UK: remuneration votes to watch this week

Today's Guardian newspaper reports on four FTSE100 company annual general meetings being held this week where PIRC has recommended votes against the remuneration reports: see here.

UK: PIRC's principles of best practice for proxy voting and corporate governance advisers

Pensions Investment Research Consultants Ltd. - PIRC - has published a set of best practice principles intended to provide a framework for responsible behaviour by voting advisory services: see here (pdf). In doing so, PIRC hopes to start a debate about what is expected of proxy voting advisors with regard to disclosure and accountability. PIRC's principles are:

• Clear voting policy guidelines should be made available to clients, the companies whom the adviser is monitoring and to the market.
• A clear audit trail and explanation of the process for assessing companies and making voting recommendations should be available to clients and the companies monitored.
• Possible conflicts of interest should be disclosed to clients and to companies monitored and, where necessary, to market regulators (ie paid consulting with companies).
• Companies monitored should be given reasonable opportunity to comment on voting recommendations made and the basis of such recommendations.
• Voting agencies should routinely report to clients on actions taken on their behalf.
• All voting recommendations made by a voting adviser should be publicly disclosed post-meeting.

UK: should auditors undertake non-audit work for their audit clients?

Yesterday's Sunday Times newspaper reported that Pensions Investment Research Consultants (PIRC) is calling for a ban on auditors performing non-audit work for their audit clients. The report cites "fears that it compromises auditors' independence and discourages them from confronting directors on difficult issues" as reasons for PIRC's position. Research by proxy voting agency Manifest is also cited:

The FRC said the level of fees paid to auditors in the FTSE 100 for non-audit work dropped from 191% of audit fees in 2002 — almost double their traditional income — to 71% last year. However, research by Manifest, the voting advisory service, for The Sunday Times shows a significant number of blue-chip companies last year shelled out more in non-audit fees to their auditors than for the cost of core audit work. The firms included Pennon, Experian and SAB Miller. PIRC research found that many smaller companies in the FTSE All-Share paid hefty multiples of auditors’ fees for their non-audit work. The biggest spenders in the 2008-9 financial year included Salamander Energy, Ashmore Group, Berkeley Group, William Hill and Premier Foods, as well as Land Securities, the FTSE 100 property company".

We've been here before: the Cadbury Committee considered whether auditors should be prohibited from providing non-audit services to clients and concluded in its 1992 report (at para. 5.11):

Such a prohibition would limit the freedom of companies to choose their sources of advice and could increase their costs. The Committee was not persuaded that any potential gains in objectivity would outweigh these disadvantages. It does, however, strongly support full disclosure of fees paid to audit firms for non-audit work".

These arguments will be considered again very soon: the report notes that in a few weeks' time the  Auditing Practices Board will begin a consultation on the issue of non-audit work performed by auditors.