We appoint expert director into our company secretary team

News | New Joiner

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Shakespeare Martineau has appointed a new director to help grow and enhance the reputation and brand of its company secretarial and governance business.

With more than 30 years’ experience, Maddie Cordes has joined the firm’s company secretary business, where she will also be sharing her knowledge with the team, as well as Shakespeare Martineau’s existing and new clients.

Prior to her new role, Maddie – who is based at the firm’s London hub but working with clients nationally – worked across both professional practice, including EY, Capita and TMF Group, and in-house as a company secretary for a range of listed and unlisted companies across all sectors.

She also spent three years as head of corporate services at law firms offshore where she was responsible for a team of 50 across four jurisdictions, supporting more than 13,000 legal entities and providing board support for investor funds.

Maddie said: “I am thrilled to have joined Shakespeare Martineau as a thriving and dynamic business and be given the opportunity to return to professional practice after working in-house as a company secretary recently to share my experience more widely. In particular, I am looking forward to developing new services and offering mentoring and training within the team and for our clients.

“I enjoy finding new opportunities and forging client relationships, so my top priorities in my new role are to raise awareness of the business in the marketplace generally and how we can help Shakespeare Martineau’s wider client base and businesses, while also growing my own client base.

“Corporate governance is ever-changing and developing, and the role of company secretary is full of variety. There are always new ways to support our clients and the wider company secretarial marketplace with thought leadership and practical advice in carrying out the role.”

Maddie is skilled in governance, business development, training and operational management, specialising in board and shareholder meeting support, company law, staff development, and change and performance management.

She has also been the co-editor of Shackleton on the Law and Practice of Meetings for more than 10 years and is a mentor and examiner with the professional body for company secretaries, the Chartered Governance Institute UK & Ireland.

Ben Harber, partner who heads up Shakespeare Martineau’s London-based company secretarial team, said: “We are delighted to welcome Maddie to our team. Her experience across both professional practice and in-house means she has an in-depth understanding of our clients’ challenges.

Whether we are providing a fully outsourced company secretarial function or assisting a client carrying out the company secretarial role part-time alongside their other duties, our job is to provide comfort to both our client contact and the overall board that the role is being fulfilled professionally with an appropriate level of up to date governance knowledge and external support.

With the ever-increasing spotlight on how companies implement and then apply good governance, our primary role is to ensure this is truly embedded. Boards rely heavily on us as governance advisers.

I am looking forward to working with Maddie and to see her bring her deep knowledge and expertise to help strengthen and grow the team, as well as our overall client base.

Shakespeare Martineau is proactively seeking talented people to join the firm on its growth journey, including mergers, team recruitment and lateral hires nationally.

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Ben leads our team of company secretaries in our London office, providing invaluable compliance and corporate governance services to a wide range of companies.

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Good inductions are critical to shaping a good board - a simple guide

Guide | Company Secretarial

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The nomination committee in a company is responsible for appointments and re-appointments to the board, succession planning and overseeing a diverse pipeline for succession.

However, the board appointment itself is not the end itself with the chair person and the nomination committee usually responsible for developing an induction programme for all appointees to the board. Both the UK corporate governance code and the QCA code recommend a full, formal and tailored induction programme. A lack of adequate training and an induction programme is clear one barrier to recruiting new directors without previous board experience and new board members will always want to be in the best position to contribute to their organisation as swiftly as possible. A well-prepared induction programme can provide new appointees with the information needed to “hit the ground running”.

An induction process should, where possible, include:

  • A tailored programme put together in collaboration with the incoming director and the chair, senior independent director, company secretary

  • Content delivery that is balanced between hard copy reading material, visual presentations and face-to-face discussions

  • Regular progress reviews for the incoming director to provide feedback, raise questions and concerns on the induction process

  • An overview of the company, its board and committees, governance structure and corporate calendar for the year ahead

  • Brief overview of areas of business activity, strategy, risk profile, KPIs, organisation specific jargon and glossary of specific terms

  • A guide to directors’ duties and obligations and sanctions which can be imposed for failure to comply

  • Overview of shareholder voting, feedback and a copy of the latest board’s evaluation report if applicable

  • Other corporate information such as:

      • latest financial statements and current budget
      • group structure and people charts
      • business plans, major customers, suppliers and competitors
      • employee handbook
      • share dealing code and process for inside information
      • anti-bribery, whistleblowing , disclosure and ESG policies significant shareholders and its investor relations policy
  • Procedure on conflicts of interests

  • Procedure for approving board member expenses

  • Overview on access to training and professional development

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Director liable for fraudulent trading for not investigating VAT fraud - ignore HMRC at your peril

Blog | Company Secretarial

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A recent High Court decision (JD Group Ltd [2022] EWHC 202 (Ch)) has found a director liable for fraudulent trading when he was aware that the company was participating in VAT fraud and deliberately failed to investigate. This decision has ramifications for directors and companies.

Background to the case

The company started trading in baby clothes, and later in mobile phones. When HMRC assessed its 2005/2006 tax return it declined its claim for tax relief in respect of a series of related import and export transactions, the effect of which was VAT fraud. HMRC suggested that the company undertake various steps to avoid this, such as investigating counterparties.

The liquidator subsequently brought a claim against the director for fraudulent trading (sec. 213 Insolvency Act 1986). The liquidator relied on HMRC’s analysis of the VAT fraud.

The court confirmed that the liquidator had to satisfy a two-stage test. First, to demonstrate the director's subjective state of knowledge; and then to show that the director's conduct was dishonest based on the objective standards of ordinary decent people (Bilta (UK) Ltd (In Liquidation) v Natwest Markets Plc [2020] EWHC 546 (Ch)).

The director argued that he did not know the company was participating in a VAT fraud. He claimed the company had robust pre-transaction due diligence processes and, as a result, he believed the transactions were genuine.

The outcome

The court held that the director's defence was not credible. There was no evidence that due diligence was being carried out, the transactions were back-to-back and often entered into before payment was received. The evidence showed that the transactions were uncommercial.

The court concluded that the director was therefore aware that the company was participating in a fraud, and that the director deliberately decided not to carry out due diligence and other steps suggested by HMRC. The director's conduct was dishonest by the objective standards of ordinary decent people and he was, therefore, liable for fraudulent trading.

The court ordered the director to contribute an amount equal to HMRC's claims in the liquidation for unpaid VAT to the company’s assets, plus a misdirection penalty (for misdeclaration in the company's 2005/2006 tax return). This was on the basis that, had the VAT fraud not occurred, the company would not have been liable to HMRC.

Our advice

Our advice to directors facing a similar situation would be to implement (and never ignore) measures suggested by HMRC to mitigate the risks of companies being implicated in tax fraud, and consequently mitigate a director's risk of finding themselves subject to a similar claim.

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Shaun works in our company secretarial team supporting various client companies, including AIM listed, technology start-ups and SME companies.

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New climate related reporting rules – NEDs beware

Blog | Company Secretarial

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In December 2020 the FCA introduced the reporting requirement for UK premium listed companies to disclose, on a comply or explain basis, a report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). As of December 2021, this has been extended further to capture certain public companies, large private companies and LLPs. This extension will apply for accounting periods beginning on or after 1 January 2022. Companies that meet the threshold will need to disclose climate-related financial information in line with the four overarching pillars of the TCFD recommendations; Governance, Strategy, Risk Management, Metrics & Targets on a mandatory basis.

What companies does this reporting requirement apply to?

It applies to
  • All UK companies that are currently required to produce a non-financial information statement, being UK companies with more than 500 employees and have either transferable securities admitted to trading on a UK regulated market (such as the LSE's main market), or are banking companies or insurance companies

  • UK AIM companies with more than 500 employees

  • UK companies which are not included in the categories above and have more than 500 employees and a turnover of more than £500m

  • LLPs which have more than 500 employees and a turnover of more than £500m

For many in-scope companies, this will be an entirely new disclosure and Non-Executive directors (NEDs), especially those responsible for stakeholder communication, will need to ensure disclosing against TCFD becomes a standard part of their annual report process. Standard list companies will need to comply with Listing Rule 14.3.27R and ensure certain topics are covered in their annual report. If a company includes some or all of its TCFD-aligned disclosures in a document other than its annual financial report, it must explain why it has chosen to do so.

What does need to be included?

Governance

The company must disclose its governance processes in relation to climate related risks and opportunities.  This could include whether the company considers climate related issues in its strategy, risk management policies, performance objectives and how it monitors targets for addressing climate related risks. It could also cover roles and responsibilities across the board of directors when it comes to climate related risks.

Strategy

Companies must look to disclose real and probable impacts of climate related risks and opportunities to their organisation’s business model, strategy and financial planning, ensuring disclosure of information that the board believes to be material. Companies should be assessing what they consider short, medium and long-term impacts and ensuring development of scenario analysis methodology, and metrics and targets tailored to the company's business.

Risk Management

Company boards should be assessing their risk management process and disclosing their methodology for identifying, assessing and managing climate-related risks. Non-executive directors should consider the organisation's decisions to mitigate, transfer, accept or control climate risks. Risk registers should also be reviewed and developed to ensure climate risk is accurately captured where applicable.

Metrics and Targets

Combining the three pillars mentioned above companies will need to disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. NEDs will need to assess whether their company has access to relevant data and if not, how to source such data. Some companies may already be reporting their Scope 1 and Scope 2 emissions under the Streamlined Energy and Carbon Reporting. Other metrics may also be applicable such as energy use, waste, water and material consumption, real estate footprint and greenhouse gas emission targets etc.

Making it work

The TFCD reporting recommendations will be a key aspect of annual reports in the future and currently, this will be a new and potentially tricky area for the board directors. Companies are initially expected to grapple with the reporting process, however, models and reporting processes will become more streamlined in years to come as companies and industries converge towards a consistent adoption of standards, metrics and targets.

For further information or assistance to understand and implement these TCFD disclosures and your role in the process, contact Shaun Zulafqar or another member of the company secretarial team.

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Shaun works in our company secretarial team supporting various client companies, including AIM listed, technology start-ups and SME companies.

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Walking the tightrope – balancing duties against the risks of breach

Blog | Company Secretarial

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Corporate governance is under increasing public and legislative scrutiny and reporting obligations.  This looks set to continue, most recently with the introduction by the FCA of reporting obligations (for UK premium listed companies) against the recommendations of the Task Force on Climate-related Financial Disclosures.

With this in mind, it’s worth NEDs reminding themselves of their corporate governance obligations, and their particular duties.  NEDs sit on the board without daily management or operational responsibilities.  Their role is to challenge, question and hold the executive directors to account and bring independence to decision-making.  However, contrary to what some may say - they’re still subject to the same duties and liabilities as the executive directors - in law, there is no distinction between NEDs and executive directors.

So what are those duties, and how do NEDs navigate them?

The key is to be aware of and alive to them, and keep them in mind when undertaking your role as a NED.  Those are a mixture of directors’ duties codified by the Companies Act 2006; specific duties imposed by other regulations in specific scenarios; and a more general common law fiduciary duty.

The duties

The general duties under the Companies Act are to:
  • Act within powers - i.e. the company’s constitution. It’s important to read and be alive to the company’s articles. You’d be surprised how many directors don’t/ aren’t

  • Promote the success of the company. All companies (other than exempt small companies) must prepare a strategic report to help the members /shareholders assess how the board has performed this duty

  • Exercise independent judgement.  This can be critical if you’re a director appointed by a specific sector of the members/investor(s)

  • Exercise reasonable care, skill and diligence

  • Avoid conflicts of interest

  • Not accept benefits from third parties

  • Declare an interest in a proposed transaction or arrangement

There are also statutory obligations such as keeping the statutory books up to date and ensuring returns are filed, and obligations arising under others laws including:
  • Certain duties on insolvency, and liabilities such as for wrongful trading or knowingly allowing the company to defraud creditors knowing there was no reasonable prospect of them being paid

  • Health and safety regulations

  • Environmental legislation

  • Competition and securities law

The duty to promote the success of the company is worth considering, as this is where conflicts can arise (particularly if a NED represents one sector of the membership). A director is required to act in the way they consider, in good faith, will be most likely to promote the success of the company for the benefit of its members as a whole (not just for their appointing faction). They must have regard to the following (amongst others):

  • The likely long term consequences of any decision

  • The interests of employees

  • The need to foster business relationships with suppliers, customers and others

  • The impact of operations on the community and environment (see more about this here)

  • The desirability of maintaining a reputation for high standards of conduct

  • Acting fairly between members of the company

And all this requires skill

A director must exercise the care, skill and diligence that would be exercised by a reasonably diligent person with both

(A) the objective general knowledge, skill and experience that may reasonably be expected of a person carrying out their functions,  and

(B) the subjective general knowledge, skill and experience that the director actually has.  As a minimum they must show the objective knowledge, skill and experience required, but where they have specialist knowledge they’re subject to a higher subjective standard.

NEDs should make sure that in accepting office they are not accepting responsibilities that they will not fulfil - delegation is no defence for breach of duty.

How to manage those duties and associated risks

The law acknowledges that directors are not guarantors of a company’s success, they are in control of an entrepreneurial venture that requires a necessary degree of commercial risk.  They’re not liable for mere errors of judgement or ordinary commercial misjudgement.

The court may excuse directors if they act honestly and reasonably, but will only do so if they ought fairly to be excused.  Holding regular board and management meetings/reviews, and keeping clear and timely minutes of them, are in practice the best way to manage this risk.  Those minutes will act as evidence of the steps taken to manage the obligations, and of why it was commercially reasonable to make the decisions you did at the time you did if they are later challenged.

Under the Companies Act, a company may not generally exempt a director from, or indemnify them against, liability for any negligence, default, breach of duty or breach of trust.  However, a company can provide a qualifying third party indemnity provision such that it may:

  • Indemnify a director for proceedings brought by third parties (covering legal costs and the amount of any judgment, except for the legal costs for the unsuccessful defence of criminal proceedings, fines imposed in criminal proceedings and penalties imposed by regulatory bodies such as the FCA

  • Pay a director’s defence costs incurred in civil proceedings brought by the company itself or costs incurred in an application for relief of liability by the director under the Companies Act 2006, provided the director repays the costs if they are unsuccessful; and

indemnify a director acting as a trustee of an occupational pension scheme against liability incurred in connection with the company’s activities as trustee of the scheme, provided the indemnity does not cover any liability for fines imposed in criminal proceedings, penalties payable to regulatory authorities or any liability incurred in unsuccessfully defending criminal proceedings.

It is worth considering whether such indemnities are in place and, if not, whether to implement them. The above are subject to disclosure in the director's report.

The Companies Act does not prevent a company from maintaining directors and officers insurance for its directors, against liability in connection with any negligence, default, breach of duty or breach of trust by them.  Even though a company is primarily subject to limited liability, we would always recommend that a director ensures the company has taken out adequate directors and officers insurance to cover their potential personal exposure.

Get In Contact

Ben leads our team of company secretaries in our London office, providing invaluable compliance and corporate governance services to a wide range of companies.

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Recently closed - the consultation on Audit and Corporate Governance Reform

The Department of Business, Energy and Industrial Strategy (“BEIS”) published its consultation paper ‘Restoring trust in audit and corporate governance’ in March 2021. This followed three separate reviews into audit and the audit market over the last few years:

1. Kingman Review, December 2018 – an independent review of the Financial Reporting Council (“FRC”) by John Kingman which called for the FRC to transition into ARGA (Audit, Reporting and Governance Authority) from 2023. It was argued that this was in the best interests of consumers of financial statements, as opposed to the producers of financial statements. ARGA would have greater powers than the current FRC and would have greater accountability to government.

2. Competition and Markets Authority’s (“CMA”) update paper, April 2019 – the paper outlined ‘serious competition concerns’ with the UK audit market and proposed legislative changes including separating audit from consulting services; introducing measures to increase the accountability of those chairing audit committees and imposing a ‘joint audit’ regime giving firms outside the Big Four a role in auditing the UK’s biggest companies.

3. Brydon Report, December 2019 – an independent review, by Donald Brydon, into the quality and effectiveness of audit, new proposed definition of an audit (to help establish and maintain deserved confidence in a company, in its directors, and in the information for which they have a responsibility to report, including the financial statements).

Together, these reviews made over 150 recommendations for reform. The consultation paper states that the government is planning to take forward the vast majority of the recommendations in one form or another.

The consultation will come as no surprise to company secretaries who have long witnessed the cycle of large corporate failures followed by onerous governance reforms, and the audit and governance reforms are no different since they followed the audit failures of BHS and Carillion. So what makes this consultation and the proposed reforms different?

Audit reform and the current proposals
Increased Director Accountability

ARGA will have the power to sanction directors of all large companies for breach of their duties under the Companies Act 2006 in respect of the company’s reports and accounts, including the duty to approve accounts only if they give a true and fair view.

Directors will also be more accountable for negligence in their duties, for example, a director may be required to repay their bonus for breaching their duties.

Directors will be asked for prepare ‘resilience statements’ about how the company is managing its risks, which consolidates and builds upon the current going concern and viability statements.

Rigorous Audit process

There will be new reporting obligations on both auditors and directors around internal controls and detecting/preventing fraud. It is consulting on different options, including a regime similar in scope to the US’s Sarbanes-Oxley Act (“SOX”) on auditor assurance on internal controls. As part of the BEIS consultation firms have been asked for their views on whether to adopt SOX in the UK and whether directors’ self-certification would be sufficient to restore public trust in audit and corporate governance.

The current compulsory going concern statement and viability statement will be replaced with a resilience statement, as mentioned above; this requires directors to focus their objectives on short term survival, medium term resilience and long term threats to resilience.

In order to increase the number of firms participating in the audit market, FTSE 350 companies may be capped to using smaller challenger firms on part of the audit, e.g. one or more subsidiaries would be audited solely by a challenger firm, referred to as a managed shared audit. This would replace the aforementioned ‘joint-audit.’

There will be greater obligations on auditors around fraud detection.

A three year rolling Audit and Assurance Policy which would document the company’s approach to auditor selection and rotation.

Companies will be asked to include Non-financial metrics and measures on things like climate change targets. The scope of audit will expand to include additional disclosures on sustainability and climate change metrics.

Corporate governance proposals

The consultation paper also proposes a range of governance reforms with regards to:

Under the UK Corporate Governance Code (“UK Code”), listed companies will be expected to be able to recover bonuses or share awards from executive directors if they have failed to protect customers’ and employees’ interests.

New dividend disclosures whereby directors will be required to make a formal directors’ dividend statement about the legality and affordability of any proposed dividend. One could argue this is as a direct response to BHS being criticised for paying dividends prior to its collapse.

ARGA would be made responsible for approving the auditors of Public Interest Entities (“PIEs”) (i.e. those entities with publicly listed securities in the UK, credit institutions or insurance undertakings).

Expansion of definition of PIEs to include AIM listed clients with a market capitalisation above £200m and certain large private companies that would either:

    • Have 2,000 employees; or, a turnover of more than £200m; and a balance sheet of more than £2bn; or
    • Have over 500 employees, and a turnover of more than £500m.

Requiring directors of PIEs to report on steps taken to prevent/detect fraud.

Whether newly listed companies should have a temporary exemption from some of the new reporting requirements to encourage private companies to list.

Greater shareholder engagement with audit where shareholders can ask auditors to review any areas of their concern.

Directors attest to how they have prevented fraud.

The consultation period closed officially on 8th July 2021. We await further clarity on reforms once the responses to the consultation have been analysed.

Contact us

For further information on these reforms or consultation contact Shaun Zulafqar or another member of the company secretarial team.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Shakespeare Martineau supports Tulla Resources' £80m listing on Australian Stock Exchange

We have supported Australian-based gold mining company Tulla Resources go to market in order to raise more than £43 million. The deal, which will see Tulla Resources – a UK plc – floated on the Australian Stock Exchange (ASX), raise £43.53 million of new money from investors. As a result, the company will be worth more than £80 million when its depositary interests are re-listed on the ASX.

Money raised from the flotation will be used to fulfil obligations under its farm-in and joint venture agreement with ASX-listed Pantoro Limited.

Tulla Resources has 50% interest in the Central Norseman Gold Project - a historical gold mine located near the town of Norseman in the Goldfields of Western Australia that has produced over 5.5Moz of gold since operations began in 1935. The other 50% interest of Central Norseman Gold Project is held by ASX-listed company Pantoro Limited, which acquired that interest from Tulla Resources via a farm-in and joint venture agreement.

Working in partnership with Australian firm Herbert Smith Freehills, we advised on the pre-flotation restructuring and the UK aspects of the flotation, having held a long-standing relationship with the mining company as its company secretary since 2005 and UK legal adviser since 2018. Our team comprised Ben Harber, Catherine Moss, Hannah Maxwell and Georgia Keogh.

Catherine Moss, corporate partner said: “The listing of depositary interests in a UK plc on an overseas exchange is always a challenging process as we work with a company through the complexities of differing company law, takeover and corporate governance regimes.  Together with Herbert Smith Freehills in Australia and Tulla Resources’ registrars we sought to enable Tulla Resources to do so as cleanly and efficiently as possible.

“At the moment, as it comes out of a period of intermittent lockdown, the Australian economy is starting to move into growth again and, as gold is a strategic asset for economically uncertain times, investing in companies that have access to provable reserves has become highly attractive for investors both in Australia and elsewhere.”

Mark McIntosh, Tulla Resources CFO said: "This matter threw up innumerable challenges which Shakespeare Martineau addressed, often at short notice, to enable the company to achieve its objective of becoming a listed public company and raising capital to secure funding for its 50% interest in the Norseman Gold Project.

"The company is immensely grateful for the advice and support of Catherine and Shakespeare Martineau. They were absolutely first class."

Contact us

For any further information, or to see how we can support your business plans, contact Ben Harber, Catherine Moss or another member of our corporate team.

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Blog

Board Evaluations - don’t waste a crisis

COVID-19 has affected every sector of our economy and an important element of the 2020 board evaluation will be identifying and reporting on how reactive and resilient the board has been throughout the pandemic.

Board performance has been under increasing scrutiny from shareholders over the past few years and the situation with the global pandemic has only enhanced the need to review the performance of board members.

As a result there is now an increased importance placed on board evaluations to create and uphold transparency in the boardroom with not only the shareholders, but also colleagues around the table.

COVID-19 has created a turbulent year with the focus of 2020 being on trading through a global pandemic, so an effective evaluation should aim to include these key areas:

  • how did the board perform as a leader during the pandemic?
  • was the company ready to react to an event such as COVID-19?
  • what key skills were missing in the leadership team in 2020?
  • what are the key lessons learned from 2020?
How do we evaluate?  Quantitative v Qualitative

Traditionally, board evaluations have used a quantitative method for questionnaires - a prompt way of gathering data on board members and a method favoured by some directors given time pressures. However, with COVID-19 bringing directors’ competencies into sharper focus, a more comprehensive review may well be warranted and a lot more boards are opting for a more detailed and qualitative process this year.

The use of qualitative questionnaires allows the opportunity for greater understanding of director behaviour, but with information limited to the topics covered within the questionnaire there is often little opportunity for the director to elaborate. Interviews instead, could be the answer enabling board members to candidly disclose information on sensitive subjects and expand on themes contained within the questionnaire. In order to truly assess capabilities in the wake of COVID-19, it is crucial to obtain a true reflection of the board members’ experience, positive or negative to enable the board to build in past experiences when considering the future.

Managing Expectations

A successful evaluation could well result in incremental and valuable changes to board processes and composition.  And in order for the process to be as valuable as possible, it is vital that the information is fed back to the board. Consensus on key identified concerns and where and how the board believes improvements can be made should then be passed on to the chairman and company secretary to enable a suitable action plan to be created ensuring any points are tracked and actioned. For example, the evaluation may expose a crucial skills gap so perhaps the recruitment of an additional director who holds the relevant skill, or further training can be arranged for the board in order to up-skill members could be the answer.

Lessons Learned

An effective board evaluation is an organic and dynamic tool and should continually adapt.  Being at the centre of the evaluation, it often falls to the company secretary to conduct an appropriate post-mortem of the process. This could simply be carried out by recording their personal experience of the evaluation and seeking feedback from board members.

A review provides an opportunity for the board to provide insight on the key themes of the evaluation and highlight if a theme potentially requires further probing in future evaluations.

A repeating reported issue during board evaluations is a lack of engagement and obtaining responses from directors. This can be hugely frustrating for the company secretary, but the evaluation process may help uncover the reasons behind this non-engagement and provide useful insight to how efficiencies could be created to streamline the process for future years.

Succession Planning

Alongside a resulting action plan it’s now also a good time to review the board’s current succession plan, traditionally reviewed following the departure of a board member. However if a skills gap has already been identified during the evaluation,  it may be wholly appropriate to revisit the plan earlier or to even adopt a new plan to ensure that any gaps are covered in the future.

All companies should have an appropriate succession plan, which according to the FRC’s Guide on Board Effectiveness, should cover the following different time horizons:

  • contingency planning – for sudden and unforeseen departures
  • medium-term planning – the orderly replacement of current board members and senior executives (e.g. retirement)
  • long-term planning – the relationship between the delivery of the company strategy and objectives to the skills needed on the board now and in the future.
Independent Review

A different year may call for a different approach to board evaluations.  It is recommended FTSE 350 companies undertake an independent review of their boards every three years; but given the year all companies have been through, it is probably worth considering whether now is the time to consider whether a full independent review conducted by the third party is more appropriate.

There are many independent reviewers that offer a professional service to conduct a board evaluation, which gather qualitative and quantitative data, and allows boards to benchmark its performance against its peers.  Independent reviewers can also bring broader, different sector experience which could help boards identify topics that they had not considered previously or areas which are pertinent to their business or sector and as such can be a valuable addition to the process.  Even more so in the wake of the pandemic.

2020 and beyond

During this past year, COVID-19 has undoubtedly tested boards across the world. Consequently, a detailed board evaluation will be even more key to measure performance during 2020; what lessons have been learned; and, what changes should be implemented for the future in order to improve board governance.

Interviews will play a large part in board evaluation, providing opportunities and a space for board members to open up and share their views on what went well during the year and what could have been done better.

It’s important that the company secretary and the chairman take the lead on ensuring the results of any evaluation are reported back to the board and incorporated in the company’s future strategy.  Whilst COVID-19 is heavily regarded as an anomaly for the moment, its ability to unearth which companies were prepared for a crisis is undeniable; therefore a 2020 board evaluation with a particular focus on COVID-19 will be a useful tool to help prepare for an unpredictable future.

Contact us

For any further information on embarking on a board evaluation do contact Tom Verlander or another member of the company secretarial team.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Guides & Advice

How to Make the Most of your Board Meeting

Effective minute taking

Effective minute taking is a key responsibility of the company secretary and is definitely a skill that takes time to develop and hone.  A good set of minutes should not only provide a record of discussion and agreed action points but is a conclusive record of the deliberations and decisions taken by the board of directors or a committee of the board.  The minutes form part of the historical records of the company and evidence that the board of directors has fulfilled their legal and fiduciary duties by carefully considering all of the company’s stakeholders and the impact of the board’s decisions. (s. 172 Companies Act 2006).  The importance of effective minute taking can be evidenced in the recent case of PCP v Barclays Bank Plc (2020) whereby the minutes omitted reference to a notable high value transactional agreement.

Whilst there is a no ‘one-size-fits-all’ for minute taking and many companies will adopt a different approach it is key that the fundamentals of good minute taking are applied.  It is therefore important that the chair and the company secretary work closely together to ensure that the final set of minutes are impartial and accurately reflect the business conducted at the meeting before being adopted by the board and signed as the official record of the meeting.

Board Meetings – the new normal

After several months of working from home, the increase in the number of virtual meetings has pushed companies and company secretaries to adopt careful measures in ensuring that private and confidential material can be shared and circulated securely and that directors can attend meetings in a secure virtual environment.  It is important that both the chair and company secretary work collaboratively and proactively to ensure that board meetings consider and discuss key issues and come to final decisions in an efficient and effective manner.

What do I need to consider before holding a virtual meeting?
  • Can you hold a virtual board? – company secretaries should ensure virtual board meetings are not prohibited by any erroneous provisions in the articles of association;
  • Communication with the chair– communication during these times is key. Prior to meetings company secretaries may propose a preparatory call with the chair for a run through of the agenda, items of importance and any additional information.
  • Circulate materials ahead of the scheduled meeting - although deemed common practice, it is crucial that company secretaries complete this task. Directors will then be able to read and consider the board materials and even collaborate beforehand, allowing the chair to focus the meeting on debate and discussion rather than the presentation of key agenda items. The utilisation of dashboards, diligent boards, board portals, informational evaluations etc, to ensure all board members receive information securely are now becoming more common and allow directors to be continuously updated and engaged.
  • Consider the technology – ensure you are leveraging conference technologies (e.g. Zoom, Microsoft Teams, GoToMeeting, etc.) to the board’s advantage.
    Although video conferences may allow members to view physical cues of interest and when to permit other members to speak, the meeting can be disrupted by unstable internet connections. The same can be said for telephone conferences where audio may be clearer but participants can easily talk over one another. Consideration should also be given to address any cyber vulnerabilities which may put the organisation or individual members at risk of hacking or fraud. The board should be cautious of where and how they share sensitive documents e.g. via email on an unprotected server, from a personal device, on a shared/public Wi-Fi, etc. Recommendations are given to utilising board portals as a secure and efficient means of circulating documents.
  • Changes to the agenda – ‘zoom fatigue’ has set in for many following lengthy ‘work-from-home’ periods so the chair and company secretary should consider streamlining the purpose of meetings. Shortened meetings can still be effective where consideration is given to provide time slots for each agenda item, include breaks to improve participant concentration, and time for discussion of key agenda items. This should result in fewer formal board sessions.
During the virtual meeting
  • Ensure the meeting is quorate – the chair or company secretary may ensure all that participants are present or by carrying out roll call, where members present haven’t been made obvious/declared;
  • The chair in control – leadership from the chair is critical for directing effective virtual meetings, ensuring that agenda items are introduced, encouraging participants to mute themselves as items are being presented, as well as allowing all participants the opportunity to ask questions. The chair will need to adapt to these new meeting practices and leverage the capabilities and knowledge of all members to bring about productive discussion, feedback and advice from all participants;
  • ‘Working-from-home’ but not alone – from a corporate governance perspective, each board member should be aware of their surroundings during meetings as family members, service workers, etc. could unknowingly be ‘in attendance’. Therefore, all members should reduce any risk or liability by attending meetings in a separate and quiet room, with no disturbances; they may even opt to participate via headphones; and
  • Minutes/recording – boards may want to consider whether meetings should be recorded as the recording would be deemed an official record and would be required to be maintained in the same way as minutes. Consideration should be given to the usefulness of recordings vs minutes as the latter endeavours to be presented impartially and recordings may not. In respect of minute taking, company secretaries must raise to any participant when an audio connection is faulty affecting their ability to effectively minute take. The company secretary may also ask the chair to summarize any key points and action points after each agenda item to ensure all participants are on the same page.

Over the past few months the COVID-19 pandemic has only highlighted the importance of the company secretary’s role at board and executive level, assisting companies in adapting and implementing strong corporate governance as well as adapting to changing regulatory processes. The new normal, it would appear, is here to stay and will continue to shape corporate governance and regulatory processes at pace.

For further information regarding the company secretarial responsibilities for you or your business please contact Ben Harber or another member of the Company Secretarial team.

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Guides & Advice

Update: Coronavirus – Temporary Relief for publicly traded companies

Update: Coronavirus – Temporary Relief for publicly traded companies

UPDATE – 25 September 2020: The government has given businesses some additional much-needed breathing space by extending measures from the Corporate Insolvency and Governance Act, including the deadline for holding AGMs.

The obligation for companies and other qualifying bodies to hold their AGMs virtually has further been extended from 30 September 2020 to 30 December 2020 (if they haven’t held them held it already), allowing shareholders to continue to examine company papers and vote on important issues remotely.

Updated: June 26 2020, the legislation goes live and becomes law.

Key measures are:

  • The Act is now in force and a company has until 30 September 2020 to hold its AGM (if it hasn’t already held it).
  • The Government may extend the date if there are further lockdowns.
  • Any general meeting (whether and AGM or otherwise) may be held virtually regardless of articles to the contrary in a company’s constitution.

 

Previous update 8 June 2020: Following the announcement in March 2020 that the government would introduce new legislation to assist companies struggling to hold effective AGMs as a result of the pandemic, the Financial Reporting Council (FRC) as of 8 June 2020, has issued additional guidance on best practices for AGMs updating the earlier Q&As it had agreed with the Department for Business, Energy & Strategy (BEIS) and answered questions about how companies should carry out business at such time until the Corporate Insolvency and Governance Bill (Bill) is approved by Parliament.

What are the proposed measures introduced by the Bill?

The purpose of the Bill is to provide temporary measures that aim to relax the company filing obligations and requirements from companies to hold AGMs and other meetings.  The Bill provides workarounds to enable companies to hold AGMs safely and more flexibly in order to remain compliant with the restrictions imposed by the government during the pandemic.

The Bill will allow companies to determine:

  • who is permitted to attend a meeting in person;
  • that a quorate meeting can be formed by members situated in different locations; and
  • that a quorate meeting can be formed by members communicating by electronic media.

The relevant changes relating to AGMs are found in Sections 36, 37, 38 and Schedule 14 of the Bill.

What are the key points to have come out of the FRC’s latest update?

  • New measures introduced by the Bill relating to AGMs and General Meetings (GMs) and other meetings will apply retrospectively from 26 March 2020 and will apply until 30 September 2020 (or until such later date as decided by Parliament).
  • Companies that are required to hold an AGM (whether by legislation or constitutional rules) will be permitted to postpone an AGM and will have until 30 September 2020 to hold it.
  • Companies are encouraged to keep members adequately informed of their plans to hold or delay AGMs even if they plan to use the measures provided for in the Bill (e.g. extension of period to hold an AGM) once it has been approved.
  • The FRC has warned that companies that wish to hold an AGM in accordance with the Bill (e.g. virtually), and are concerned whether the votes taken at the meeting will be valid, prior to its approval will need to take their own view on how to proceed with their advisers. Approval of the Bill is not guaranteed and companies must proceed on their own judgment to ensure that the business of the meeting is valid.
  • The Bill will enable companies to hold meetings electronically even where a company’s Articles of Association (AoA) require a physical AGM.
  • The FRC advises that companies and directors should provide members with the opportunity to engage and challenge the board in advance of an AGM. Companies are also encouraged to make use of electronic communication facilities in order to communicate with its members and should endeavour to hold a meeting once the social distancing measures have been lifted.
  • Members retain their right to vote, but are advised that they may have to exercise those voting rights in ways other than by voting in person. The BEIS has stated that the measures proposed in the Bill are to protect the safety of the company, its employees and its members.
  • In determining whether authorisations obtained at the previous year’s AGM are still valid, Companies are advised to consider the requirements in their AoA or constitutional rules and the resolutions passed at their previous AGMs.

Best practice advice on holding an effective AGM

  • Ensure that your members have a clear understanding of how they can participate and vote at an AGM if your company chooses to make use of the measures provided for in the Bill.
  • If you do choose to hold a wholly virtual AGM, be sure to host an additional meeting or event to enable members to express concerns or raise questions about the company’s activities.
  • Keep your members regularly informed about how your company plans to hold its AGM especially if the format will be different to previous AGMs.
  • Consider updating your company’s Articles of Association to provide for the ability to postpone an AGM and hold virtual meetings to future proof the company against similar issues that have arisen as a result of the COVID-19 pandemic.  

AIM update on temporary measures:

Following the temporary measures announced by AIM in March 2020 to support AIM companies and nominated advisers in relation to the COVID-19 pandemic, AIM announced further temporary measures concerning the publication of annual audited accounts for AIM listed companies.

In light of the uncertainty and disruption cause by the COVID-19 pandemic, London Stock Exchange plc (LSE) has recognised that there may be circumstances where an AIM company is unable to publish its annual audited accounts under the normal legal and regulatory reporting deadlines.

Currently, under the AIM Rules for Companies (AIM Rules), an AIM company has six months after the end of its financial year to publish its annual audited accounts. In March a joint initiative of the Department of Business, Energy & Industrial Strategy and Companies House was announced, allowing UK companies to apply to Companies House for a three-month extension of the legal filing deadline for accounts.

In line with this announcement, LSE also confirmed that from 26 March 2020, an AIM company could also be able to apply to AIM Regulation for a three-month extension to the reporting deadline for the publication of its annual audited accounts, pursuant to AIM Rule 19.  The extension will be available to AIM companies with a financial year ending between 30 September 2019 and 30 June 2020. An AIM company wishing to utilise this extension must make a request to the AIM Regulation via the nominated advisor, prior to the AIM Rules reporting deadline.

From 9 June 2020, AIM Regulation has confirmed that AIM companies will be given an additional month by which to prepare their half-yearly reports under AIM Rule 18.  AIM companies wishing to take advantage of this temporary measure must notify via an RIS prior to the AIM company’s reporting deadline and the company’s nominated adviser must separately inform AIM Regulation.

LSE has confirmed that the operation of the AIM Rules will be kept under review.

FCA, FRC and PRA co-ordinated response:

In response to COVID-19, the FCA, FRC and PRA have joined forces to announce a series of temporary actions to ensure that information continues to flow to investors and to ensure that this supports the continued functioning of the UK’s capital markets.

1. The FCA has allowed listed companies an extra two months to publish their audited financial reports, reminder not to draw adverse inferences by reporting delays and the temporary halt to the publication of prelims removed

Currently, under the Transparency Directive, companies have four months from their financial year-end in which to publish audited financial statements. This two month relief will mean that listed companies will not face suspension if they publish their financial statements within six months of their year-end.

The FCA was clear in its update that the Market Abuse Regulation remains in force and that companies are still required to fulfil their obligations in relation to inside information. The FCA also implored market participants not to draw undue adverse inferences if companies choose to make use of the additional two months. The FCA also strongly encouraged listed companies to reconsider their financial timelines in order to ensure that disclosures are prepared accurately and carefully, and from the perspective that “the global pandemic and policy responses to it may alter the nature of information that is material to a businesses’ prospects”.

The FCA reminded companies that as companies of all types significantly adjust their business and operations to respond to the challenges and disruption caused by Covid-19, they take advantage of the regulatory deadlines, and their temporary extensions, rather than rushing to publish preliminary statements.  The market as a whole was reminded that it should not draw adverse inferences as a result of the changing timetable for announcements.

The temporary moratorium on publication of preliminary announcements announced on 21 March 2020 by the FCA will end on 5 April 2020 and the FCA noted that it believed “that pressure can abate as companies react to the need to rethink and re-plan financial calendars in light of the coronavirus pandemic and the package of measures the three regulators announced recently.”

2. FRC guidance for companies preparing financial statements in this uncertain environment

The FRC highlighted key areas of focus for boards in maintaining strong corporate governance and provided high-level guidance on some of the most pervasive issues when preparing their annual report and other corporate reporting issues.

In relation to corporate governance, the key messages were:

  • implement mitigating actions and processes to ensure you can continue to operate an effective control environment;
  • consider how to secure reliable and relevant information to manage future operations; and
  • pay due attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain, after payment of any dividends, to continue to meet the company’s needs.

In relation to corporate reporting, the guidance covers:

  • the need for narrative reporting to provide forward-looking information that is specific, and that provides an insight into the consideration process of the board;
  • going concern and any associated material uncertainties, the basis of any significant judgements and the matters to consider when confirming the preparation of the financial statements on a going concern basis;
  • the increased importance of providing information on significant judgements applied in the preparation of the financial statements; and
  • the judgement required in determining the appropriate reporting response to events after the reporting date and the extent to which disclosures may be appropriate.

The FRC guidance highlighted the importance of keeping investors’ understanding of the issues faced by companies currently through effective disclosure, and ensuring that they have the key information in order to be able to assess the liquidity, viability and solvency of companies. The FRC noted that it is reasonable for investors to expect companies to be capable of articulating how they anticipate the specific business will be affected in different scenarios.

The FRC guidance was also complemented by PRA guidance, regarding the approach that should be taken by banks, building societies and PRA-designated investment firms. The guidance focused on:

  • consistent and robust IFRS 9 accounting and the regulatory definition of default;
  • the treatment of borrowers who breach covenants because of COVID-19; and
  • the regulatory capital treatment of IFRS 9.

3. FRC guidance for auditors

The guidance provided a non-exhaustive list of factors auditors should consider when carrying out audit engagements in the current circumstances. The aim of the guidance is to temporarily help auditors deal with the emerging situation and seek to overcome the challenges in obtaining audit evidence.

The joint statement details further measures which will allow for companies and auditors to focus on the delivery of information to investors and the capital markets:

  • Postponement of audit tenders

Companies are encouraged to consider delaying planned tenders for new auditors, even when mandatory rotation is due.  The statement refers to the power of the FRC to extend certain mandates by up to two years in exceptional circumstances.

  • Postponement of audit partner rotation

Key audit partners are required to rotate every five years. The FRC intimates that this could be extended to no more than seven years if a good reason is cited. It is suggested that the need to maintain audit quality, particularly in the current climate, could be considered a good reason for these purposes. This would need to be agreed with the audit committee of the affected entity, but does not need to be approved by the FRC.

  • Reduction of FRC demands on companies and audit firms

The statement refers to several ways in which the FRC is attempting to reduce its demands on companies and audit firms. For example, the FRC has paused for at least one month writing new letters to companies following its review of their annual reports and accounts.

In summary, the temporary, yet comprehensive, measures and guidance provided jointly by AIM, the FCA, FRA and PRA recently will come as a welcome relief to companies in the current period of global uncertainty and will hopefully go some way to providing the flexibility needed to navigate the unprecedented waters of the COVID-19 pandemic.   It is a complex and fluid situation for many companies and if you would like to chat through any concerns or questions you have in relation to the information here or any other issues affecting your business please do contact Catherine MossBen HarberHannah Maxwell or another member of our corporate finance and company secretarial teams.

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We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Guides & Advice

The role and importance of the Post Implementation Review (PIR)

As the world begins to move out of lockdown measures in response to COVID-19, companies and their boards will begin to reassess their business continuity plans. Not only will this further strengthen plans in the event of another incident or a second wave, but it will also identify lessons learned and develop narrative reporting for upcoming annual reports and compliance statements against s.172 of the Companies Act 2006.

As part of this, it is important to develop a Post Implementation Review (PIR) process. PIRs should be used to assess measures, projects or procedures that had been put in place as a response to COVID-19 as boards continue to manage the impact and to kick-start the road to recovery for those impacted financially. These lessons learned will bolster your boards’ business continuity plans and contribute to increasing efficiencies, allowing you to respond more quickly and effectively to future critical incidents.

What is a Post Implementation Review and what is its purpose?

A Post Implementation Review (PIR) is designed to evaluate whether project implementation objectives were met, determine how effectively this was achieved, learn lessons for the future, and ensure that the organisation gets the most benefit from the implementation of projects like business continuity planning.

After a long project that has been delivered under strict deadlines and in line with ever-moving goal posts, the last thing many teams want to do is relive the process (this is especially the case given our current operating environment). However, the purpose of a PIR is to ensure that the business embraces ways to improve.

A forward-looking review can uncover many tips and strategies for improvement – and a PIR can be an efficient tool in evaluating the implementation of measures, projects or procedures. Every outcome, be it a product, process or service, should be compared with the initial concept and its effectiveness assessed accordingly, yet PIRs rarely make an appearance on boardroom agendas once a project is complete.

Why should boards and senior managers complete a PIR process?

1. Determine project success – discuss at board level with senior managers whether the project/deliverables are functioning as expected. Question whether it is functioning well and in a way that is flexible to future operating demands. Boards will want to know where the end result compares with the original project plan, in terms of quality, schedule and budget. Lastly, boards and senior managers will want to review how the project or program impacted the organisation’s objectives and whether the new process is strategically aligned or requires modification.

2. Engage and assess the satisfaction of stakeholders – Boards should be reviewing the impact at stakeholder level and whether any issues have arisen and how those will be addressed. For example, boards should ask for insights on new IT software being utilised for home working, whether all staff and newcomers had been trained sufficiently and if there is a need for further training and development. As mentioned the views of staff is an incredibly important feedback mechanism to assess whether a project has gone well. If key individuals aren't satisfied, boards should discuss how this is to be addressed. Testing such satisfaction levels also adds to the board’s stakeholder engagement initiatives and helps further strengthen governance procedures.

3. Identify areas for development – As mentioned above engaging with stakeholders will help assist in identifying areas of development and additional benefits that could possibly be achieved. This also provides companies the opportunity to complete a risk assessment to review the initial main risks, how they were addressed, prioritised and whether any unforeseen risks have arisen that need to be treated.

4. Identify lessons learned – This provides the board, senior managers and those involved with the business continuity plan an opportunity to be open and honest on what aspects of the implementation had went well, what went poorly and the negative lessons learned. It is important for those leading the discussions and board members to ensure that people aren’t in any way punished for being open, the purpose is to focus on the future and not assign blame.

How to report findings: Post Implementation Review reports

In order to report findings and recommendations on the implementation of the company’s business continuity plan, the first step is to conduct a thorough gap analysis. Start by reviewing the list of expected deliverables from the outset of the project and ensure either that:

  • these have been delivered to an acceptable level of quality, OR
  • an acceptable substitute for each deliverable is currently in place.

If there are gaps, then this should be highlighted at the PIR meeting or equivalent board meeting. Where possible, using outside service providers or internal audit functions should be encouraged for the review process to get an objective, unclouded view of how well the plan has been implemented. Equally, a lot can be gleaned from the perspectives of those who were directly involved in the project, so the best possible strategy is to strike a balance between the two.

Regarding documentation, the Company Secretary should be heavily involved in putting together the PIR report. This should document practices and procedures that led to the implementation of the plan and make recommendations for applying them to similar future implementation projects.

The Company Secretary should review key documents to ensure that governance procedures on the company’s internal or external web pages are kept up to date. Compiling together the key documents in the form of a PIR report will help assess the planning process, as well as identifying the actual benefits achieved.

In the PIR report, Company Secretaries should also include the impact and plans on governance items such as the hosting of the AGM, board meetings and compiling critical evidence to illustrate s.172 considerations and discussions. This should show that the long term economic viability of the business has been considered by all directors under the company’s business continuity plans.

The compilation of such decision making and the PIR process will benefit boards by enabling them to draw on existing information to report on the impact of decisions made in the interests of employees, suppliers, customers, communities and the environment.

Creating a Post Implementation Plan

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This period is a crucial time for companies and a point where the Company Secretary and the duties they fulfil are of key importance to the business.  For further information on PIRs, please contact Shaun Zulafqar or another member of the company secretarial team.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

A PIR is a vital – yet often overlooked – stage of any business project. Boards and senior managers should consider incorporating PIRs into their standard approach to projects in order to:

The final and most important part of the PIR report is the Post Implementation Plan. This should provide a clear summary of the key lessons learned from the project and outline how these learnings will be applied in the future. Those responsible for compiling the PIR report should ensure that the plan includes a checklist of actionable items that can then be referenced the next time a similar project goes ahead.

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Opinion

Could outsourcing be the answer to saving you time and money?

Could outsourcing be the answer to saving you time and money?

Outsourcing became an important part of business economics throughout the 1990s and it is now an established model saving many businesses considerable time and money.

The emergence of COVID-19 in March 2020 has cost many businesses dear with customers disappearing overnight, staff being furloughed and cash flow squeezed.  With the economy now starting to reopen, businesses are rapidly learning how to adapt in ways they may have never considered before or needed to before.

The package of measures introduced by the government and the Coronavirus Act which came into force in March 2020 has meant that public companies throughout the UK are having to do business very differently which has led to an increased workload and a whole new set of governance and reporting regulations to learn and duties to discharge.  With many businesses still operating with a reduced headcount, with employees working from home, and directors now having more responsibilities than ever before to ensure their businesses are COVID safe, now could be the time to consider outsourcing.

Why do companies outsource?

There are many reasons why a business may choose to outsource certain business functions and COVID-19 has only increased these. Common reasons include:

• Focus on core tasks
• Reducing and controlling operating costs
• Promote growth
• Maintain operational control
• Offer staffing flexibility – especially relevant
• Provide continuity and risk management
• Gaining access to superior services
• Freeing internal resources for other purposes

What business processes can be outsourced?

Common businesses practices which are outsourced include payroll, IT, content marketing and with the new legislation introduced as a result of the Coronavirus Act, company secretarial services. Within many quoted companies in-house company secretarial duties are carried out, in some cases, by one of the existing members of the finance team. This could seem like a cost-effective move, but it has become increasingly apparent that the provision of company secretarial services, especially given the introduction of new rules is highly time consuming and that there is more value for the in-house team member to focus on their primary role within the business.

This rise in the use of providers of company secretarial services can improve control and efficiency as they focus only on providing governance services to a Company. In addition, an outsourced service providing access to a team of professional company secretaries generates significant cost savings when benchmarked against recruiting and maintaining an in-house company secretarial function. Feedback from the market also reveals that outsourcing this function provides further support when required, from corporate governance to legal guidance, thereby increasing service value thanks to the accessibility of professional advisors.

As a result companies are increasingly looking to outsource their company secretarial function by utilising services on an ongoing basis, during routine business, restructuring or peak times in the corporate calendar.

Contact us
For further information please contact Ben Harber or another member of the company secretarial.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Guides & Advice

First Time Reporting Against Companies (Miscellaneous Reporting) Regulations 2018

First Time Reporting Against Companies (Miscellaneous Reporting) Regulations 2018

Annual Reporting - 20/20 Vision

In addition to reporting against the 2018 UK Corporate Governance Code, 2020 will see many companies also report against the Companies (Miscellaneous Reporting) Regulations 2018 (“CMRR 2018”) for the first time. The regulations introduced a number of reporting requirements for qualifying companies to disclose certain information in their annual reports including:

  • The publication of a Section 172 (“s.172”) statement outlining how directors have complied with their duty to have regard to the matters in s.172 (1)(a)-(f);
  • Report on how they have engaged with employees and taken account of their interests;
  • Statement in the Directors’ Report summarising how directors have engaged with suppliers, customers and others in a business relationship with the company;
  • Statement in the Directors’ Report about the corporate governance arrangements applied by the company;
  • Publication of the ratio of the CEO’s remuneration to the median, 25th and 75th quartile pay remuneration of their UK employees in the directors’ remuneration report;
  • Illustration of the effect of future share price increases on executive pay outcomes in the directors’ remuneration report

In this article, we will be focusing specifically on the s.172 statement and have outlined some key questions which companies may find useful as they begin drafting their statements:

Where does the requirement come from?

The CMRR 2018 is applicable to financial years beginning on after 1 January 2019. 2020 will be the first year companies are required to report on their compliance with the new regulations in their annual report based on the activities they have undertaken in 2019.

What does s.172 Companies Act 2006 say?

A director of a company must act in the way he/she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

  • the likely consequence of any decision in the long term;
  • the interests of the company’s employees;
  • the need to foster the company’s business relationships with suppliers, customers and others;
  • the impact of the company’s operations on the community and the environment;
  • the desirability of the company maintaining a reputation for high standards of business conduct; and
  • the need to act fairly as between members of the company.

What are companies required to publish in a s.172 statement?

UK incorporated companies are already required to produce a strategic report (except those qualifying as medium-sized in relation to a financial year) and which meet two of the three criteria set out below:

  • Turnover above £36mn
  • Balance sheet assets above £18mn
  • More than 250 employees

Limited liability partnerships are excluded.

Note: a parent company who meets the qualifying criteria/threshold through the process of consolidation must prepare also s.172 statement.

All companies who meet the criteria outlined above (including subsidiaries) are required to publish a statement under the new regulations even if its parent company produces a consolidated group strategic report. The Government’s Q&A on the regulations confirm that subsidiaries are able to cross-reference group statements (where a full explanation is provided) and provide less detail in their own report as many decisions and policies affecting employees, the environment, suppliers etc. will often be made at group level.

The Regulations also permit information required in the directors’ report be provided as part of the s.172 statement where the directors consider them to be of strategic importance to the company. Where a company chooses to report in this way, it must state in the directors’ report that it has done so and in respect of which information it has done so.

Where in the annual report should the s.172 statement be?

  • The statement must be a separately identifiable statement within the strategic report. As mentioned above, where appropriate companies can cross-refer to other parts of their annual report.
  • The statement must be made available on the company’s website or a website that is maintained on behalf of the company – publication of the company’s annual report on the website will satisfy this requirement.
  • Unquoted companies are not required to publish their annual report on a website and must make arrangements to ensure that the s.172 statement is available on a website.

What information should a company include in its s.172 statement?

  • Identify the company’s stakeholders, reasons for choosing those groups and the importance of engaging with each stakeholder group;

Our article published in the November Governance and Compliance magazine - “Put a Stake in it” provides further information on how a company could identify its stakeholders and methods of engagement and can be accessed here

  • How has the board engaged with each group of stakeholders during the year under review – what mechanisms has the board used to engage, what matters/topics have the board engaged with stakeholders on, how successful has the engagement been - provide useful and practical examples where possible; and
  • How did this engagement influence the board’s decision making or discussions at board level.

In order for the statement to be useful to investors, companies should ensure that they provide specific examples and wholesome explanations - generic statements and boilerplate wording are unlikely to add any value.   The FRC’s annual review of the UK Corporate Governance Code (2016 and 2018) published in January 2020 highlighted the “limited discussion of the issues that were important to or raised by stakeholders, and consequently to what extent boards had considered these and the impact they had made to strategy.”

How much detail should companies include in their section 172(1) statement?

There is no reference to the format or level of detail required for the statement within the regulations; however, the Government’s Q&A states that “companies will need to judge what is appropriate. The statement should be meaningful and informative for shareholders, shed light on matters that are of strategic importance to the company and be consistent with the size and complexity of the business.”

How do I get started? 

  • Read the CMRR 2018 in full as well as the Q&A’s as this will help with any other questions you may have;
  • Read the FRC’s Guidance on the Strategic Report;
  • If you haven’t done so already, identify your stakeholders as you will find it difficult to write the statement without doing this first and explain why your company believes they are important; and
  • If you have not kept a register or record of key decisions by the board, you may need to review past board minutes over the year under review to take note of any of the board’s decisions relating to stakeholder interests and issues.

Contact us
For further information please contact Ben Harber or another member of the company secretarial team.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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This form of AGM provided shareholders with all the aspects of a physical AGM, but in an electronic/on-line form – either via an online application (App) or via video or teleconferencing facilities. In the case of Jimmy Choo, they found that this type of meeting was better attended than their physical AGMs and some may see Hybrid/Virtual AGMs as the future of AGMs. However, there hasn’t so far been a high profile instance of any such meetings being held in the UK since. This could be as a result of the number of practical considerations and steps which companies will need to factor in before such a decision can be made. A few of these are set out below.

The benefits

There is an obvious benefit in relation to the cost savings and environmental impact made as a result of reductions in travel, venue hire and catering cost, but they should be balanced against the costs involved for setting up the teleconference, webinar and electronic voting application and all the other logistics involved in such a shift – internet connectivity etc.

A major benefit is the ability for wider stakeholder engagement in line with the new corporate governance requirement. They provide a way of allowing absent shareholders to participate, enabling greater stakeholder attendance and participation which sometimes doesn’t happen with physical meetings. Physical AGMs often have a low turnout rate – Jimmy Choo reported a much better attendance rate but as no attendance numbers were published it is difficult to determine how much better.

The practicalities

The need and cost for voting applications and provision of services offering technical expertise in Hybrid/Virtual AGMs is something companies will need to factor in and be balanced against a physical meeting, such as

What is the future of the AGM?

When calculating the costs involved in holding Hybrid/Virtual meetings it may be that these are more suitable for larger companies rather than for smaller plcs. The one thing we are sure of though is that there is no immediate feeling that the face of AGMs will change overnight in the UK. In comparison, across the Atlantic, Broadridge, the investor services company whose software is used for virtual shareholder meetings, noted that 184 US companies held virtual AGMs in the first half of 2017, which could be explained in part to the more relaxed legislation around ‘place’ and use of electronic platforms.

However institutional investors and governance professionals have raised concerns on virtual AGMs. AGMs are an event where the entire board is asked to attend physically in order to hear questions and accusations they would rather not deal with. Holding boards accountable is a crucial part of the AGM process, especially for small investors and physical meetings therefore allow small investors to raise concerns as a collective.

If companies understand the advantages and mitigate risks in holding Virtual/Hybrid AGMs there are a number of opportunities a company can benefit from. With the increased use of technology having a positive effect on stakeholder engagement, many companies may want to consider amending their existing Articles to incorporate the possibility of hosting a Virtual/Hybrid AGM even if it does not intend to host one in the near future. The amendment to the articles may also reveal whether there is any shareholder appetite for holdings AGMs in this manner.

To discuss any of the issues raised in this article please contact Ben Harber or Olajumoke Kupoluyi in the company secretarial team.

For general business advice, you can visit our dedicated coronavirus resource hub or sign up to one of our latest webinars that covers ‘the impact of coronavirus on your business.

All the latest views and insights on coronavirus.

What are the proposed measures introduced by the Bill?

The purpose of the Bill is to provide temporary measures that aim to relax the company filing obligations and requirements from companies to hold AGMs and other meetings.  The Bill provides workarounds to enable companies to hold AGMs safely and more flexibly in order to remain compliant with the restrictions imposed by the government during the pandemic.

The Bill will allow companies to determine:

The relevant changes relating to AGMs are found in Sections 36, 37, 38 and Schedule 14 of the Bill.

What are the key points to have come out of the FRC’s latest update?

Best practice advice on holding an effective AGM

AIM update on temporary measures:

Following the temporary measures announced by AIM in March 2020 to support AIM companies and nominated advisers in relation to the COVID-19 pandemic, AIM announced further temporary measures concerning the publication of annual audited accounts for AIM listed companies.

In light of the uncertainty and disruption cause by the COVID-19 pandemic, London Stock Exchange plc (LSE) has recognised that there may be circumstances where an AIM company is unable to publish its annual audited accounts under the normal legal and regulatory reporting deadlines.

Currently, under the AIM Rules for Companies (AIM Rules), an AIM company has six months after the end of its financial year to publish its annual audited accounts. In March a joint initiative of the Department of Business, Energy & Industrial Strategy and Companies House was announced, allowing UK companies to apply to Companies House for a three-month extension of the legal filing deadline for accounts.

In line with this announcement, LSE also confirmed that from 26 March 2020, an AIM company could also be able to apply to AIM Regulation for a three-month extension to the reporting deadline for the publication of its annual audited accounts, pursuant to AIM Rule 19.  The extension will be available to AIM companies with a financial year ending between 30 September 2019 and 30 June 2020. An AIM company wishing to utilise this extension must make a request to the AIM Regulation via the nominated advisor, prior to the AIM Rules reporting deadline.

From 9 June 2020, AIM Regulation has confirmed that AIM companies will be given an additional month by which to prepare their half-yearly reports under AIM Rule 18.  AIM companies wishing to take advantage of this temporary measure must notify via an RIS prior to the AIM company’s reporting deadline and the company’s nominated adviser must separately inform AIM Regulation.

LSE has confirmed that the operation of the AIM Rules will be kept under review.

FCA, FRC and PRA co-ordinated response:

In response to COVID-19, the FCA, FRC and PRA have joined forces to announce a series of temporary actions to ensure that information continues to flow to investors and to ensure that this supports the continued functioning of the UK’s capital markets.

1. The FCA has allowed listed companies an extra two months to publish their audited financial reports, reminder not to draw adverse inferences by reporting delays and the temporary halt to the publication of prelims removed

Currently, under the Transparency Directive, companies have four months from their financial year-end in which to publish audited financial statements. This two month relief will mean that listed companies will not face suspension if they publish their financial statements within six months of their year-end.

The FCA was clear in its update that the Market Abuse Regulation remains in force and that companies are still required to fulfil their obligations in relation to inside information. The FCA also implored market participants not to draw undue adverse inferences if companies choose to make use of the additional two months. The FCA also strongly encouraged listed companies to reconsider their financial timelines in order to ensure that disclosures are prepared accurately and carefully, and from the perspective that “the global pandemic and policy responses to it may alter the nature of information that is material to a businesses’ prospects”.

The FCA reminded companies that as companies of all types significantly adjust their business and operations to respond to the challenges and disruption caused by Covid-19, they take advantage of the regulatory deadlines, and their temporary extensions, rather than rushing to publish preliminary statements.  The market as a whole was reminded that it should not draw adverse inferences as a result of the changing timetable for announcements.

The temporary moratorium on publication of preliminary announcements announced on 21 March 2020 by the FCA will end on 5 April 2020 and the FCA noted that it believed “that pressure can abate as companies react to the need to rethink and re-plan financial calendars in light of the coronavirus pandemic and the package of measures the three regulators announced recently.”

2. FRC guidance for companies preparing financial statements in this uncertain environment

The FRC highlighted key areas of focus for boards in maintaining strong corporate governance and provided high-level guidance on some of the most pervasive issues when preparing their annual report and other corporate reporting issues.

In relation to corporate governance, the key messages were:

In relation to corporate reporting, the guidance covers:

The FRC guidance highlighted the importance of keeping investors’ understanding of the issues faced by companies currently through effective disclosure, and ensuring that they have the key information in order to be able to assess the liquidity, viability and solvency of companies. The FRC noted that it is reasonable for investors to expect companies to be capable of articulating how they anticipate the specific business will be affected in different scenarios.

The FRC guidance was also complemented by PRA guidance, regarding the approach that should be taken by banks, building societies and PRA-designated investment firms. The guidance focused on:

3. FRC guidance for auditors

The guidance provided a non-exhaustive list of factors auditors should consider when carrying out audit engagements in the current circumstances. The aim of the guidance is to temporarily help auditors deal with the emerging situation and seek to overcome the challenges in obtaining audit evidence.

The joint statement details further measures which will allow for companies and auditors to focus on the delivery of information to investors and the capital markets:

Companies are encouraged to consider delaying planned tenders for new auditors, even when mandatory rotation is due.  The statement refers to the power of the FRC to extend certain mandates by up to two years in exceptional circumstances.

Key audit partners are required to rotate every five years. The FRC intimates that this could be extended to no more than seven years if a good reason is cited. It is suggested that the need to maintain audit quality, particularly in the current climate, could be considered a good reason for these purposes. This would need to be agreed with the audit committee of the affected entity, but does not need to be approved by the FRC.

The statement refers to several ways in which the FRC is attempting to reduce its demands on companies and audit firms. For example, the FRC has paused for at least one month writing new letters to companies following its review of their annual reports and accounts.

In summary, the temporary, yet comprehensive, measures and guidance provided jointly by AIM, the FCA, FRA and PRA recently will come as a welcome relief to companies in the current period of global uncertainty and will hopefully go some way to providing the flexibility needed to navigate the unprecedented waters of the COVID-19 pandemic.   It is a complex and fluid situation for many companies and if you would like to chat through any concerns or questions you have in relation to the information here or any other issues affecting your business please do contact Catherine MossBen HarberHannah Maxwell or Georgia Keogh or another member of our corporate finance and company secretarial teams.

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All the latest views and insights on COVID-19 (coronavirus)

Enhanced security

A fully encrypted board portal eliminates potential security risks associated with producing and distributing traditional hard copy board packs. Physical copies do not need to be sent to board directors via email or courier; they can simply log on, view and print the documents directly from the portal. As some directors still enjoy the familiarity of a hard copy pack, a portal can provide the best of both worlds. However, in this digital age, most directors have access to iPads and surface tablets so they may find a transition to paperless meetings is the way-forward.

Company secretaries and administrators can easily add or remove directors at any time and can restrict individual access to specific documents. This feature is particularly helpful when there are possible conflicts of interest.

Better access to information

Storing current and previous board packs and important information within an online portal allows directors to access documents from previous meetings, such as minutes, strategic plans and audit reports, all with a click of a button. Other useful company information such as committee terms of reference and policy manuals can be also be stored. The added search function allows directors to easily search previous packs or projects for relevant information.

Most, if not all, board portals work on all major operating systems and can be viewed on most tablets, PCs and mobile phones. The interface from device to device usually remains consistent, allowing directors to easily navigate board packs regardless of what device they are used to using.

Increased board engagement

Using a portal doesn’t just restrict board engagement to the boardroom; instead of having to wait for the next meeting, online board management software allows directors to discuss and share ideas, notes and annotations in real-time, when it’s convenient for them. This not only increases the efficiency of the board itself, but it may also reduce the frequency and length of the meetings. As previously highlighted, any notes directors make on the portal are secure and are can be restricted to specific individuals they are willing to share that information with.

Non-executive directors (NEDs) often serve on several boards and the utilisation of an online portal across organisations may help ensure they don’t miss vital communications. Board packs will always be available on the portal and reminder emails can be sent to NEDs to notify them that new documentation is available.

This also applies to directors that are required to travel and usually their use travel time as an opportunity to catch up on company issues; they may previously have had to carry numerous hard copy board packs with them but using an online portal eradicates this problem.

Modernised board administration

Online portals significantly reduces the meeting preparation time from hours to minutes by cutting down the number of manual hours involved.

Replacing documents in already produced hard copy packs has always been an issue – most directors have attended a meeting at some point where the wrong version of a document has been circulated. An online portal allows secretaries and administrators to quickly replace and share updated documents instantly.

By using a portal as a task management tool, secretaries and administrators can set tasks for those directors they are expecting papers from and grant them specific access to upload their own documents.

Cost-effective and good for the environment

Every year, companies spend a large amount of time and money on the printing, assembly and distribution of board packs.  With increasing pressures on organisations to work towards green initiatives and implement enhanced corporate social responsibility processes, using an online portal reduces the reliance on paper, the impact on the environment and sends a positive message to key stakeholders.

In conclusion

The market for board portals is expanding. As the benefits of board management software are highlighted, more and more organisations are ‘going digital’ in a bid to be more efficient and reduce costs. With robust security permissions and tight version control, using a portal ensure their directors can access real-time confidential information wherever they are, whether this be in the office, on the move or at home.

How can we help?

We have partnered up with a dedicated secure solution for the provision of a board portal. For more information contact Ben Harber.