C 4.3.1 Relevant issuers to be subject to "Elevated Standards»
Step required
Amend CG Code and listing rules to specify selected CG requirements as Elevated Standards for designated issuers.
Recommendation level
Compelling.
Topic addressed
Larger or more well-known/established issuers are frequently expected by the market to adhere to higher CG standards. Many of these companies often lead CG standards by voluntarily adopting requirements that go beyond the provisions of the CG Code.
The primary benefits of the recommendation, which is to establish a set of Elevated Standards for these types of issuers, would be (1) to entrench those voluntary practices, and (2) to send a signal to the market that companies subject to the Elevated Standards are leading examples of good CG practices.
Establishing Elevated Standards will also assist issuers that voluntarily elect to comply with them to identify/label themselves as adhering to higher CG standards.
Details of recommendation
1.Review existing RBPs and Recommended Disclosures to select which are to be treated as «Elevated Standards». Such Elevated Standards to be specified as code provisions subject to the comply or explain regime and required disclosures for relevant issuers.
2.Consideration to be given to incorporating specified comply or explain provisions as mandatory requirements in the Elevated Standards.
3.Specify criteria for identifying the issuers that will be subject to the Elevated Standards. It is suggested this is based on the status of being a constituent stock in a relevant index and that this would include constituent stocks of the HSI, and probably the HSCEI.
4.Make a provision for other issuers that elect to be subject to the Elevated Standards.
Attendant considerations
It is expected that this development will not cause significant change or disruption to issuers that will become subject to it.
Jurisdiction references
UK (CG Code higher standards on FTSE350 issuers).
Section 3 reference
3.7.7 Differentiation of CG requirements.
S 4.3.2 Disclosure of non-compliance with issuer's disclosed CG practices
Step required
Amend the listing rules to require early disclosure of variance from previously disclosed practices.
Recommendation level
Support.
Topic addressed
At present, shareholders are only required to be informed once a year of the issuer's CG practices in view of the CG Code.
On the premise that CG practices concern matters of importance, and that this is of relevance to shareholders to know, there is a case that an annual disclosure may be insufficient to capture changes in an issuer's practices during the year.
Details of recommendation
1.An issuer should inform shareholders if disclosed CG practices change and this is expected to last for more then a specified period, e.g., 3 months.
2.Unlike C4.5.2 «Status of listing rule compliance and related disclosures (continuing)», it is not suggested to bring this disclosure within the scope of section 384(3) of the SFO. However, a failure to disclose a change of practices would constitute a breach of the above requirement and so would be reportable under C4.5.2.
3.While this disclosure obligation could be limited to changes to a lower standard of CG practice, there is a risk that this may permit different views as to what constitutes a lower standard.
Attendant considerations
Nil.
Jurisdiction references
Nil.
Section 3 reference
3.3.3Disclosure of listing rule compliance.
3.6.1 Information disclosures generally.
See also:
3.7.3Enforcement agencies.