UK: ABI publishes rights issue discussion paper

The Association of British Insurers has published a discussion paper titled "Rights Issues and Capital Raising". This makes suggestions for improving the capital raising process whilst respecting shareholders' pre-emption rights. Further information is available in this brief letter and longer article from the UK's Financial Times newspaper. The consultation paper has been published against the background of the Government's review of the rights issue regime: see this earlier post.

UK: ABI revised guidelines on executive remuneration

The Association of British Insurers has published revised guidelines on executive remuneration: see here (html) or here (pdf). The guidelines are principally intended for listed companies and cover the following: remuneration committees and their responsibilities; base pay, bonuses, pensions and contracts and severance; and share-based incentive schemes.

UK: Relationship between good governance and company performance

The ABI has published a report titled "Governance and performance in corporate Britain" in which, to quote directly from the report, it seeks to answer the following questions:

"...does good governance lead to stronger operating performance, and does it lead to higher share price returns? Our findings suggest the answer is yes. We use the ABI’s Institutional Voting Information Service (IVIS) to assess the quality of company governance over a four-year period. It is the first time we have used the data in this way. We set this against data on company performance and shareholder returns generated by Thomson Financial. The studied companies are in the FTSE All-Share Index".

The authors conclude (to quote directly from the report):

(a) Over a five-year period, the shares of well-governed companies deliver an extra return of 37 basis points a month industry-adjusted.

(b) The volatility of share-price returns is also lower for portfolios of well-governed companies. In addition, well-governed companies deliver higher returns when you adjust for risk.

(c) The overall balance of the board is important. More Non-Executive Directors (NEDs) on a board improves performance, but too great an increase in the percentage of NEDs on a board is associated with a decrease in profitability. The key is balance. This suggests that the Combined Code model of balanced boards, or of at least two independent NEDs at sub-FTSE 350 companies, is preferable to the US model that appears to favour boards with a vast majority of NEDs.

UK: Directors' contracts and severance pay: ABI and NAPF revised guidance

The ABI and NAPF joint guidance on directors' contracts and severance pay has been revised. The revised guidance contains eight principles and it is interesting to note here what is said with regard to notice periods:

"The Combined Code states that under normal circumstances directors should be retained on contracts of one year or less. However we believe that a one year notice period should not be seen as a floor, and we strongly encourage boards to consider contracts with shorter notice periods. Compensation for risks run by executive directors is already implicit in the absolute level of remuneration, which mitigates the need for substantial contractual protection"..

The guidance is available here.

UK: ABI remuneration guidelines - letter to remuneration committees

The Association of British Insurers has written to remuneration committee chairmen highlighting aspects of its remuneration guidelines which are of particular relevance in the current economic climate: see here (Word). The ABI states, for example, that:

Remuneration structures that seek to increase tax efficiency should not result in additional costs to the company or an increase in its own tax bill. Remuneration Committees should be aware of the potential damage to the company’s and shareholders’ reputation from implementing such schemes".