19 January, 2019
NEW YEAR, NEW REPORTING REQUIREMENTS
There are a number of new corporate governance reporting requirements that have come into force from 1 January 2019. The coming year provides the opportunity to consider the changes and make arrangements for reporting on them.
We are able to support companies in complying with the provisions and preparing for their disclosure.
For AIM companies that have now adopted a corporate governance code, it should not be assumed that by following the provisions of their chosen code, that this guarantees compliance with the new reporting requirements.There will need to be a focus on both their adopted governance code and the new reporting requirements.
Whilst the new requirements are primarily aimed at larger businesses, it is worthwhile for smaller companies to also start to consider these matters.As businesses start to grow and engage more widely with the investment community, preparing to participate on these matters would be beneficial.
Corporate Governance Arrangements
The Companies (Miscellaneous Reporting) Regulations 2018 (the Regulations) now requires all companies of a significant size, that are not currently required to provide a corporate governance statement, to disclose their corporate governance arrangements.Companies of a significant size are deemed to be those that have more than 2,000 employees globally or a turnover of more than £200 million and a balance sheet of more than £2 billion.
The Wates Principles published at the end of 2018 were drafted with the aim of providing, primarily for larger private entities, an appropriate corporate governance code.Any company adopting The Wates Principles are intended to report on them on the basis of ‘apply and explain.’ Companies still however continue to have the option of not adopting a code and explaining their governance arrangements.
Duty to promote the success
Under the Companies Act 2006, one of the duties of a director is to promote the success of the company for the benefit of the members as a whole (s172).This applies to all directors whether the company is large or small, public or private.
The Regulations now require those companies that produce a strategic report (with some exemptions) to set out a statement of how directors have had regard to the matters set out s172.Unquoted companies must make the statement available on the website and update it each year.
Stakeholder interests and Employee engagement
For large companies, there now needs to be a statement in the annual report as to how directors have had regard to suppliers, customers and others and the effect of that regard on principal decisions taken by the company during the financial year.Large companies are deemed to be those that meet the criteria of any of two of the following; turnover £36m or more, balance sheet £18m or more, 250 employees or more.
Separately, all companies with 250 UK employees or more must detail in their annual report how directors have engaged with employees and the effect of their regard for employee interests on principal decisions made by the company in the financial year.
CEO Pay ratio
For quoted companies with more than 250 UK employees, the company now needs to set out a ‘pay ratios table’ of executive pay to the first quartile, median and third quartile of employee pay.Companies reporting on this will need to consider what work is required to compile this information and the narrative to explain the outcomes.
Company reporting should not be about box ticking.All companies, regardless of their size, would benefit from considering the above issues as their businesses look to grow.
For those companies required to report on these regulations, good preparation over the coming year will ensure a smooth reporting process for 2020.
We are able to assist with guiding companies through the different criteria for the application of the new regulations, as well as ensuring compliance with a corporate governance code alongside this.
Whilst not required to report on these matters, smaller companies may find it useful to consider for example the introduction of corporate governance policy, what training may be required for directors in meeting their director duties or how to engage with stakeholders.
If you would like to discuss further please contact Anne-Marie Palmer
118 Pall Mall
Company registered in England and Wales number 8254957