The National Association of Pension Funds has issued an update to its corporate governance policy, which should be taken into account by listed companies, particularly when preparing their AGM notices. The updated policy includes guidance on when the NAPF will consider the use of a 14-day notice period for extraordinary general meetings acceptable, a new recommendation that may require the whole board to stand for re-election following a rights issue, and guidance on how it will recommend voting on individual directors.
General meetings on less than 21 days' notice
Under the Companies Act 2006 (as amended) the minimum notice period for general meetings (other than AGMs) of traded companies can be 14 (rather than 21) days, provided certain conditions are met. One of the conditions is that the company passes a special resolution permitting the shorter notice period at the preceding AGM.
Despite the fact that general meetings to consider ordinary resolutions have been called on only 14 days’ notice for many years, NAPF has adopted a restrictive stance, stating that the shorter notice period should only be used in limited circumstances and for time-sensitive matters where its use would be in the interests of shareholders as a whole. NAPF suggests that shareholders vote against any resolution proposed at a shorter notice meeting if the use of the shorter notice period has not been adequately justified or the shareholders need more time to consider their voting decision due to the complexity of the matters proposed.
In practice this means that it would be prudent for companies to consider carefully their justification for using less than 21 days' notice. They should be aware that shareholders may take an adverse position where extraordinary general meetings are convened to consider non-urgent business, particularly if this is of a complex or potentially contentious nature - for example, a meeting solely to approve an employee incentive scheme. However, it should still be possible to call a meeting on 14 days' notice in the context of approving a rights issue or any other transaction with significant timetable pressures.
When companies propose the resolution to enable meetings to be held on 14 days’ notice, NAPF requires a statement in the AGM notice of “the circumstances in which a short notice meeting may be called”. This means that all traded companies will need to add some additional wording to their AGM circulars. We understand that the Institute of Chartered Secretaries and Administrators is preparing some guidance with example wording for this purpose.
NAPF members should vote in favour of the enabling resolution as long as satisfactory language is included in the AGM circular.
Re-election of board following a rights issue
In December 2008, the ABI issued guidance that it will consider as routine (i.e. its members will approve) a resolution to authorise the allotment of a number of shares equal to two-thirds of the company’s issued share capital (rather than the previous one-third limit). Where the further authority is used, the ABI expects all members of the board to stand for re-election at the next AGM if (i) the company makes allotments in excess of one-third of nominal value over the course of the year and (ii) the monetary proceeds exceed one-third of the pre-issue market capitalisation of the company.
NAPF’s policy update includes requirements which are stricter than those of the ABI. NAPF expects the whole board to stand for re-election following any rights issue of more than one-third of issued share capital without specific shareholder approval, regardless of the amount of monetary proceeds. NAPF suggests shareholders may vote against the re-election of the chairman or the senior independent director at the next AGM if the whole board does not stand for re-election in these circumstances.
Director independence and suitability
NAPF suggests that shareholders may vote against the re-election of a director where there is strong evidence of his significant involvement in material corporate governance failings, poor stewardship or failings in fiduciary responsibilities at the company in question or at another company of which that person is a director.
NAPF also clarifies how to assess the independence (for Combined Code purposes) of a director who is nominated by a dissident shareholder but is not associated with that shareholder.
The NAPF 2009/10 corporate governance policy update is available here.
