Corporate Governance - Pension Fund update

07/04/2010

The National Association of Pension Funds (the "NAPF") has recently recommended a small number of amendments to its corporate governance policy. It is intended that these amendments should apply during the 2010 AGM voting season.

The proposed amendments include the following:

• Short -notice general meetings - a company wishing to call a short notice meeting should only do so where the short notice would be to the advantage of shareholders as a whole. This would obviously only be the case in limited circumstances and such circumstances should be detailed when tabling the relevant resolution. If the proposals being put to the meeting are not time-sensitive companies should not use the shorter notice period (in other words they should give twenty one days clear notice rather than fourteen).
• Where justification has not adequately been provided for the need for the short notice, shareholders should consider voting against the proposed resolutions. This should also be the approach where the proposals being made are complicated and as a result shareholders require more time to consider their voting decision.
• Director independence - There has been some uncertainty around the independence of a director who has been nominated by a dissenting significant shareholder, but nonetheless is not associated with that shareholder. The onus should be on the dissenting nominee to demonstrate his independence and it is important that independence criteria are applied consistently across all the directors.
• Directors suitability - Shareholders and boards should consider the history of a director when deciding whether to re-elect the director in question.. Particular diligence is required whether a director has had significant involvement (whether as an executive or non-executive director) in material failures of governance, fiduciary responsibilities or stewardship at a company. The Board should bear in mind that shareholders rely heavily on the board's recommendation and hence re-election proposals should take into account not just the individual's performance on the board, but also any issues over and above the board in question. In other words, shareholders can vote against the re-election of a particular director where there is knowledge of poor stewardship at this or any other company.
• Termination payments - Companies are encouraged to take steps to limit contractual payments to base pay and benefits and to provide a full explanation of payments in excess of that amount, including what steps have been taken to mitigate the cost to the company. Shareholders may vote against the resolution to approve the remuneration report and in cases of extreme abuse, the remuneration committee's chairman.

The NAPF plans to re-issue more wide-ranging changes to the policy in the autumn of 2010.

Contact: ritapadam@city-law.net

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