The UK Financial Services Authority
proposes to enhance the Listing Regime by adopting greater corporate governance
requirements for companies with a dominant shareholder. The FSA proposes
to increase the tools available to independent shareholders to influence the
governance of the companies in which they have invested, including requiring an
agreement to regulate the relationship between a controlling shareholder and
the listed company and ensuring that this agreement is complied with on an
ongoing basis in order to ensure that the company is managed independently from
that shareholder.
The relationship agreement must
contain provisions ensuring that transactions and relationships with a
controlling shareholder are conducted at arm’s length and on normal commercial
terms. Also, a controlling shareholder must abstain from doing anything that
would have the effect of preventing a company
from complying with its obligations under the Listing Rules. In addition, the
relationship agreement must provide that
a controlling shareholder cannot influence the day to day running of the
new company at an operational level or hold or acquire a material shareholding
in a significant subsidiary.
The FSA also proposes to require
additional disclosure in the annual financial report under which the directors
state that the listed company has complied with the relationship agreement
throughout the financial year. If the company has not complied with the
relationship agreement, the directors would have to include a description of
the provisions of the relationship agreement that the company has not complied
with that enables shareholders to evaluate the impact of the non-compliance on
the company, along with a confirmation that the UK Listing Authority has been
informed.
Recognizing the important role that
independent directors play in these circumstances, the FSA would require a
majority of independent directors on the board when the company has a
controlling shareholder and introduce a new dual voting procedure to allow
independent shareholders to have more say in directorial appointments.
The FSA took
responsibility for the UK Listing Regime in 2000, and since then has reviewed
the Listing Rules on a regular basis. The last review in 2008-10 introduced the
premium and standard segments in order to provide greater clarity for
investors.
The FSA now clarifies that certain
types of company are incompatible with a premium listing, including those with
voting arrangements that have the potential to subvert or circumvent the
investor protections that the premium listing provides.
Generally, the FSA
endorses the comply or explain approach embodied in the UK Corporate Governance
Code. But the FSA also recognizes that
an effective framework for securing the high standards of behavior required
within the premium segment needs to accommodate situations where disparate
shareholders are less able to exert influence on an issuer’s governance.
This is particularly so where the low number of shares held in public hands
means that a single dominant shareholder can exert effective control over an
issuer’s decision making. In these situations, the FSA believes that there is a
case for incorporating into the Listing Rules some requirements for Premium
issuers that are at present subject only to the Code’s comply or explain
provisions.