PIRC UK shareholder voting guidelines 2015

Pensions Investment Research Consultants, the shareholder advisory body, published its most recent Shareholder Voting Guidelines earlier this month.

The 2015 edition does not contain many new recommendations, however, there are a few changes and additions which may be of interest to UK listed companies.

The Board

Capital of the company

According to PIRC, before allocating capital within a company, the directors should consider whether it may be appropriate to return that capital to shareholders.

Conflicts of interest and board appointments

PIRC does not generally support chief executives becoming chairmen, except in specific circumstances. The 2015 guidelines also now state that finance directors should not be appointed as chairmen.

Further, in PIRC’s view the company secretary should not also be a director.

Professional development

In respect of the directors’ knowledge of the company, PIRC states that continuing professional development should cover company specific matters as well as industry issues.

Report and accounts, audit and financial controls

Auditors – independence

The revised guidelines state that among the issues that may detract from an auditor's independence are non-audit work and excessive tenure as a firm's auditor. PIRC also continues to state that negative voting advice on the appointment of auditors will normally be related to independence concerns.

PIRC has removed the statement that they would like to see companies disclose in their annual reports the length of time their current auditor has been in place and when the audit contract was last tendered.

True and fair view

The guidance on true and fair view in the 2014 edition has been deleted in the 2015 guidelines. However, PIRC retains the view that accounting standards have become out of step with the law.

In addition, PIRC has noted that in 2015, it will be paying attention to not only the disclosure of significant covenants by companies but also the accounting basis of such covenants.

Shareowner rights, capital stewardship and corporate actions

Distribution policy

PIRC has removed a statement that it would encourage companies to seek shareholder approval on distribution policy, but has retained its statement that shareowners should have an annual opportunity to approve the company's dividend policy, or at the minimum any dividends paid or proposed relating to the year under review, whether or not there is a legal requirement to do so.

Share buy-backs

In this edition, PIRC has deleted the statement that it will normally consider general authorities for share buybacks up to 15% of the issued capital acceptable. Even though PIRC continues to view buybacks negatively, it has not provided any figure in this edition of the guidelines.

Shareholder dialogue and conflicts

While dialogue between companies and their shareholders is encouraged, PIRC opines that companies should report on how they manage conflicts when engaging in the type of dialogue envisaged by the UK Corporate Governance Code.

Directors’ remuneration

PIRC expresses concerns about remuneration committee members also acting as executives at another listed company. Given the process of benchmarking pay against other firms, PIRC believes that there is an inherent conflict of interest in an executive having any role in setting executive pay, even at another company.

PIRC also notes that directors are rarely found to be “bad leavers” and that discretions are invariably applied to the advantage of departing directors. As before, PIRC expects salary increases to be explained, particularly, according to the new guidelines, where these are out of line with the reward policy for non-directors. Opposition to transaction bonuses is also restated with a new argument that these are “fundamentally inconsistent with fiduciary duties”.

Investment companies

The focus of this section is on boards actively and independently controlling the investment manager. Accordingly, PIRC notes that it will not support a vote to approve the accounts where there is evidence that the board is over reliant on the investment manager in the discharge of its duties.

PIRC notes that the long-term performance of a fund's stock price and an ongoing discount to net asset value may mean that shareholders would be better served by voting against continuation and supporting a return of capital to shareholders.

Sustainability and corporate responsibility reporting

There are no new recommendations in this section, but guidance on stakeholder engagement, community investment and voting advice on environmental and social concerns has been deleted.

Click here for the summary of the 2014 shareholder voting guidelines in UK Corporate Update 19 March 2014.