United Kingdom | Publication | February 2024
Following the announcement on 19 December 2023 that ISS had updated its benchmark proxy voting policies for company meetings in the UK and Ireland, those updated policies were published in January 2024. They will be applied for shareholder meetings taking place on or after 1 February 2024.
The updates follow a consultation in November 2023, and they relate to board diversity, board independence, and authority to issue equity shares where pre-emption rights have been disapplied. The updates are largely due to updated rules and guidance in these areas and are summarised as follows:
Board diversity
The Financial Conduct Authority’s (FCA) updated Listing Rules, which require listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management, applied to companies for financial accounting periods starting from 1 April 2022. In 2023, ISS policy was different depending on whether companies' financial years fell before or after 1 April 2022. The former were assessed against the Hampton-Alexander and Parker Review standards, the latter were assessed in accordance with the new board diversity targets outlined in the updated Listing Rules. As the transitionary stage has passed and the FCA's diversity targets now apply to all standard and premium listed companies, irrespective of when their financial year falls, the amendments to the ISS policy reflect this simplification.
Board independence
As in the UK Corporate Governance Code, ISS is likely to consider a non-executive director non-independent if, among other things, they represent a significant shareholder. A footnote has been added to the ISS policy to define a “significant shareholder” as someone holding 3% or more which reflects the historic application of the policy by ISS and the meaning of “significant” in other market policies.
Share issues and pre-emption rights
The ISS Benchmark Proxy Voting Guidelines previously incorporated the recommendations of the Investment Association’s 2016 Share Capital Management Guidelines. These were updated in November 2022 and the wording of the policy now reflects the changes made in those updated guidelines.
(ISS, UK and Ireland Benchmark Policy Voting Guidelines for 2024, 01.01.2023)
On 2 February 2024, the Financial Reporting Council (FRC) published a report which sets out a summary of key findings and potential actions from research it commissioned into barriers to entry and growth faced by audit firms in the UK.
The research was undertaken in support of the FRC’s strategic objective to create a more resilient audit market through greater competition and choice, and it sought to enhance understanding of entry, growth and exit of firms in the Public Interest Entity (PIE) and non-PIE audit markets by obtaining the views of smaller audit firms and non-audit firms.
The report highlights capacity constraints, recruitment and retention challenges, alongside regulatory requirements, as the main obstacles for smaller firms looking to expand their presence, especially in audits of PIEs.
To promote greater competition and choice in the audit market, the FRC highlights the importance of a collaborative, cross-system approach involving the regulator, audit firms, professional accounting bodies, and government. The FRC also points to initiatives it has already launched, such as the Audit Firm Scalebox to help smaller firms understand regulatory standards and grow their PIE audit capabilities.
Audit firms are encouraged to prioritise cultures that better support their staff, including training and resources, while professional accounting bodies should continue efforts to attract new talent into the profession and maintain high auditing standards. It is also noted that government can play a role with policies that encourage competition and innovation in the audit market.
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On 24 October 2024, the Court of Justice of the European Union (CJEU) confirmed that the European Commission’s (the EC) 2009 decision, which imposed a (then record) €1.06 billion fine on Intel, was flawed as far as it found that loyalty rebates granted by Intel had anti-competitive effects.
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The Dutch tax classification system for non-Dutch entities will undergo significant changes as of 1 January 2025.
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In King Crude Carriers SA & Ors v Ridgebury November LLC & Ors [2024] EWCA Civ 719 the Court of Appeal held that the claimant sellers (the Sellers) were entitled to claim the deposits promised under sale contracts as a debt despite the defendant buyers’ (the Buyers) breach of contract, which had resulted in the non-fulfilment of a condition precedent to the payment of the deposits.
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