Business Briefing A CAPITA COMPANY SECRETARIAL SERVICES MAGAZINE - - PDF document

Business Briefjng | 1

Business Briefing

A CAPITA COMPANY SECRETARIAL SERVICES MAGAZINE JULY 2013

Inside this issue

4

Corporate Social Responsibility – Non fjnancial reporting

7

The Glass Ceiling - still not yielding

11

Directors and Offjcers Liability Insurance – Dispelling the Myths

14

First fjne for breach

• f the Model Code – a

lesson for us all?

16 AND FINALLY

A quarterly publication from Capita Company Secretarial Services keeping you updated

• n current industry issues
• QCA publishes revised

Corporate Governance Code

• New ICSA guidance note
• n cyber risk
• Model Articles amended

by Mental Health Discrimination Act

Share registration and associated services are provided by Capita Registrars Limited. Registered in England No. 2605568. Regulated services are provided by Capita IRG Trustees Limited, which is authorised and regulated by the Financial Services Authority (FSA Register number 184113). Registered in England No. 2729260.

Supporting you throughout the IPO process

To learn more about how we can help you throughout this process, please contact:

Georgina Morgan, Director, Capita Company Secretarial Services on +44 (0)7736 385 663

• r email georgina.morgan@capita.co.uk

Your IPO is an exciting and challenging time. To help you with these challenges Capita‘s collective experience in Company Secretarial Services, Accounting, Share Registration and Investor Relations enable us to provide you with proactive support before, during and after your IPO. Our areas of expertise means we can:

• Prepare your company to join

AIM or the LSE main market

• Offer you a wide breadth of

IPO services in a joined up and cohesive manner

• Help you with IPO project

management and delivery

• Work alongside your existing

team and advisers to ensure your new regulatory obligations are met

• Ensure you meet best practice

and investor expectations

Business Briefjng | 3 INSIDE THIS ISSUE

Mark Cleland takes a look at what we have to

• ffer readers in

the latest issue of Business Briefing

W

elcome to the summer edition of Business Briefjng. In this issue we look at the European Commission’s new directive on non-fjnancial reporting, including the key Corporate Social Responsibility, the key requirements and the Commission’s intentions behind these. With the number of women being appointed to board level slowing down, Phil Kershaw looks at the latest fjgures and the progress being made to encourage greater board diversity, according to the Davies and Cranfjeld reports. K & L Gates will be examining the Directors’ and Offjcers’ liability insurance policies and shedding light on the cover provided by them, the benefjts they offer and some of the key issues that directors and offjcers need to be aware of. After recent events, Tracey Brady will be reminding us of the importance of understanding and complying with the Model Code on directors’ dealings. We look at the necessary policies and procedures that all listed companies need to be aware of.

We hope you fjnd this edition informative and welcome your comments and queries - please email: bus.brief@capitaregistrars.com

We are pleased to be able to confjrm that this publication is CPD accredited so counts towards your annual professional learning objectives. Please email capitatraining@ capita.co.uk if you would like to be sent a certifjcate.

Business Briefing

Mark Cleland, Director of Corporate Services, Capita Registrars

4 | Business Briefjng CORPORATE SOCIAL RESPONSIBILTY

From its investigations and research, the Commission concluded that only a limited number

• f EU companies

regularly disclose non-fjnancial information

M

• st organisations are now familiar

with reporting against non-fjnancial measures of performance and providing narrative descriptions of their key activities and developments alongside fjnancial reporting. Reporting specifjcally on matters of Corporate Social Responsibility (“CSR”) is perhaps, however, less familiar to many organisations, with the exception of large, high profjle

• rganisations, or those with specifjc social or

environmental remits. This is something that the European Commission would like to see change in the not too distant future. The Commission has published a new draft Directive on enhancing the transparency

• f certain large companies on social and

environmental matters, which will amend the Fourth and Seventh Accounting Directives

• n Annual and Consolidated Accounts. In this

article we will consider the key requirements

• f this Directive and the Commission’s

intentions behind these. A Directive shaped over 15 years The background to the Directive is complex, having been shaped by numerous EU driven consultations, stakeholder workshops and recommendations in this area over the past 15 years. Most recently, these include its consultation on ways to improve non-fjnancial disclosures in 2010, its consultation on the EU Corporate Governance Framework in 2011, and its communication in October 2011 regarding a renewed strategy for 2011 – 2014 for Corporate Social Responsibility. From its investigations and research, the Commission concluded that only a limited number of EU companies regularly disclose non-fjnancial information, and that the quality

• f such information varied considerably.

In February this year, in response to the recommendations of the Commission, the European Parliament adopted two resolutions

• n CSR as follows:

1. CSR: Accountable, transparent and responsible business behaviour and sustainable growth 2. CSR: Promoting society’s interests and a route to sustainable and inclusive recovery The publication of the draft Directive followed in April 2013. Increased transparency through two new requirements The Commission’s intention is that the implementation of the Directive increases EU companies’ transparency and performance on environmental and social matters which will, in turn, contribute effectively to long term economic growth and employment within Europe.

The focus on non- fjnancial reporting has increased steadily in recent years.

Corporate Social Responsibility – Non-fjnancial reporting

Business Briefjng | 5

From this statement, the message is clear, that good CSR practice (and disclosure of this) is no longer seen as a ‘nice to have’ , but as necessary for the

• ptimum growth

and development of European businesses and markets.

The Directive will introduce two new specifjc requirements: 1. Disclosure by certain large companies and groups on policies, risks and results regarding environmental, social and employee related aspects, respect for human rights, anti-corruption and bribery issues and diversity on boards of directors. 2. Disclosure by large listed companies

• n their diversity policy, covering age,

gender, geographical diversity and educational and professional background, setting out the objectives to the policy, its implementation and the results obtained. Where they do not have a diversity policy they will be required to explain why not. A large company is defjned by the Commission as having more than 500 employees, and balance sheet total of €20m or net turnover of more than €40m. Anticipated benefjts for companies The Commission is resolute that the proposals will bring many benefjts for European

• rganisations, investors and the wider
• economy. At the recent Global Reporting

Initiative 2013 Conference, Michael Barnier, European Commissioner for Internal Markets and Services reaffjrmed the Commission’s commitment to bring in this directive, stating: “The EU proposal on non-fjnancial corporate reporting can be part of Europe’s economic recovery, as well as a source of inspiration for other jurisdictions. Experience shows that transparent companies have lower fjnancing costs, attract and retain talented employees, and are more successful in the long term.” The proposals also stress the importance of CSR being considered at board level, in order that this becomes an integral part of an organi- sation’s strategy. If we look to the wording of the resolutions adopted by the Commission in February, there can be no doubt that the Commission wants to shed CSR’s reputation as a costly activity and replace this with CSR as a commercial tool that can stimulate growth and even redress some of the negative sentiment resulting from the fjnancial crisis. Some of the key assertions made within the resolutions are that transparency of CSR practices will:

• Enable investors to contribute to a more

effjcient allocation of capital and better achieve longer term investment goals

• Make enterprises more accountable and

contribute to higher levels of citizen trust in business

• Strengthen the link between

competitiveness and CSR

• Forge a link between commercial

strategies and social environment in which businesses operate It is worth noting that these competitive and commercial benefjts of sustainable operations

• utlined above are also highlighted in the

Commission’s recently published Green Paper

• n Long Term Financing of the European

Economy, which similarly links transparency through non-fjnancial reporting with business success. The expanding scope of CSR Interestingly, the European Parliament’s communications refer to certain corporate practices that might not traditionally be thought of as falling within the CSR remit, thus widening the scope of responsibility. Executive salaries and bonuses is one such area, with the Parliament clearly stating that ‘excessive’ executive salaries and bonuses are not compatible with socially responsible

• behaviour. Another is tax policies – its position

is that there is no room for tax avoidance

• r exploiting tax havens within a socially

responsible approach. This development will no doubt open up interesting debates around the tax planning arrangements of many multi- national groups and the disclosure of these arrangements.

CORPORATE SOCIAL RESPONSIBILTY

6 | Business Briefjng CORPORATE SOCIAL RESPONSIBILTY

Who is responsible for CSR? In recent years, there has been much debate around whether adherence to, and disclosure of, CSR principles should become mandatory or remain voluntary. The Commission’s proposals aim to reduce the dichotomy between mandated and voluntary CSR reporting, by advocating a ‘report and explain approach’ for larger companies. While the EU has stressed that it recognises that a one size fjts all approach would not be appropriate, and believes that CSR policies should remain predominantly voluntary, it believes that building certain reporting requirements into a regulatory framework will provide the necessary impetus and incentive for businesses to promote CSR. Therefore, EU companies will not be obliged to adopt certain CSR provisions (even larger companies), but they will be required to provide an explanation for their decision making in this area. The proposals address the continuing debate over whether CSR should lie with public bodies or corporations, stressing the fact that this must be a matter of joint responsibility. While the proposals are clear that corporations cannot, and should not, take over public authorities’ responsibility for promoting, implementing, monitoring social and environmental standards, it also recognises that CSR at a corporate level can play a vital part in restoring lost confjdence in market, and directly contribute market recovery, for example through providing jobs and local investment. The proposals also stress the importance of CSR being considered at board level, in order that this becomes an integral part of an organisation’s strategy. However, the need for governments to provide organisations with support in this area is also recognised, as member states are urged to provide ‘concrete information on education and training in CSR’. Small and Medium Sized Entities While the new Directive will only require larger companies to report on CSR, smaller and medium sized companies are by no means excluded from the European Parliament’s thinking – unsurprising given that SMEs account for 90% of businesses within the EU. The message is one of caution, however, rather than recommending immediate or drastic action in relation to their CSR strategies. An examination of the existing practices and reporting habits of SMEs is called for, as it is recognised that many already undertake CSR activities without being aware of this fact. This could be because they are not familiar with the terminology, or simply because good CSR is so inherent to their activities and strategy that they are intangible to them. Practicalities leading up to compliance from 2017 The new Directive set minimum requirements for larger companies, but the Commission has clearly stated that companies will be able to rely on existing national, EU based and international frameworks for the disclosure statement, and they will be required to disclose which framework it is that they have relied upon. Large UK companies are already accustomed to providing non-fjnancial information, particularly within their annual Business Review. Furthermore, the UK has recently published its own updated narrative reporting requirements which will take effect in October of this year. While these have many similarities with the Commission’s proposals, the UK requirements are less onerous in comparison and the additional EU requirements would need to be incorporated into these if adopted. CSR disclosures are typically included in an organisation’s governance statement within its annual report, however, some companies do choose to publish stand alone governance or CSR reports. Those that do (within the same fjnancial year) will not be required to duplicate this information in the annual

• report. Furthermore, group structures will be able to fulfjl their

reporting obligations at group level, rather than individual subsidiaries having to report separately. The Directive is still in draft form at present and will need to be agreed at EU level before being adopted. It is unlikely that

• rganisations will be required to make these disclosures before

2017 and there is also the possibility that it will grant non-listed companies an additional transitional year. Further information: The full text of the Directive, the European Parliament resolutions, and a FAQ document published by the Commission can be found at: http://ec.europa.eu/internal_market/ accounting/non-fjnancial_reporting/index_en.htm ABOUT THE AUTHOR

Georgina Morgan, Director Capita Company Secretarial Services Tel: +44 (0)7736 385 663 or email georgina.morgan@capita.co.uk

Business Briefjng | 7 GENDER DIVERSITY

P

rogress in appointing more women to board-level roles at top UK fjrms has slowed. The Cranfjeld School of Management said that in the fjrst half of 2012 44% of board level appointments at FTSE 100 fjrms went to women, but that slowed to 26% in the second half. Are companies becoming complacent or is the glass ceiling even tougher than everyone thought? In its fjrst report published this month, the Women’s Business Council, an independent working group set up by the coalition in 2012, called for a sea change in employers’ attitudes to ensure women fulfjl their potential in the workplace. Britain’s “macho” workplace culture and resistance to fmexible working were cited as part of the problem blocking women from senior management positions. The pipeline of talented senior managers is cited as key to delivering gender equality in the boardroom. There have been some high profjle changes

• n the Boards of FTSE 100 companies with

two women CEOs stepping down over recent months at Pearson and Anglo American. This is perhaps the normal churn of board changes at the highest level and indeed non-executive director board appointments, for good corporate governance reasons, are not forever. The important thing is that the overall trend should remain on an upward trajectory to achieve the Lord Davies recommendations of 25% women to be on boards by 2015. The Business Secretary, Vince Cable, said he was still not inclined to introduce compulsory targets (favoured by the EU): “Government continues to believe that a voluntary led approach is the best way forward. But today’s report also serves as a timely reminder to business that quotas are still a real possibility if we do not meet the target.” The co-author

• f the Cranfjeld report, Professor Susan

Vinnicombe, said the gender balance at the top bore little relation to the situation elsewhere in companies. “Despite women dominating the fjelds of human resources, law and marketing, this is not refmected at executive director level, where the positions are still going to men, who are being promoted internally over experienced female candidates.” Among leading companies, Burberry stood

• ut as the only leading company with two

women executive directors, giving it three female directors out of eight. Diageo was next, with four women directors out of 11. In joint third place were Capita, GlaxoSmithKline and Standard Life, each with a third of their boards being female. Board diversity – progress The Davies Review steering board has published its 2013 report on the progress being made in implementing the recommendations contained in the 2011 Davies Report on women

• n boards. Cranfjeld School of Management

has also published its 2013 report on women

• n boards, refmecting on progress during 2012.

Update on gender diversity in the boardroom

The Glass Ceiling

• still not yielding

8 | Business Briefjng

Both reports note that, two years after the Davies Review, there are more women in the boardrooms of the UK’s top companies. As of 1 March 2013, within the FTSE 100:

• women account for 17.3% of all

directorships;

• women accounted for 34% of all board

appointments in 2012 (45 out of 134 appointments);

• there are currently 94 boards with female

representation; and

• there are now 192 women directors on FTSE

100 boards, out of a total of 1,110. In the FTSE 250 the fjgures show:

• women account for 13.2% of directorships
• women have accounted for 26% of board

appointments

• there are currently 183 boards with female

representation

• for the second year running, all-male boards

are in the minority at 26.8%. Lord Davies said: “The onus was fjrmly placed

• n business to bring about this necessary

change, and I am pleased to say that evidence clearly shows that they have, and are, stepping up and responding…If we are to fend off the prospect of quotas and regulation then business cannot rest on their laurels and think the job is done”. Business Secretary Vince Cable said: “they (women) bring fresh perspectives and ideas, talent and broader experience which leads to better decision-

• making. This is not just about equality at

the top of our companies. It is about good business sense.” How can the momentum be refreshed? Lord Davies has talked about the “Executive Pipeline Challenge”. Whilst progress has been good overall the current percentages mean that there are just 18 female FTSE 100 executive directors compared to 292 males, and just 32 female FTSE 250 executive directors compared to 558 males. The fjgures are clear – there is an issue around executive director appointments and the talent pipeline. On the outside it sounds quite simple; organisations need to attract the best people at the start of their careers, spot and nurture their talent and ensure that they have good development routes, offering challenges, variety, role models, mentoring and career progression in a supportive environment. Succession plans help to ensure that senior management pools are well developed and that the company is well equipped to handle any unforeseen events. Of course this takes time and we could not expect to see well developed pipelines overnight. Nevertheless, companies really need to think about what they are doing to develop talent across their organisations to ensure that they are well equipped for the future. BIS are keen to keep the pressure on and Secretary of State Vince Cable wrote to all- male FTSE 100 boards in January asking them what steps they were taking to increase the diversity in their boardrooms. In April he wrote to the remaining all-male boards in the FTSE 250 with the same request. Can we learn anything from others? In Europe many countries have quotas that have operated to increase gender diversity numbers, though the evidence is

2004 9.4%

2008 11.7%

2009 12.2%

2010 12.5%

2011 15%

2012 17.4% 2013 17.3%

1999 - 2013 FTSE 100 % of woman directors Source: Professional Boards Forum BoardWatch. Data kindly provided by BoardEx and The Female FTSE Board Report. GENDER DIVERSITY

Vince Cable wrote to all-male FTSE 100 boards in January asking them what steps they were taking to increase the diversity in their boardrooms

Business Briefjng | 9

not conclusive that quotas backed by sanctions are completely successful. Below is a summary of the use made of quotas by Member States in relation to gender diversity.

GENDER DIVERSITY Country Date adopted Requirement % of women on boards – Jan 2012 Sanctions Comments Belgium July 2011 33% of under represented sex 11% Yes – fjnancial impact

• n directors

Listed and state- companies France January 2011 20% of each sex by 2014, 40% by 2017 22% Yes – nullifjcation of board elections & suspension of director benefjts Listed and non-listed companies with more than 500 employees and over 50million Euro revenue Italy July 2011 33% of each sex by 2015 6% Yes – warnings, fjnes & forfeiture of positions

• f elected board

members Listed and state-owned companies The Netherlands June 2011 30% of each sex 19% No – comply or explain Large private companies & listed public companies Spain March 2007 40% of each sex by 2015 11% No – but may not be awarded public contracts Large companies only Germany No quota yet 30% women on board suggested 16% Suggested – contesting appointments to board Debating fmexi-quota plan Denmark 1990 Equal representation 16% No State-owned companies

• nly

Finland 1986 Equal representation 27% No State-owned companies

• nly

Greece 2000 33% 7% Yes – nullifjcation of appointments State-owned companies

• nly

Austria March 2011 25% women by 2013 35% by 2018 11% No State-owned companies

• nly

Slovenia 2004 40% of each sex 15% No State-owned companies

• nly

UK 2012 25% women by 2015 16% No – comply or explain Diversity to be explained and voluntary target

10 | Business Briefjng GENDER DIVERSITY

Creating a genuine pipeline

• f intelligent,

talented and experienced women is the key

Public sector - something to offer? Listed companies might consider looking at how other sectors have achieved a better pipeline of women in senior roles. Bernadette Barber, in her March 2013 article “Framing the future” in Governance & Compliance, makes the case that public sector organisations have been better at achieving board-level diversity than the private sector. A 2009 Government report (“International Increasing Diversity on Public and Private Sector Boards” Cranfjeld 2009 Dr R Sealy, E Dolder and Prof S Vinnicombe) found that public sector boards had an average of 33.3% female members in 2008, compared to 11.7% representation of women achieved on FTSE 100 boards in the same year. The report identifjed working practices in the public sector, with less emphasis on a “long hours” culture and emphasis on the possibility for part-time or fmexible working arrangements, as a key factor in how the public sector does much better than the private sector in improving numbers of women appointed to board-level roles. Creating a genuine pipeline of intelligent, talented and experienced women is the key to increasing the number of women who become directors, while avoiding claims of

• tokenism. As mentioned earlier, this argument

is supported by the Women’s Business Council who call on companies to improve procedures for encouraging women to remain in work, including “keep in touch” schemes for women

• n maternity leave, mentoring networks and

regular work experience for those on career breaks. Further action The Davies and Cranfjeld reports show that progress in implementing some of the specifjc recommendations in the original Davies Report remains slow. Only 39 FTSE 100 companies have set targets for the number of women they aim to have on their board by 2013 and 2015. The 2013 Davies progress report recommends that:

• FTSE 100 chairmen review their targets for

2015 and companies which have not yet set targets do so;

• FTSE 250 companies set targets for the

number of women they aim to have on their board by 2015, with a minimum 25% target to be aimed for; and

• By the end of September 2013, FTSE 350

Chief Executives set out the percentage

• f women they aim to have in senior

management by 2015.

• Executive committee members should be

released to serve on the boards of other companies as part of the overall executive development plan.

• Companies to conduct a pilot for advertising

director opportunities to test the benefjts and pitfalls of advertising. EU Directive – progress The proposal for a draft Directive to address the issue of gender imbalance on boards and create quotas continues to make progress in the European Parliament. Following the support received from the Economic and Social Committee, the Internal Market and Consumer Protection Committee issued a draft opinion on 11 April 2013. Once this advisory committee has voted on any amendments at the end of May, the next stage will be the fjrst reading (or single reading) in the European Parliament – currently planned for 19 November 2013. The Davies progress report is available on the BIS pages of the gov.uk website and the Cranfjeld annual report is available on the Cranfjeld School of Management website. ABOUT THE AUTHOR Phil Kershaw, Senior Manager, Industry & New Products, Capita Registrars

Business Briefjng | 11 INSURANCE

M

any companies purchase Directors and Offjcers liability insurance for the benefjt

• f the companies’ directors and offjcers.

However, the extent of cover provided by the D&O policy and how it operates to the benefjt of the directors and offjcers is not always fully understood. Much emphasis is often placed on the amount

• f cover provided by the policy in terms of the

monetary limits. However, the D&O policy will only cover losses and liabilities which fall within the scope of cover. There will typically be a number of policy exclusions which serve to restrict or exclude cover in certain circumstances. There may also be terms and conditions which, if not complied with, may enable the D&O insurer to deny or limit the amount of cover provided. It is vital that directors and offjcers understand the policies that they are offered, the limitations

• f their cover and the steps which they may take

to maximise the cover provided. This article we will consider some of the key issues that directors and offjcers need to be aware of in relation to these policies. What should be covered by your D&O policy? The D&O policy should provide cover for liabilities arising from civil claims brought by third parties and this should include the cost of defending such claims. Most D&O policies provide cover for claims brought by the company although the cover will often be limited by means of an “insured v insured” exclusion which seeks to exclude cover for certain types of claim brought by other directors or by the company against the director or

• ffjcer. The wording of these exclusions requires

careful attention to ensure that claims brought by shareholders or by the company at arm’s length are not excluded. It is particularly important to ensure that claims brought by liquidators or receivers of the company are covered and that the D&O cover does not lapse in the event of insolvency. It is in these circumstances that the directors and offjcers of the company are often most at risk. The D&O policy should also provide cover for the cost of defending criminal proceedings. This is important as directors can get caught up in prosecutions arising from a variety of

Directors and Offjcers Liability Insurance

Dispelling the Myths

12 | Business Briefjng INSURANCE

sources including heath and safety, environmental protection and competition measures. Findings of fraud and dishonesty cannot be insured as a matter of public policy and most policies include express exclusions for claims arising from fraudulent or dishonest

• conduct. The language of the exclusion

can be critical and it is important to ensure that the exclusion applies only to those individuals caught up in the fraud and only where fraud or dishonesty is actually proven. The aim should be to ensure that a director’s legal defence costs continue to be covered pending or in the absence of any fjnding of fraud

• r dishonesty and that the fraud of one

individual does not affect the D&O cover as a whole. The extent of cover provided in relation to regulatory investigations and proceedings varies enormously although this can prove an important element of the D&O cover as the costs incurred by directors caught up in regulatory matters can be signifjcant. D&O insurers will

• ften seek to restrict the cover available

by means of monetary limits and by restricting the circumstances in which the cover applies. The cover under many D&O policies is only triggered by a formal investigation where the regulator exercises their statutory powers to compel the director’s attendance for

• interview. The problem is that in

practice many regulators, for example the newly formed Financial Conduct Authority (FCA), conduct investigations

• n an informal basis which may not be

suffjcient to trigger the legal costs cover under the policy. Cover is not commonly provided for internal investigations although in practice directors and

• ffjcers caught up in an internal

investigation may require independent legal representation. The D&O policy will not provide cover for criminal or regulatory fjnes and penalties resulting from deliberate dishonesty as these cannot be insured as a matter of public policy. Some D&O policies provide cover for civil and regulatory fjnes and penalties to the extent insurable in the relevant jurisdiction although some regulators (including the FCA) have prohibited regulated persons from recovering any fjnes or penalties they impose from their insurers. What happens if you need to make a claim under the D&O policy? Most D&O policies operate on a “claims made” basis. This means that it is the making of the claim against the director

• r offjcer which triggers the insurance
• cover. The notifjcation of any claim to

the insurer is therefore important as this is the fjrst step in the insurance recovery process. D&O policies typically impose time limits for the notifjcation of claims and this can vary from a specifjed time period to “immediately” or “as soon as practicable”. Such requirements may

• perate as conditions precedent to policy

cover which means that failure to give notice on a timely basis may result in a denial of cover which would otherwise have been available. In practice, the D&O policy will often provide that the company has authority to give notice

• n behalf of the directors and offjcers.

However, it is important to ensure that directors and offjcers understand the notifjcation requirements and know the person within the company who is responsible for giving notice to the D&O

• insurers. It is also worth considering

whether improvements can be made to the wording of notice provisions prior to the policy being taken out so as to reduce the scope for non-compliance. Most D&O policies provide not only for the notifjcation of claims but of circumstances which may or are likely to give rise to a claim (or investigation) involving the directors and offjcers. While such provisions are common, they are generally considered as extensions

• f cover because they can result in cover

Business Briefjng | 13 INSURANCE

being extended to claims made outside of the policy period. If notice of a circumstance which the insured becomes aware of is not given during the particular policy year, there is a risk that it will be excluded under next year’s policy, either by means of an express exclusion

• r a general exclusion which applies to all

claims or circumstances which have or should have been notifjed previously. The notifjcation of circumstances is therefore an important element of “claims made” cover. However, while it is relatively easy to identify what constitutes a “claim” for the purpose

• f notifjcation to insurers, the identifjcation
• f “circumstances” and the type of claim or

investigation they may or are likely to give rise to can prove rather more diffjcult. In practice, the most obvious example would be an oral complaint or intimation of a claim or some form of adverse publicity regarding the conduct of the director or offjcer. However, there does have to be some prospect of a claim

• r investigation arising and this is a matter on

which legal advice may be required. Most D&O policies provide that the policy will

• nly cover defence costs incurred with the

insurer’s prior written consent. This is another reason why the prompt notifjcation of claims is important. If defence costs are incurred without the insurer’s prior written approval, the insurer may seek to deny liability for those costs purely on the basis that consent was not

• given. There is also a risk that the insurer will

take issue with the choice of defence counsel. D&O policies do not always make clear that the directors and offjcers are entitled to appoint their own chosen lawyers to defend the claim. This approval is worth requesting in advance

• f any claim being made.

There may be circumstances where directors and offjcers require urgent legal advice, for example in the event of regulatory intervention or a request for extradition. D&O policies are not always designed to accommodate this speed of reaction and insurers do not always respond to requests for approval in a way which refmects the urgency

• f the situation. It may therefore prove

benefjcial to have an agreed panel of lawyers approved by the D&O insurer which the directors and offjcers can call upon for advice in an emergency situation. This should at least serve to avoid arguments over the choice of lawyer appointed. The other important point for directors and

• ffjcers to be aware of is that there may be a

need for separate legal representation. D&O policies will typically allow for separate legal representation in the event of a material confmict of interest between the directors

• r offjcers implicated in a particular claim.

However, there may be other circumstances where separate legal representation is required, for example because there is signifjcant scope for a confmict of interest to arise or where criminal or regulatory investigators insist on certain individuals having independent legal representation. It may therefore prove benefjcial to include policy language which specifjcally allows for separate legal representation in these circumstances. Conclusion The ‘devil is in the detail’ when it comes to policy wordings and that is particularly so for D&O cover, as the extent of cover provided varies enormously. Policy wordings need not be accepted on a “take it or leave it basis” as there is often scope for negotiation. Time and effort spent upfront in negotiating improved policy terms which serve to maximise the cover available and limit the opportunities for D&O insurers to deny or refuse cover for valid D&O claims can prove invaluable at a later date should you need to rely on this policy. ABOUT THE AUTHOR Sarah Turpin, partner in the Insurance Coverage group of the law firm K&L Gates and advises directors and officers in relation to policy wordings at the pre-contract stage and in relation to claims management and claims notification issues +44 (0)20 7360 8285 or email sarah.turpin@klgates.com

Creating a genuine pipeline

• f intelligent,

talented and experienced women is the key

14 | Business Briefjng

In the most basic terms; it is not enough to merely draft and approve share dealing procedures, systems and controls, they must be fully implemented and understood.

THE MODEL CODE

R

ecent events have highlighted the importance of compliance with the Model Code and the ability to demonstrate strict adherence to the Code and also to internal policies and procedures. For the fjrst time the FSA (now the FCA) fjned a company in relation to its share dealing provisions, stating that the company failed to ensure their persons discharging managerial responsibility (“PDMRs”), including directors, fully understood the requirements of the Model Code. The company failed to take the necessary steps to comply with the Model Code and for this breach the FSA issued a fjnal notice with a fjne of £175,000. The company in question had taken steps to comply with its other obligations under the code, such as issuing six-monthly reminders to PDMRs reminding them that they were not permitted to trade during a close period. All

• f the PDMR dealings were reported to the

market as required by DTR and there was no evidence of any insider dealing. There was a share dealing policy in place which had been drafted by external legal advisers, in

• rder to secure compliance with the Model
• Code. However, the company failed to do

the following: Awareness of the share dealing policy No reminders were given or training undertaken in relation to the share dealing policy resulting in the PDMRs forgetting about the policy. Directors’ experience/knowledge Reliance on directors’ experience and knowledge was insuffjcient to meet the requirements of the Model Code and increased the risk of breach. Reviewing share dealing arrangements Failure to review the adequacy of share dealing arrangements and in doing so overlooking a method by which poor practice could have been identifjed.

First fjne for breach

• f the Model Code

– a lesson for us all?

Business Briefjng | 15

Policy might include a process to obtain signed acknowledgements from employees

THE MODEL CODE

Combined chairman and chief executive When the roles of chairman and chief executive are combined the whole board need to approve any share dealings undertaken by the person fjlling both roles. Approval here was only received from a single board member. Dealing as soon as possible Deals not undertaken promptly and far in excess of the two business days stipulated by the Model Code. Recording share dealings Failure to keep and maintain records of share dealing requests from PDMRs in addition to the response and any clearance given. The Listing Principles in respect of director’s share dealing refer to ‘reasonable steps’ and maintaining ‘adequate procedures, systems and controls’ and the failing identifjed by the FSA in making its decision makes it clear that strong expectations are attached to these statements. In the most basic terms; it is not enough to merely draft and approve share dealing procedures, systems and controls, they must be fully implemented and understood. The tenet of the policy must be met and all practical requirements fulfjlled before permission to deal is granted. A share dealing policy, and those tasked with maintaining and enforcing it, should be imbued with suffjcient authority to be able to refuse the request

• f any person seeking permission to deal

without the appropriate documentation and

• approval. To this end it is vitally important

that PDMRs understand how the share dealing policy complies with the Model Code and why all elements of the share dealing policy must be satisfjed WITHOUT EXCEPTION and a clear audit trail maintained.

• PDMRs need to be regularly made aware of

the requirements of the Model Code and share dealing policy (including the practical requirements in respect of obtaining authority to deal);

• The share dealing policy needs to be

reviewed and updated in respect of the requirements of the Model Code and also in respect of the structure of the company;

• Those subject to the share dealing policy

and those tasked with enforcing it should be subject to ongoing training and regular reminders in respect of their obligations;

• Policy might include a process to obtain

signed acknowledgements from employees confjrming they have read and understood the share dealing policy and will comply with it;

• The importance of share dealings only

taking place with the necessary authority and timeframe as outlined in the share dealing policy (and in line with the Model Code) should be understood by all PDMRs and regularly communicated to them as a matter of importance;

• Full records of clearance to deal requests

and the associated clearance need to be kept by the company and all such requests and clearances MUST be recorded on the documents prescribed by the share dealing policy in the format required;

• Additional care must be taken regarding

additional obligations on certain individuals arising from the Model Code or the share dealing policy. Such as the obligation of a dual chairman and chief executive to seek and obtain the approval of the entire board before dealing in the shares of the company. Further information: Should you wish to discuss any of the matters raised in this article, or would like to understand how we can support your

• rganisation with its continuing obligations

under the Model Code, please contact: Tracey Brady. See below for contact details. ABOUT THE AUTHOR Tracey Brady, Senior Manager Capita Company Secretarial Services +44 (0)7747 066905 or email tracey.brady@capita.co.uk

16 | Business Briefjng

QCA PUBLISHES REVISED CORPORATE GOVERNANCE CODE

The Quoted Companies Alliance (“QCA”) has launched a new version

• f its Corporate Governance Code

for small and mid-sized quoted

• companies. The revised code has a

renewed focus on board effectiveness and communication with shareholders and investors, and new provisions on developing an effective board and a table of minimum corporate governance

• disclosures. The new version of the

Code and further information about the QCA can be found at: http:// www.theqca.com/shop/guides/70717/ corporate-governance-code-for-small- and-midsize-quoted-companies-2013- downloadable-pdf.thtml

NEW ICSA GUIDANCE NOTE ON CYBER RISK

At the request of BIS, the Institute

• f Chartered Secretaries and

Administrators has published a new guidance note on dealing with cyber

• risk. The note provides directors and

company secretaries with practical advice on how to identify and address risks in this area and explains why cyber risk differs from other risks faced by

• rganisations. The guidance note can be

found at: https://www.icsaglobal.com/ assets/fjles/Guidance%20notes/ gn06-2013cyberrisk.pdf

MODEL ARTICLES AMENDED BY MENTAL HEALTH DISCRIMINATION ACT

On 28 April 2013, an interesting change to the Model Articles took effect. The Mental Health Discrimination Act 2013 (MHDA) revoked Article 18(e) of the private company model articles and paragraph 22(e) of public company model articles. Previously, these articles enabled a company to treat a director as having ceased their appointment following a court order preventing them from ‘exercising any powers or rights which that person would otherwise have’ , as this refmects a now outdated view that a person with mental health issues can never recover. These changes will not apply to companies incorporated prior to this date and there is no requirement for those companies to amend their articles, however, they may wish to do so to refmect current good practice and the new anti-discriminatory regulations. If so a special resolution will need to be passed in the usual way to amend the existing articles or to adopt the new model articles.

And fjnally

If you would like to get in touch with any of our senior contributors please email them at the addresses below: georgina.morgan@capita.co.uk phil.kershaw@capita.co.uk michael.kempe@capita.co.uk If you would like to register to receive future editions

• f this publication by email or recommend a colleague

please contact bus.brief@capitaregistrars.com

www.capitacosec.com

Contact us

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• f any information or content. This

document does not purport to contain,

• r constitute, legal or professional advice.

You should not rely on it for any purpose and you should always either verify the information yourself or consult a suitably-qualified adviser before taking or refraining from any action as a result of the contents of this document. We exclude all liability (including, without limitation, for negligence) in respect of any loss or damage which may arise as a result of your reliance

• n the content of this document, to the full

extent permitted by law. This document is not for distribution or use in any other jurisdiction outside of the United Kingdom. JN6886 Capita Company Secretarial Services is a trading name of Capita Registrars Limited. Registered office: The Registry 34 Beckenham Road Beckenham Kent BR3 4TU. Registered in England No: 2605568. Part of Capita plc. www.capita.co.uk