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UK Government
Investments
Shareholder NED Induction
Pack
An introduction to your roles and responsibilities
acting as a Government-appointed shareholder non-
executive director
Version 3.0
August 2023
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I Summary of contents en
Investments
1. Powers and duties as a shareholder NED - slides 3 to 16
a. Your powers and duties under the Companies Act 2006
b. Reconciling your directors’ duties and your obligations as Civil Servant and / or employee
Cc. Conflicts of interest
d. Practical tips for complying with your duties
2. Corporate Governance - slides 17 to 22
a. The UK Corporate Governance Code — Main Principles
b. Refresher on (i) The Bribery Act; (ii) political donations; (iii) environmental and social responsibilities
Cc. What can companies do to help you?
3. Key topics to be aware of: current and future issues - slides 23 to 25
4. Helpful resources - slides 26 to 27
5. Additional considerations due to HMG’s involvement - slides 28 to 29
a. Indemnities
b. D&O insurance
6. Appendix: Corporate Governance — Roles of committees and key individuals (prepared by UKGI Legal and
Linklaters) - slides 30 to 32
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UK Government
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Powers and duties: key points to be aware of when becoming a
non-executive director
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Your duties under the Companies Act 2006 UK Government
Powers
Directors manage the company and act as
its agents — you can bind the Company
Important decisions should be taken
collectively as a board
The Articles give directors wide powers to
act, but you must be sure to only act
within the powers that are delegated to
you
The directors remain responsible — even
when authority has been delegated
Duties
Duties are owed to the company (not the
group or shareholders)
Seven general duties are set out in the
Companies Act 2006 — see Companies
Act 2006 (legislation.gov.uk’
*For NEDs appointed to ALBs which are
not Companies Act companies
(e.g. advisory boards of public bodies),
similar fiduciary duties arise under
common law. Where this document refers
to directors of companies, the same
principles should be taken to apply to
those appointed to the boards of other
such entities.
Investments
Your seven core duties under the Companies Act 2006* are to:
$.171
$.172
$.173
$.174
$.175
$.176
$s.177
& 182
..act in accordance with the company’s constitution and only exercise
powers for the purposes conferred
..act in the way they consider, in good faith, would be most likely to
promote the success of the company for the benefit of its members as a
whole and with regard to certain factors
..exercise independent judgment
..exercise reasonable care, skill and diligence
..avoid situations in which they have or can have a direct or indirect
interest which conflicts, or may conflict, with the company’s interests
..not accept benefits from third parties conferred because they are
directors or do something as directors
..declare the nature and extent of any interest, whether direct or
indirect in a proposed or existing transaction or arrangement with the
company
NOTE: Breach of duty is not established by the result but from the process and
reasoning behind actions taken / not taken
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Duty to exercise independent judgment (s. 173 CA 2006) UK Government
Investments
Adirector must exercise independent judgment. This is of particular relevance for nominee NEDs and in a JV context.
>» Directors must exercise their powers independently without subordinating their powers and discretions to the will,
instruction or direction of another — by delegation or otherwise — unless authorised to do so by the company either
expressly or under the company’s constitution.
Directors must not blindly follow instructions from their appointers or a third party — even if taking such step or voting
in the instructed way would not otherwise breach his or her duties to the company.
>» In particular, NEDs cannot re-agree with their appointer to vote in a certain manner irrespective of whether it promotes
the company’s success
But directors CAN:
>» take and rely upon advice — as long as the director exercises his or her own judgment in deciding whether or not to
follow the advice
» discuss issues with fellow directors — provided the director exercises his or her own judgment in making decisions
» take the interests of his or her nominator into account, particularly if authorised to do so (either by agreement entered
into by the company or by the company’s constitution)
Vv
Independence Balance Company Constitution
It can be a struggle to How can the benefit of the company be How far directors can consider and/or protect
fulfil duty of balanced with the obligation not to frustrate Government interests and in the articles is key.
A 2
independence if the lid SSIGKESer Shute Caen Steps can be taken to protect independence of NOD
appointer has Weighting of this balance can be affected e.g. (operational independence undertaking)
particular by the constitution and terms of
Conversely, the Articles can acknowledge the
views/interests appointment / tr ce
“partisan” position the NOD is in
Adirector’s primary loyalty is to the company and the company’s interests must ultimately prevail.
For Government-appointed NEDs, where a Minister is very clear on a desired outcome that is contrary to the company’s proposed course of action, the
director may need to resign or recuse him/herself to avoid taking an action which frustrates State policy (contrary to obligations under the Civil Service Code).
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Key duty: Duty to promote the success of the company UK Government
q (s.172 CA 2006)
Investments
A director of a company must act in a way he or she considers, in good faith,
would be most likely to promote the success of the company for the benefit of
its members as a whole...
... With regard (amongst other
matters) to:
4
likely long term
consequences
4
wy
impact on the community reputation for high standards
and the environment
of business conduct
fostering business
relationships
\
employees’ interests
need to act fairly
4
between members
V4
Having regard to these factors is not just a box ticking exercise
(i.e. paying them lip service is not enough)
There should be a degree of balance between
acting in the benefit of current and future members
.
Key point: you must act in the interests of all
shareholders, not just your appointer
*
If the company hits the “zone of insolvency”
there is also a duty to consider the interests of the
creditors — see next slide for further details
©
Directors owe a duty to
have regard to the
interests of creditors.
The duty is triggered
when the company is
insolvent, or where
insolvency is probable
or imminent.
If triggered, directors
must give appropriate
consideration to
creditors’ interests and
balance those interests
against those of other
stakeholders.
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When do directors need to take account of creditors? UK Government
Investments
The interests of
creditors become Directors should
paramount when an monitor the solvency
insolvent liquidation or of the company on an
administration on-going basis, using
becomes inevitable. up-to-date financial
This is also when information and by
insolvency law rules taking professional
apply, e.g. to avoid advice.
wrongful trading.
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Duty to exercise care and skill (s. 174 CA 2006) and to UK Government
not accept third party benefits (s. 176 CA 2006) Investments
A director must exercise reasonable care, skill and diligence.
This includes acting as a reasonably diligent person with:
+ the general knowledge, skill and experience that may reasonably be expected of any person carrying out the
functions of a director AND
* the general knowledge, skill and experience that the director actually has.
Non-executive directors — in theory they have the same responsibilities as executive directors. In reality they may
have less involvement or information.
Professionally-qualified directors — more is expected of a director with particular expertise in certain areas.
A director must not accept third party benefits conferred by reason of his being a director or his doing (or not
doing) anything as director.
. This is essentially a rule against accepting bribes (see also the section on the Bribery Act 2010, below)
. The duty is not infringed if the acceptance of the benefit cannot reasonably be determined to give rise to conflict
. Compliance with hospitality policies doesn’t necessarily cure a breach of this duty
. “Benefit” is widely construed
. The duty continues after a directorship ceases in relation to things done / omitted to be done before a person
ceased to be a director
. This is of particular sensitivity due to your position vis a vis HUG
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I Conflicts of interest — the three types (ss. 175, 177 and 182 288 vemmen
CA 2006) Investments
Duty to avoid conflicts of
interest (s. 175)
Where company is not a party
e.g. multiple directorships,
corporate opportunities.
Related duty: NOT to accept
benefits from third parties
Duty to declare interest
in proposed transaction
or arrangement (s.177)
Where transaction proposed and
company will or may be a party
Duty to declare interest
in existing transaction or
arrangement (s. 182)
Existing transaction where
company is a party
¥
Safe harbours:
1. The situation cannot
reasonably be regarded as
likely to give rise to a conflict
2. The matter has been
authorised by the board
yr
In either situation the director should disclose his/her
interest to the board
There is more information on conflicts of interest below —
including the potential difficulties of reconciling your other roles
and duties with your directors’ duties
©
Reconciling your directors’ duties and your obligations as
Civil Servant and / or employee
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UK Government
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As a UKGI NED you have multiple roles that do not always align_and may give rise to conflicts: your
role as a UKGI employee, as a member of the Civil Service, as a Government employee and as a
As a refresher, some of the other obligations that apply to you I k
appointed NED are set out below. Please discuss these points with UKGI Legal if you are unsure.
virtue of being a Government-
ED.
Civil Service Code >) ( UKGI Framework »
“must not seek to frustrate the policies, “same degree of confidentiality as
decisions ... of Government ... by that Minister might expect of his or her
unauthorised disclosure of any own Officials, in accordance with the
information to which they have had Civil Service Code” (5.11)
access as civil servants”
A XN y
The Official Secrets Acts ) (- Tort of Breach of Confidence )
A criminal offence of disclosing It is a tort (actionable in damages) to
information relating to international disclose confidential information
relations -— information relating to conveyed in confidence
BREXIT would probably qualify under
this heading
y Ne
y
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I Duty to Avoid Situational Conflicts (s.175 CA) id
UK Government
Investments
A director must avoid a situation in which he has, or can have, a direct or indirect
interest that conflicts, or possibly may conflict, with the interests of the company.
Public Sector Examples
Acting as official/agent for department which :
- determines policy on energy when you are a NED in green energy business
- has asupplier, customer or financing relationship with the company of which you
are a director
Private Sector Examples
y_\
Director or exec of another company which is in a partnership or JV with the company A
of which s/he is director KR
Director or exec of a third party which has a supplier, customer, competitor, distributor, Se)
financing or other material relationship with the company of which s/he is director xo)
+ Asituational conflict of interest can be authorised in articles, or by other directors or
Safeguards shareholders.
+ — Itis good practice to seek such authorisation of interests between appointer and
company in advance.
@)
Options
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How can these potential conflicts be squared with your duties to the company?
( »
Company Articles
(— >)
Terms of Appointment
(— >)
Shareholder Authorisation
Company Articles can contain
provisions for dealings with
situational conflicts, the duty
will not be infringed by
anything the directors do (e.g.
when to withhold or share
information) in accordance with
the provisions.
Ne S
Terms of appointment can
make clear that the Company
can have no expectation that
NED will share confidential
information received in
capacity as civil servant that
will assist the Company where
this would not otherwise be
available.
Ne S
The shareholders can
authorise something that would
otherwise be a breach of duty
— so if the state is a 100%
shareholder this can assist, but
not if insolvency is a possible
outcome, as the interests of
the creditors need to be
factored in.
Ne S
Safeguards
* Recusal may also be an option
+ Consider Ministerial Code and Employer obligations
* Where the conflict is extreme (i.e. SoS deciding whether to fund a business or not),
Information barriers are needed so that the individual is protected from the conflict/knowledge
@
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Duty to Avoid Transactional Conflicts (s.175 CA 2006) en
Investments
If a director is directly or indirectly interested in a proposed transaction or arrangement with
the company, he must declare the nature and extent of that interest to the other directors
Va
What kind of transactional conflicts are covered? What actions can be taken?
- Section 177 requires declaration to Board of any interest in a .
proposed transaction or arrangement with the company - Declaration must be made:
- Section 182 requires declarations in relation to existing transactions - ata meeting of the directors
- CA 2006 requires both the nature and the extent of the interest to be - _ by notice to the directors in accordance with
\___ declared the CA 2006
A director’s ability to count in quorum and vote at the meeting at which the transaction is considered will depend on
the company's articles. Therefore it is essential to also check the company's articles.
(— Case study: Transactional conflicts >)
Company A forms a specialist subsidiary, company B.
Under the articles of company B, company A is entitled to appoint 3/5 directors of Company B.
Company A appoints 3 of its own directors (out of 12) to the board of Company B.
Company B turns out to be highly successful and profitable, and Company A seeks to acquire it ey for its own benefit by buying out the remaining
shares in Company B (owned by the two eyes directors, who are the controlling minds of Company B with very valuable relevant expertise
and contacts relevant to company B’s successful business). The offer is refused.
Company A then sets up its own internal branch of the same business, in direct competition with Company B and engages in a series of
transactions intended to take as much business from company B as possible.
(Based on Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324). /)
What should the three nominee directors of Company B do:
+] In relation to the deliberations of the board of company A on setting up the rival businesses to Company A?
2) In relation to the deliberations of the board of Company B in response to that action?
®
Overarching principles to be aware of with respect to
your directors’ duties
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UK Government
Investments
* Act within powers and for
purpose for which
conferred
© Promote the success of
the company
* Exercise independent
judgment
* Exercise reasonable skill,
care and diligence
© Avoid conflicts of interest
* Do not accept benefits
from third parties
* Declare interests in
proposed transactions or
arrangements
Former directors:
person ceases to be a director
Duty to avoid
conflicts of interest
(S.175 CA 2006)
The below duties continue to apply even when a
This is intended to stop directors from resigning
simply to be able to take advantage of opportunities
available to them because of their role as directors
Ban on accepting
third party
benefits (S.176 CA
2006)
Practical tips
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UK Government
Investments
General / behavioural:
. Be aware of limitations on powers (e.g. any borrowing limits or other restrictions in the articles)
. Constructivel oe proposals (unitary board so necessary to do this if directors disagree with proposals — challenge is also
part of the NEDs role
. Make sure sufficient time is allocated to duties (Corporate Governance Code — principle H)
Specific:
. Ensure sound risk management and internal control systems exist
. Formal and transparent arrangements for dealing with auditors and corporate reporting and signing off accounts and reports
. Ensure public documents are appropriately verified
Breach of duty is
Decenee nich not established by The interests of
Sain the result but from shareholders
ner enceiillnen the process and should be
8 reasoning behind considered asa
be impugned
actions taken / not whole
taken
Directors should
also be aware of
and consider
other
stakeholders
Courts will be
looking to support
the sensible board
If in doubt about
aconflict, disclose
it and, if relevant,
gain approval
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I Summary in layman’s terms. Ministerial statement by A emnmen
Margaret Hodge of the Department for Trade (2007) Investments
Shortly after the publication of the Companies Act 2006, the Government provided a simple summary of the
principles underlying directors’ duties as follows:
1. Actin the company’s best interests, taking everything you think relevant into
account.
2. Obey the company’s constitution and decisions taken under it.
3. Be honest, and remember that the company’s property belongs to it and not to
you or to its shareholders.
4. Be diligent, careful and well informed about the company’s affairs. If you have
any special skills or experience, use them.
5. Make sure the company keeps records of your decisions.
6. Remember that you remain responsible for the work you give to others.
7. Avoid situations where your interests conflict with those of the company. When
in doubt disclose potential conflicts quickly.
8. cha earemial advice where necessary, particularly if the company is in financial
ifficulty.
Full statement at
ARCHIVED CONTENT] (nationalarchives.gov.uk)
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Corporate Governance
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The UK Corporate Governance Code — The Main Principles UK Government
Investments
The UK Corporate Governance Code (the “Code”) sets out standards of good practice for listed companies on board composition and development, remuneration,
shareholder relations, accountability and audit — and many unlisted companies use it as standard.
The most recent version of the Code was published in July 2018 and applies to accounting periods beginning on or after January 1, 2019. Its purpose is to “facilitate
effective, entrepreneurial and prudent management that can deliver the long-term success of the company”. The latest updates to the Code place greater
emphasis on relationships between companies and their stakeholders and workers. They also expand on the existing framework for issues such as Boar
independence and the role of the Remuneration Committee.
The first version of the Code was produced by the 1992 Cadbury Committee. Its paragraph 2.5 remains the classic definition of the context of the Code:
“Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.
The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in piace. The
fect, e
responsibilities of the board include setting the company’s strategic aims, providing the joaderehp to put them into ei
fal
? C “ s v a supervising the management of tl
business and reporting to shareholders on their stewardship. The board’s actions are subject to
ws, regulations and the shareholders in general meeting.”
The Code consists of five sections, which encompass 18 “Principles” of good governance and 41 more detailed “Provisions”. The five sections are:
Section 1: Board Leadership and Company Purpose;
Section 2: Division of Responsibilities; .
Section 3: Composition, Succession and Evaluation;
Section 4: Audit, Risk and Internal Control; and
Section 5: Remuneration.
Links:
UK Corporate Governance Code — July 2018
FRC explanations of the 2018 Code:
+ https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-qovernance-code
* https://www.frc.org.uk/news/july-201 8/a-uk-corporate-governance-code-that-is-fit-for-the
Highlights of the changes in the 2018 Code:
* https://www.dentons.com/en/insights/newsletters/201 8/october/23/uk-corporate-briefing/uk-corporate-briefing/the-2018-uk-corporate-qovernance-code
+ https://www.twobirds.com/en/news/articles/2018/uk/the-uk-corporate-qovernance-code-2018
FRC Guidance on Board Effectiveness — July 2018 (which replaces Good Practice Suggestions from the Higgs Report (known as the Higgs Guidance)).
UK Corporate Governance Code - April 2016 (applies to accounting periods beginning on or after 17 June 2016 and ending on or before 31 December 2018)
There is a summary of the roles of committees in the context of good governance in the appendix to this pack.
The UK Corporate Governance Code — The Main Principles (2)
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Sections 1 and 2 of the Code focus on the leadership and effectiveness of a company’s board. The Code places great importance on the clarity of the roles and
responsibilities of the board and its members, and on accountability and transparency.
Section 1: Board Leadership and Company Purpose
: A successful company is led by an effective and entrepreneurial board, whose role is to
promote the long-term sustainable success of the company, generating value for
shareholders and contributing to wider society.
. The board should establish the company’s purpose, values and strategy, and satisfy itself
that these and its culture are aligned. All directors must act with integrity, lead by example
and promote the desired culture.
. The board should ensure that the necessary resources are in place for the company to meet *
its objectives and measure performance against them. The board should also establish a
framework of prudent and effective controls, which enable risk to be assessed and managed.
: In order for the company to meet its responsibilities to shareholders and stakeholders, the
board should ensure effective engagement with, and encourage participation from, these «
parties.
: The board should ensure that workforce policies and practices are consistent with the
company’s values and support its long-term sustainable success. The workforce should be
able to raise any matters of concern.
Section 2: Division of Responsibilities
The chair leads the board and is responsible for its overall effectiveness in directing the company.
They should demonstrate objective judgement throughout their tenure and promote a culture of
openness and debate. In addition, the chair facilitates constructive board relations and the effective
contribution of all non-executive directors, and ensures that directors receive accurate, timely and
clear information.
The board should include an appropriate combination of executive and non-executive (and, in
particular, independent non-executive) directors, such that no one individual or small group of
individuals dominates the board’s decision-making. There should be a clear division of responsibilities
between the leadership of the board and the executive leadership of the company’s business.
Non-executive directors should have sufficient time to meet their board responsibilities. They should
provide constructive challenge, strategic guidance, offer specialist advice and hold management to
account.
The board, supported by the company secretary, should ensure that it has the policies, processes,
information, time and resources it needs in order to function effectively and efficiently.
The FRC’s Guidance on Board Effectiveness addresses questions raised by stakeholders on Sections 1 and 2 of the Code: https://www.frc.org.uk/getattachment/61232f60-
a338-471b-ba5a-bfed25219147/2018-Guidance-on-Board-Effectiveness-FINAL.PDF. The Guidance describes an effective board as one that “defines the company’s purpose and
then sets a strategy to deliver it, underpinned by the values and behaviours that shape its culture and the way it conducts its business”. It emphasises that challenge is as important
as teamwork and, as such, an effective board will not always be a comfortable place.
The FRC Guidance contains a section entitled the “Role of Non-Executive Directors” which sets out the relevant responsibilities as follow:
A non-executive director should, on appointment, devote time to a comprehensive, formal and tailored induction which should extend beyond the boardroom. Initiatives such as
partnering a non-executive director with an executive board member may speed up the process of him or her acquiring an understanding of the main areas of business activity,
especially areas involving significant risk. The director should expect to visit, and talk with, senior and middle managers in these areas.
76 Non-executive directors need to make sufficient time available to discharge their responsibilities effectively. The letter of appointment should state the minimum time that the non-
executive director will be required to spend on the company’s business, and seek the individual’s confirmation that he or she can devote that amount of time to the role, consistent
with other commitments. The letter should also indicate the possibility of additional time commitment when the company is undergoing a period of particularly increased activity,
such as an acquisition or takeover, or as a result of some major difficultly with one or more of its operations.
Non-executive directors should devote time to developing and refreshing their knowledge and skills, including those of communication, to ensure that they continue to make
a positive contribution to the board. Being well-informed about the company, and having a strong command of the issues relevant to the business, will generate the respect of the
other directors.
7 Non-executive directors should insist on receiving high-quality information sufficiently in advance so that there can be thorough consideration of the issues prior to, and informed
debate and challenge at, board meetings. High-quality information is that which is appropriate for making decisions on the issue at hand — it should be accurate, clear, comprehensive,
up-to-date and timely; contain a summary of the contents of any paper; and inform the director of what is expected of him or her on that issue.
78 Non-executive directors should take into account the views of shareholders and other stakeholders, because these views may provide different perspectives on the company and its
performance.
iy
The UK Corporate Governance Code - The Main Principles (3)
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The Guidance specifies that it is the role of NEDs to uphold high standards of integrity and probity and, critical to the performance of their role, they should ensure they are devoting adequate
time to the discharge of their responsibilities. Questions that it would be helpful for a NED to ask themselves at the outset are as follows:
Time commitment Information flow
Induction and training
On appointment, did you participate in a formal and tailored
induction and how comprehensive did you think it was?
If any improvements could be made, have you communicated
these to the chairman?
Is there an initiative to partner you with an executive board
member to assist you in acquiring an understanding of the main
areas of business activity, especially areas involving significant
risk?
Have you visited and talked with senior and middle managers in
those areas?
How much time do you devote to developing and refreshing
your knowledge and skills and how do you go about doing this?
How much time are you required to devote to your role and how
much time do you devote to it?
Are you required to commit additional time in certain
circumstances, such as an acquisition or takeover or asa result
of a major difficulty with operations?
Did you appreciate the time commitment involved prior to
taking on the role and did you assess the likelihood of you being
able to make a positive contribution in your role as a member of
the board?
Do you receive adequate high-quality information to enable a
thorough discussion of the issues at board meetings?
Are you informed of what is expected of you on a particular
issue? If not, have you communicated any deficiencies to the
chairman or SID?
How are the views of shareholders and other stakeholders
communicated to you and to what extent do you take these into
account in board discussions on a particular issue?
To what extent does the assessment of risk form part of the
decision making process? Is an expert's opinion obtained on all
matters where you consider it appropriate?
Is there ever any reluctance to involve the non-executive
directors in decision-making or are matters brought to the board
for sign off rather than debate?
Do you consider sufficient time is made available to debate
significant issues at board meetings?
Sections 3, 4 and 5 of the Code relate to how a board considers composition, succession, evaluation, audit, risk, internal control and remuneration, as set out below:
Section 3: Composition, Succession and Evaluation
. Appointments to the board should be subject to a formal, ji The
Section 4: Audit, Risk and Internal Control
board should establish formal and
rigorous and transparent procedure, and an effective succession
plan should be maintained for board and senior management.
Both appointments and succession plans should be based on
merit and objective criteria and, within this context, should
promote diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths.
The board and its committees should have a combination of
skills, experience and knowledge. Consideration should be given
to the length of service of the board as a whole and membership
regularly refreshed.
Annual evaluation of the board should consider its composition,
diversity and how effectively members work together to achieve
objectives. Individual evaluation should demonstrate whether
each director continues to contribute effectively.
transparent policies and procedures to ensure the
independence and effectiveness of internal and
external audit functions and satisfy itself on the
integrity of financial and narrative statements.
The board should present a fair, balanced and
understandable assessment of the company’s
position and prospects.
The board should establish procedures to manage
risk, oversee the internal control framework, and
determine the nature and extent of the principal
risks the company is willing to take in order to
achieve its long-term strategic objectives.
Section 5: Remuneration
. Remuneration policies and practices should be designed
to support strategy and promote long-term sustainable
success. Executive remuneration should be aligned to
company purpose and values, and be clearly linked to the
successful delivery of the company’s long-term strategy.
: A formal and transparent procedure for developing policy
on executive remuneration and determining director and
senior management remuneration should be established.
No director should be involved in deciding their own
remuneration outcome.
. Directors should exercise independent judgement and
discretion when authorising remuneration outcomes,
taking account of company and individual performance,
and wider circumstances.
©
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Refresher: (i) The Bribery Act; (ii) political donations; and (iii) Environmental a
and social responsibilities UK Government
Investments
The Bribery Act 2010 — criminal offence
° The Bribery Act introduces two key criminal offences: (i) bribery; and (ii) failing to prevent bribery (which is a Corporate offence).
Bribery goes beyond just public officials (i.e. BA 2010 is broader than the USA’s Foreign Corrupt Practices Act). The BA covers
offences committed by UK persons and residents wherever committed.
° You must have adequate procedures to protect against Bribery Act offences (e.g. additional checks where dealing with foreign
officials; including anti-corruption warranties in contracts and provide training to “at risk” employees.
. Always consider how a gift/hospitality might be perceived. Must be reasonable and proportionate (and in good faith).
. Other legal consequences of bribery may also include offences under the Proceeds of Crime Act (e.g. (i) money laundering; (ii)
benefit arising from criminal conduct; (iii) failure to report / tip off).
Political donations — civil offence
. Companies are greatly restricted from being able to make political donations (to parties, organisations, independents) or incur
political expenditure by s. 366 of the Companies Act. “Political expenditure is broadly defined as expenditure on “advertising or
other promotional or publicity material” or on “activities” intended to create public support for a party, organisation or independent
candidate or referendum.
. Due to your connection to HMG and your duties under the Civil Service Code you should be clear to recuse yourself from any
such decisions (including decisions on whether to seek authorisation for donations).
Environmental and social responsibilities — directors’ duty to act in the best interests of the company (s. 172 CA 2006)
. Although the majority of environmental reporting obligations are focused on listed companies (e.g. guidance provided by the
shareholder groups ABI and PIRC), you must consider the impact of decisions on the environment and community as part of your
duty to promote the success of the company as a whole under s.172 CA 2006 (see above).
. Some companies are choosing to have their reports of corporate social responsibility policy implementation audited (or verified)
by external third parties.
° Recent updates provided by external legal advisers have suggested that environmental pressure is likely to rise in the future and,
consequently, Boards should take care to consider their environmental responsibilities when faking decisions. In particular, any
investigation of such decisions will be taken in hindsight: i.e. they will apply a future (likely higher) standard.
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What can you ask for and what behaviours should you encourage to support fellow directors?
° Training — you should be offered training on induction and also refresher training
. Board mix — make sure there is an appropriate balance of skills, experience, independence and
knowledge of the company (UK CGC Principle K)
. Information and support (e.g. board packs) — the board should be supplied in a timely manner with
information to enable it to discharge its duties (UK CGC Principle F)
. Board minutes — shouldn't contain a verbatim account of all deliberations. On an important /
controversial transaction, however, may be useful evidence that different factors were considered.
. Best practice — be aware of relevant guidance (especially the UK CGC, FRC Board Effectiveness
2011, ICSA guidance)
. Evaluation — carry out internal and external evaluations of the board (UK CGC Principle L and
Provision 21)
. Re-election — all directors should be subject to annual re-election (UK CGC Provision 18)
° Terms of reference — make sure these are clear where there are committees and any board
reserved matters. If you are unclear on any ToRs, you should seek clarification
. Strategic report — should allow shareholders to assess S.172 CA 2006 compliance
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Key topics to be aware of: current and future issues
Key topics to be aware of: current and future issues
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Human rights
5-step guide published by the Equality and Human Rights
Commission (May 2016)
htt www.equalityhumanrights.com/sites/default/files/b
usiness_and_human rights web.pdf. The Board should
ensure the Company:
1. embeds the responsibility to respect human rights into
its culture, knowledge and practices
2. identifies and understands its salient or most severe
risks to human rights
3. systematically addresses risks identified above and
remedies where needed
4. engages with shareholders to inform its approach to
addressing human rights risks
5. reports on its salient or most severe human rights risks
and meets regulatory reporting requirements
“Look back” principle applies: an action brought in 2027 for
a breach in 2017 will use the standards of 2027, not 2017 —
which are likely to be higher. There is a growing trend
towards creating a duty to prevent human rights impacts.
Health and safety at Work Act 1974
Applies to individual directors and companies.
Directors are personally liable where the company is
found guilty of a health and safety offence or a breach
is committed with the “consent, connivance or
neglect” of the director.
Preventing prosecution and investigation by the
Health and Safety Executive (the “HSE”)
The number of senior managers prosecuted by the
HSE has increased in recent years. Boards should:
1. Ensure health and safety is taken seriously
throughout the company and that risks can be
reported to the highest level
2. Review policies on an ongoing basis
3. Consider running a mock investigation or mock
incident
4. Employees should be provided with relevant
information and training on the risks they face
and preventative measures they can take
Gender pay gap reporting
Employers with 250 or more employees are
required to publish calculations every year
showing the pay gap between their male
and female employees.
There are six statutory calculations to carry
out and the results must be published on
the employer’s website and a government
website on an annual basis. For further
information, see ACAS’ website
guidance: http://www.acas.org.uk/index.as
px?articleid=5768
The Modern Slavery Act 2015
Requires an annual human trafficking and slavery
statement. The Business and Human Rights Resource
Centre provides a registry of such statements to show
what is required -
http://www.modernslaveryregistry.org/.
Ergon associates also provide a helpful note on what
companies are reporting on and provide update emails
called the Modern Slavery Review
http://www.ergonassociates.net/component/content/arti
cle/41-selected-reports/287-what-are-companies-
reporting-on-modern-slavery
Board independence
The revised UK CGC retains the existing position
that at least half of the board, excluding the chair,
should be independent.
It is still at the board’s discretion to determine
whether a director is independent despite not
meeting all of the indications of independence.
There is however a new level of focus on director
independence and boards must give the issue
serious consideration.
Payment reporting
Regulations made under section 3 of the
Small Business, Enterprise and Employment
Act 2015 introduce a duty on the UK’s
largest companies and LLPs to broadly
report on a_ half-yearly basis on their
payment practices, policies and
performance for financial years beginning
on or after 6 April 2017. Find more
information here.
The Finance Act 2016
Requirement to publish UK tax strategy
online for entity/group turnover of more
than £200m or balance sheet of more
than £2bn.
Details of what to include are at:
https://www.gov.uk/guidance/large-
businesses-publish-your-tax-strategy
Key topics to be aware of: current and future issues (2)
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AML and PSC registers Cyber risk and cyber insurance
The Money Laundering, Terrorist Financing and
Transfer of Funds (Information on the Payer)
Regulations 2017 came into force in the UK on 10
January 2020. The purpose of the Directive is to
further strengthen transparency and counter-
terrorism initiatives. Find out more here and here.
Note that companies are now required to report
discrepancies in their PSC registers.
Corporates of all sizes are subject to
increasingly frequent and sophisticated
digital attacks with the aim of extracting
information or money. It is important
for directors to be aware of this and for
companies to have in place and to
stress-test incident response plans, and
to pre-engage with service providers.
Corporates can also take out cyber
insurance, with key features such as
first-party loss and third-party liability
cover, incident response services and
business interruption cover. There can
be significant complexity in the
handling of multiple regulators, crime
agencies and other stakeholders in the
context of a major data breach.
Audit, corporate
governance systems
reporting and corporate
The Government has announced the proposed
establishment of a new regulator, The Audit,
Reporting and Governance Authority (ARGA),
which will have the stated objective of protecting
and promoting the interests of investors, other
users of corporate reporting and the wider public
interest. See more here.
Reporting on directors’ duties compliance
Following a BEIS Select Committee Corporate
Governance Report, the government
introduced The Companies (Miscellaneous
Reporting) Regulations 2018, which apply in
relation to the financial years of companies
beginning on or after 1 January 2019.
These Regulations introduce a requirement
for large companies to explain how their
directors’ section 172 duties were discharged.
The Regulations also introduce other
reporting requirements, such as for large
companies to include statement as part of
their directors’ report summarising how the
directors have engaged with employees, how
they have had regard to employee interests
and the effect of that regard, including on the
principal decisions taken by the company in
that financial year.
Activist Shareholders
There has been a notable trend in recent years of shareholders of public companies pushing back
more strongly at AGMs against remuneration policies or director appointments which are
perceived to be detrimental to shareholder value. Many high-profile FTSE 100 companies
have received large numbers of votes opposing their remuneration policies at their latest AGMs.
Similarly, remuneration reports are frequently subject to challenge across the FTSE 100 and 250.
Director appointments are often challenged due to concerns around over-boarding,
independence, remuneration or audit.
Climate-related financial disclosures
The FSB task force released its fifth Status Report
providing an overview of current disclosure
practices in September 2022.
Also see their advice regarding climate-related
erformance disclosures and reporting / net zero
disclosures.
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Helpful Resources
Helpful resources
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6
Companies House
The Corporate Governance
Code
Norton Rose Corporate
Governance Portal
Reporting on stakeholders,
decisions and Section 172
BEIS FAQ on the Companies
(Miscellaneous Reporting)
Regulations 2018
Guidance on human rights and
your company’s obligations
UK tax strategy publication
requirements
Gender pay gap reporting
guidance
Register of modern sla
reports
The Companies Act 2006
The Bribery Act 2010
Resources for NEDs appointed
to boards of public bodies (e.g.
Advisory Boards of NDPBs)
Allows you to check web filings for your company
Provides the latest version of the CGC to check the exact wording of the
requirements. See also the Norton Rose microsite (below) for analysis
Provides helpful analysis of important trends and obligations, including
diversity, executive pay, risk management, upcoming briefings and essential
news
Contains the Financial Reporting Council’s report on reporting on
stakeholders, decisions and Section 172.
Provides an overview of the corporate governance reporting requirements set
out in that Act.
Provides a five step guide boards should follow to satisfy themselves that their
companies identify, mitigate and report on the human rights impacts of their
activities
Government guidance on the new reporting obligation for companies to
publish their UK tax strategy
Provides guidance on how you can meet your company’s obligations to report
on gender pay gaps, including the calculations and publishing requirements.
Provides an index of companies’ modern slavery reports: helpful if your
company is preparing one and you would like to check recent practice
Includes the majority of legislation governing ALBs which qualify as Companies
Act companies, including your Companies Act directors’ duties.
Sets out the primary legislation dealing with the criminal offences relating to
bribery.
NEDs of public bodies are bound by the principles and codes of conduct set
out in these documents.
https://beta.companieshouse.gov.ul
UK Corporate Governance Code
http://www. nortonrosefulbright.com/knowledge/technical-
resources/the-uk-corporate-governance-portal/
https://www. fre.org.uk/getattachment/d0470ab4-f134-4584-
9f54-a48a8bfdc62d/FRC-LAB-Stakeholders-Report-s172.pdf
BEIS FAQs on the Companies (Miscellaneous Reporting)
Regulations 2018
https://www.equalityhumanrights.com/sites/default/files/busi
ness and human rights web.pdf
https://www.gov.uk/guidance/large-businesses-publish-your-
tax-strategy
http://www.acas.org.uk/index.aspx?articleid=5768
http://www.modernslaveryregistry.o1
http://www. legislation.gov.uk/ukpga/2006/46/contents
cgiuki-directors-general-duties-under-the-companies-act-
2006(1).pdf
http:
www. legislation.gov.uk/ukpga/2010/23/contents
The Seven Principles of Public Life - GOV.UK (www.gov.uk)
Code of conduct for board members of public bodies - GOV.UK
‘www.gov.uk]
12 Principles of Governance for all Public Body NEDs - GOV.UK
Www.gov.Uk)
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Liability and protections
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Your liability and protections — what the company can and can’t do
.
Breach of a director's duty gives rise to a range of potential remedies, including damages, restitution of property and accounting for profits made.
The remedy for a breach of the duty of case and skill would be damages.
Failure to disclose an interest in an existing transaction or arrangement with the company also carries the risk of a criminal fine.
Directors are trustees of company property and will be liable if they knowingly participate in a misapplication of company property or ought to have
known of the disapplication.
Indemnity
The Companies Act 2006 allows a company to indemnify its
directors against liability to third parties for negligence, default,
breach of duty or breach of trust.
Companies CANNOT indemnify directors against:
= Actions brought by the company itself.
= Fines imposed in criminal proceedings.
= Costs of defending criminal proceedings, where judgment
is given against the director.
= Penalties imposed by regulatory bodies.
= Liability in connection with an application for relief, which
the court refuses to grant.
NOTE UKGI NEDs receive indemnities from the Home Department
of the relevant company, which are effective from the date of the
NED’s appointment. You may also receive an indemnity from your
company - this will depend on the company in question.
= A template of this indemnity is available on the shared
drive at: Project Support Info Store - A. Indemnity letter
templates - All (sharepoint.com)
D&O insurance
Companies are permitted to take out Directors’ and Officers’
liability insurance to cover directors for liability arising out of
their role as directors.
D&O cover protects a director’s personal assets if claims are
made against him.
Criminal penalties and sanctions are uninsurable but legal or
investigative costs incurred in defending a prosecution may be
covered.
Although you will be covered by an indemnity from the Home
Department of your company, you may also benefit from D&O
insurance, which may require drafting adjustments to your
indemnity letter.
Wivvoun D&O policies and Home department indemnities are typically broad, be sure to check the specific terms of your
indemnity and ensure that you always act within your delegated powers to reduce the risk of losing your cover.
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Appendix: Corporate Governance — Roles of committees and key
individuals (prepared by UKGI Legal and Linklaters)
Composition
Roles of committees — governance (best practice for ListedCos)
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Meetings
Board
Remuneration
Committee
Audit
Committee
Nomination
Committee
> Executive Directors
> NEDs
> At least half the board
should be independent
NEDs:
> SID
> Directors are collectively responsible for the long-
term success of the company.
> Responsible for matters specified on the board's
Schedule of Reserved Matters, e.g. disposals,
acquisitions and investment matters.
> Determines significant risks the company is
willing to take to achieve its objectives.
> Corporate Governance Code ("UK CGC" or “CG Code”)
requires board to meet sufficiently regularly to be able to
discharge its duties effectively.
> Procedure for calling/holding board meetings governed by
the Articles — no specific Companies Act 2006 requirements.
> The company’s annual report should state how the board
operates and the decisions reserved to it.
> At least 3 members.
> UKGI Guidance: UKGI
NEDs can be members, but
should not chair. If possible,
avoid membership where
Govt is not sole SH.
>No director should decide
his own compensation.
> Sets remuneration for executive directors and
Chairman (NED remuneration set by
board/shareholders/CEO, Managing Director).
> Recommends and monitors remuneration of
senior management.
> No specific Companies Act 2006 or CG Code provisions as
to procedure.
> Frequency/conduct of meetings determined by committee
chairman (although investor bodies recommend at least 2 per
year).
> Procedure for calling/holding committee meetings governed
by the Articles.
> At least 3 members.
entirely composed of
independent NEDs
> At least 1 member to be
competent in accounting or
audit/members as a whole
must have sectoral
competence
> UKGI Guidance: UKGI
NEDs can be members, but
should not chair,
> Monitors integrity of company’s financial
statements
> Reviews financial controls and audits.
> Makes recommendations re auditor appointment.
> Reviews arrangements for staff to raise concerns
about possible financial impropriety etc.
> No specific Companies Act 2006 or CG Code provisions as
to procedure.
> Frequency/conduct of meetings determined by committee
chairman (although investor bodies recommend at least 3 per
year).
> Procedure for calling/holding meetings governed by the
Articles
> Majority of independent
NEDs.
> Chairman should be board
Chairman (unless dealing
with chairmanship) or an
independent NED.
> Leads process for board appointments.
> Evaluates skills, experience, independence and
knowledge required for an appointment.
> Conducts searches based on objective criteria
and with regard to diversity and gender in
particular.
> No specific Companies Act 2006 or CG Code provisions as
to procedure.
> Frequency/conduct of meetings determined by committee
chairman (although investor bodies recommend meetings to
deal with re-elections/specific appointments).
> Procedure for calling /holding meetings governed by the
Articles.
—
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Key
responsibilities
Other
responsibilities
Reporting line
General
Roles of the Chairman and CEO
Chairman
Governance-based:
> Leadership of the board.
> Ensuring that the board as a whole plays a full and constructive
part in determining and developing strategy and commercial
objectives.
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CEO / Managing Director
Operational / strategy-based:
> Running the business.
> Proposing and developing strategy and commercial objectives.
> Ensuring board decisions are implemented at operational level
> Setting the agenda for board meetings (in consultation with the
CEO).
> Proposing a Schedule of Reserved Matters and terms of
reference for committees (in consultation with the CEO).
> Ensuring accurate and timely information about performance,
challenges and reserved matters provided to the board.
> Ensuring effective communication with shareholders.
> Arranging informal meetings of NEDs without executive directors.
> Arranging tailored inductions for each new director, plus on-going
training.
> Ensuring external evaluation of the board at least every 3 years.
> Providing input to the agenda for board meetings.
> Providing input to the Schedule of Reserved Matters and terms of
reference for committees.
> Maintaining a dialogue with the Chairman on important strategic
issues.
> Alerting the Chairman to any forthcoming complex, contentious or
sensitive issues, of which the Chairman might not otherwise be aware.
> Ensuring the executive team give appropriate priority to providing
reports to board.
> Ensuring effective communication with shareholders (together with the
Chairman and the rest of the board).
> Arranging appropriate on-going training for executive team as required.
> Reports to the board.
> Reports to the Chairman (acting on behalf of the board).
> There should be a clear division of responsibilities between the Chairman and the CEO, which is agreed and set out in writing.
> Some matters require input from both the Chairman and the CEO, e.g. setting the agenda for board meetings.
> Both the Chairman and the CEO can use the Company Secretary to execute their duties, and both should allocate sufficient time to their roles
to be able to discharge their duties effectively.
@