soft skills as well.

David Venus: Going forward I think the key administrative task I hope we still see the company secretary doing is minute taking.

It wasn’t my favourite task, but it is very necessary and I think company secretaries have the breadth of knowledge of the business and the sort of nuanced skills required to write the minutes. I would like to see much more emphasis on soft skills and I would like to see

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the Institute’s exams incorporate some testing of soft skills.

I have always been surprised that more company secretaries haven’t progressed to other board roles like non-executive director.

Who better to know what goes on than the company secretaries who have been sitting there for years and understand how everything works? Non-exec is a different role, but what isn’t such a different role is chairman.

A chairman is a facilitator and that’s what a company secretary is too. We should be looking to be non-execs but our endgame should be to seek to be chairman.

If you would like more information Please contact your relationship manager or doug.armour@davidvenus.com

UPfront

equiniti EZINE > july 2014

All of the latest industry news from the Equiniti Group

Consultant John Heaton clarifies what company secretaries and their legal advisers need to know about access requests to the register which may be for an improper purpose

Proper or improper When the Companies Act 2006 came into force, section 117 made changes to section 356 of the previous Act, requiring those seeking to inspect or obtain copies of the share register (known as an ‘access request’) to disclose the purpose for which the information was to be used. If the company thinks that this purpose is improper, it can apply to the court for a ‘no access order’. However, the new Act did not define a proper or improper purpose, which was left to the courts to decide.

The Institute of Chartered Secretaries and Administrators (ICSA) issued a guidance note in January 2009, to which Equiniti and a number of our clients contributed, giving examples of proper and improper purposes.

However, this remained untested in the courts.

Consultant John Heaton has also recently looked at a Court of Appeal judgement by Mr Registrar Baister in the High Court, Chancery

Division (the Registrar), which endorsed the ICSA guidance note, and provides considerable clarification on how the law will be applied and what company secretaries and their legal advisers will need to consider if they receive an access request which they believe might be for an improper purpose.

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The key points from John’s article are: ■■ ‘Proper purpose’ applies equally to members and non-shareholders seeking access to the register.

■■ The court has wide powers to interpret the term but the onus is on the company to demonstrate to the court that it should be satisfied on a balance of probabilities that the request is for an improper purpose.

■■ If a member, the request should relate to the shareholder’s interest and/or the exercise of shareholder rights.

■■ If access by any party is sought for a combination of proper and improper purposes, the former should be allowed, subject to appropriate safeguards.

■■ It should be remembered that speed of response is paramount as the company has only five days from receipt of the request to go to court.

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update In Equiniti’s experience, in the seven years since the new provisions came into force, companies are very unlikely to face an access request which is for an improper purpose; there are very few we are aware of which have resulted in push-back by the company.

Equiniti has clear procedures to escalate internally or externally any request it receives immediately. In the first instance, companies may seek to get the request withdrawn voluntarily while they enter discussions with the person making the request. The difficulty is that, if that approach fails, the clock starts ticking the moment the request is received and the company has a maximum of five working days to either comply with the request or apply to the court, so it has very limited time to assess the situation and respond accordingly.

For John’s full article including details of the case, please click here.

If you would like more information Please contact your relationship manager. click here to read this story on the equiniti website

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essentials

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July has been a busy month for the industry as a whole. We take a closer look at what has got us talking this month

Industry news and events Equiniti Employee Share Plans Discussion Forum On 3rd July, Phil Ainsley, Managing Director, Employee Services, hosted a forum to discuss ‘What you need to know about major changes to UK tax advantaged share plans and the move to online filing for all share plans’. Discussions were led by Matthew Ward and John Franklin, New Bridge Street, Consulting.

19 attendees, representing 14 companies attended the event and discussed the new HMRC self-certification and reporting requirements and the many changes that have impacted share plans over the past year.

Guidance was provided by Matthew and John about how to update plan rules in preparation for self-certification.

Key messages from the discussion included: companies were amending their plan rules to incorporate changes (even if they were automatically ‘written-in’) to avoid confusion or errors and to obtain tax relief; by updating rules it will be easier when you come to self-

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essentials certifying your plan; get your registration right (name and scheme type cannot be corrected – only solution is to cease scheme and re-register) and wherever possible a company’s non-tax advantaged plans should be registered under one plan name.

Matthew confirmed that if a company has an ‘umbrella’ plan which has tax advantaged and non-tax advantaged elements, the tax advantaged element needs to be registered separately. His advice regarding what plan name to register is, ‘Keep the name simple, general and above all avoid typing errors as it cannot be changed.’

Phil Ainsley, summarising the importance of this topic commented: “To avoid fines and to ensure plans remain tax advantaged, all companies should have an agreed plan of action and timetable to ensure they complete self-certification in time. Although the deadline is July 2015, we would like to see this process completed well before April 2015 in line with preparations for the completion of next year’s tax returns.”

The slides used at the discussion forum can be found here.

SAYE bonus rate set to rise

HMRC has announced that a new SAYE prospectus will come into force on 28 July

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2014, with a bonus being applied to five year savings contracts for the first time since 2011.

Phil Ainsley, Managing Director, Employee Services says, “The SAYE bonus rates are automatically adjusted by linking them to average three and five year swap rates. Recent market discussions and speculation about when interest rates will go up is reflected in current rising swap rates, triggering a rise in the SAYE bonus rate. I see this as positive news for companies offering Sharesave as an attractive employee benefit that will increase participation and generate higher levels of engagement.”

SAYE invitation documentation for launches from 28 July, where five year savings contracts are offered, will need to be updated with this change. The new prospectus must be used from this date.

Finance Bill 2014-2015

In previous years, the Finance Bill has usually been enacted in July. The current Bill has completed its committee stages at the House of Commons and the House of Lords and is on track for enactment this month. This will bring in some important employee share plan changes which include: updating ITEPA 2003 with the new SIP limits and enabling these to be changed by Treasury Order; replacing the

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word ‘Approved’ with other terminology (see table below); enabling online certification, annual returns and penalties; giving powers to HMRC to examine companies’ plans.

Previous terminology Approved schemes

New terminology Tax advantaged schemes Unapproved schemes Non-tax advantaged schemes A Schedule 2 SIP An approved SIP A Schedule 3 SAYE An approved SAYE option scheme option scheme A Schedule 4 CSOP An approved CSOP Ceasing to be a Withdrawal of Schedule ... scheme approval

HMRC statistics

HMRC has just published Employee Share Schemes Statistics for 2012-2013 (using 2012/2013 tax return data) www.gov.uk/ government/publications/employee-shareschemes-statistics-2011-to-2012 Key findings for the 2012/2013 tax year include: the number of share and options

essentials awards increased to £2.85bn; the cost of Income Tax/NIC relief was 45% higher than the previous year (showing greater gains being made by employees); the increase in gains is due to share prices picking up; and the number of employees exercising options in 2012/13 has risen by 23% since 2011/12 and by 61% since 2010/11.

Jennifer Rudman, Strategic Development Manager, All Employee Plans, comments: “The HMRC Employee Share Schemes Statistics report covering 2012-2013 tax year data, shows a positive trend in SIP and SAYE, with employees seeing increasing benefits from their companies’ all employee share plans.

Results from the 2013 ifs ProShare annual survey have now been released and these positive trends are reflected in that report too.”

A summary of the results produced by ifs ProShare is available here.

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employees to join their SAYE scheme and over 2,000 employees used the service to submit their application.

Other developments underway include enhancing PDMR and Closed Period functionality.

The aim is to improve recording, validation and reporting processes so that they are managed effectively and consistently across both SIP and SAYE products. The first changes were seen at the beginning of July with updates to the way PDMRs are recorded and additions to SAYE allotment reporting.

Neil Burgess, Project Manager, Solutions & Projects explains that there are other changes in progress: “These include ‘dynamic’ messaging in ESP Portal, additional IVR prompts, further SIP PDMR reporting and recording of Closed Periods.”

Further development and roll-out for both international ESP Portal and PDMR services will continue throughout the year.

ESP Portal and PDMR developments

In our last edition of the Ezine, Sarah Moore provided an update on ESP Portal and its extension to cover international employees.

Development roll-out has meant that the first phase has been completed and both easyJet and Pearson have gone ‘live’ with their branded international ESP Portal services. easyJet used the ESP Portal to invite both international and UK

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Satisfaction Guaranteed

Service excellence is important to us all at Equiniti and in order to measure this Employee Services send a ‘60 second survey’ twice per year to our clients.

On a scale of 1-5 we ask clients to rate us on a number of topics, ranging from account management to delivery of specific events to the quality of service we deliver through our contact centre.

Our latest results show that Service Delivery Managers scored an average of 4.54 for our Account Management and 94% of clients would recommend us. Our overall service scored a highly credible 4.34.

Phil Ainsley, Managing Director, Employee Services reaffirmed that continuous improvement is key to how we run our business at Equiniti: “Client satisfaction is dependent upon our service delivery and it is a great result to see every score has increased over the last 18 months. Our continued investment in our people and systems will keep us at the forefront as our clients’ requirements continue to evolve.”

If you would like more information Please contact your relationship manager.