Below are key takeaways from ISS’ recently released United Kingdom 2021 Season Preview and 2020 Review. The full report is available to institutional subscribers by logging into ProxyExchange then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.
- The COVID-19 pandemic continues to be a major factor heading into the peak AGM season. The operational aspects of calling and running AGMs for UK companies were affected in 2020, with many meetings held behind closed doors and without shareholder participation. This is likely to continue in 2021, and has opened fresh debate about the role of virtual AGMs, both in the short and longer-term.
- Business operational performance of many companies has been severely impacted by the pandemic. In response, companies that have come under financial pressure have sought means to shore up balance sheets: withdrawing dividends and pausing share buybacks, conducting emergency capital raisings, furloughing and reducing staff, and participating in government-backed support schemes.
- Executive pay has generally reflected the business challenges, as overall remuneration has reduced across the FTSE. Bonus outcomes are however expected be a key voting battleground in the upcoming AGM season, with many investors expecting C-Suite pay to reflect the wider stakeholder experience. Thus far the companies that have adjusted in-flight LTIP awards have been met with heavy dissent from investors. The headwinds from the pandemic have introduced additional considerations for remuneration committees when considering variable pay outcomes, as well as in setting forward-looking performance targets. Perhaps in response to these challenges, over the past year a number of companies have proposed time-based restricted share plans to replace more traditional long-term incentive arrangements.
- Climate change remains a major investor priority. A high-profile shareholder resolution was proposed at Barclays in 2020, the first resolution of its kind at a listed bank in Europe. For 2021, a number of companies are voluntarily proposing so-called “say-on-climate” votes, a concept which has been endorsed by the Investor Forum, a UK investor body representing more than GBP 20 trillion in assets under management. On the regulatory side, the Financial Conduct Authority will introduce compulsory TCFD reporting on a comply-or-explain basis, which will be in place for companies with a Premium Listing by 2022.
- Board diversity has unprecedented momentum, not only gender diversity but also diversity of race and ethnicity. Many institutional investors are sharpening their voting policies on these topics as companies that have fallen short of the standards set by the Hampton-Alexander Review (gender diversity) and the Parker Review (ethnic diversity) face potential dissenting votes against their directors.
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