Welcome to our snapshot of key changes and current affairs for Company Secretaries working in social housing.
Spring is on its way and we have a packed edition of the snapshot for you this month, with lots of food for thought as we move into annual reporting season.
The Regulator of Social Housing sets out approach to grading for-profits
The Regulator of Social Housing (RSH) has published ‘Regulating the Standards’ 2022, providing several updates to its 2020 iteration.
One of the key changes made by the RSH is to set out its approach to grading for-profit providers, including further information on In Depth Assessments (IDAs) and the RSH's approach to publishing regulatory judgments for for-profit providers, which will be applied when the RSH reports its first regulatory judgments of for-profit providers which own more than 1,000 homes.
There are other differences between for-profit and not-for-profit providers which the RSH needs to take into account when assessing governance and financial viability. The RSH notes that for-profit providers have different capital structures and cash flow dynamics. For-profits are also usually part of wider groups of linked companies rather than standalone organisations.
Other changes introduced by the RSH include:
- An explanation of the distinction between large and small registered providers.
- The removal of the IDA Scoping Framework annex.
- Clarification that non-compliant regulatory judgments remain in force until issues are resolved.
Corporate transparency and register reform: White Paper
The Secretary of State for Business, Energy and Industrial Strategy has published the Corporate Transparency and Register Reform White Paper (White Paper). The White Paper sets out the government’s final position on reforming Companies House ahead of introducing new legislation, with numerous proposed changes, including the following:
- New querying power – Companies House will be given the power to query information either pre or post publication. This new power will apply to all filings and will allow Companies House to query any identified inaccuracy that appears fraudulent, suspicious or where it may undermine the integrity of the register. It is also proposed that the Registrar be given the power to query a company name in certain circumstances.
- Identity verification and other measures relating to directors, beneficial owners and agents:
- Mandatory identity verification: A digital identity service is being developed for identity verification to link a person with an authorised identity document for submission of documents to Companies House.
- Restrictions for corporate directors and other corporate officers: The White Paper has set out a ‘principle based’ exception which means that a company will not be permitted to act as a corporate director unless certain conditions are satisfied. This is worth being aware of where any corporate directorships are held in relation to e.g. management companies.
- Identity verification by third parties: any third parties such as accountants and legal advisers will be required to confirm that they are supervised and register with Companies House before they can be permitted to form companies or registrable partnerships, or to file on their behalf.
- Requirement to hold information on shareholders, persons with significant control (PSCs) and relevant legal entities (RLEs): The White Paper also sets out requirements to hold information on shareholders, details of its PSC and to collect and display the RLE conditions satisfied to be recorded as a PSC.
- Quality and value of financial information on the register:
- Enhanced validation checks on financial information and filing accounts in digital format.
- Statement of eligibility for dormant company accounts: Dormant companies will be required to file an eligibility statement with their accounts in which the directors will confirm that the company is not trading and meets the criteria for filing dormant accounts.
- "File once" approach: The government will explore options to enable companies to file their financial information once a year with government, instead of filing different elements of information with each department that requires it, at various times.
FRC report on quality of reporting
The FRC has published a report on the quality of corporate governance reporting by private companies following the Wates Corporate Governance Principles for Large Private Companies. There are six principles in total (with accompanying guidance), namely: Purpose and leadership; Board composition; Director responsibilities; Opportunity and risk; Remuneration, and; Stakeholder relationships and engagement.
Although the FRC states that it was too soon to draw firm conclusions because many companies were in their first cycle of reporting, the report found that there was room for improvement. In particular, it is suggested that companies need to:
- Disclose more detailed information in relation to the application of the six principles to provide readers with a comprehensive understanding of the corporate governance arrangements in place and how they are mapped to the respective principles.
- Discuss more instances and circumstances relating to a given corporate governance practice to evidence how they have applied the principles.
- Use more cross-references, as in several cases the disclosure of some items could be found in other sections of the annual reports, but they were difficult to track down without the provision of cross-references.
Although not directly applicable to most RPs, the learnings from the report and review are helpful as you enter your reporting cycles over the next few months.
PLSA Stewardship and Voting Guidelines 2022
The Pensions and Lifetime Savings Association (PLSA) has published its 2022 stewardship and voting guidelines. These guidelines are a really interesting indicator of issues that lenders and investors consider in their own strategies, and are helpful guides for RPs as to wider best practice. Of particular interest are the following:
- Virtual AGMs - the PLSA continues to support the use of virtual AGMs but noted concerns that virtual-only AGMs becoming permanent may reduce opportunities for shareholder engagement with the board, and urges companies to look at how they can increase engagement opportunities. This may be of interest to RPs who continue to actively operate open shareholding.
- Board composition and diversity – diversity policies should include protected characteristics such as gender, ethnicity, disability, sexuality, gender reassignment, marital status and religion. Other non-protected characteristics should also be considered, such as socio-economic background, neurodiversity, veterans and returners to the workplace. Interestingly, the PLSA suggested that investors should consider voting against the re-election of the chair if the board has not established a diversity and inclusion policy and strategy.
- Remuneration - given the continued impact of Covid-19, and the substantial increase in the cost of living, companies should demonstrate caution in remuneration packages in 2022, particularly in companies that have previously received government support over the past two years or continue to do so. It also welcomes the increased consideration of remuneration through the lens of ESG factors, and would like to see more packages linked to clear targets for performance against achieving a company’s ambitions to meet climate goals.
Investment Association statement on shareholder priorities for 2022
In a similar vein, the Investment Association (IA) has published its shareholder priorities for 2022 which include:
- Responding to climate change: companies should produce and disclose the transition plans that they have in place to meet the goals of the Paris Agreement and how they will become net zero.
- Accounting for climate change: directors should provide a statement in the company’s Annual Report confirming that they have considered the relevance of the risks of climate change and transition risks associated with achieving the goals of the Paris Agreement when preparing the company’s accounts.
- Audit quality: companies are expected to demonstrate how they have judged the quality of the audit they have received.
- Diversity: the FCA has recently consulted on changes to the Listing Rules to incorporate additional diversity reporting and diversity targets on a comply or explain basis. The IA is encouraging all companies to disclose against the new reporting template.
- Stakeholder engagement: companies and their boards are expected to identify and disclose their material stakeholders, decide on the most appropriate mechanism to engage with those stakeholders, clearly explain how the stakeholders’ views have both informed and impacted their decision making.
Women Leaders in FTSE Companies
The FTSE Women Leaders Review has published its first report – this is an independent, business-led framework supported by the Government, which sets recommendations for Britain’s largest companies to improve the representation of women on FTSE 350 Boards and in FTSE 350 leadership positions.
The report announced four new recommendations, namely that:
- The voluntary target for FTSE350 Boards & for FTSE 350 Leadership teams is increased to a minimum of 40% women’s representation by the end of 2025.
- FTSE 350 companies should have at least one woman in the Chair, Senior Independent Director role on the Board and/or one woman in the Chief Executive Officer or Finance Director role by the end of 2025.
- Key stakeholders should continue to set best-practice guidelines or use alternative mechanisms to encourage any FTSE 350 board that has not yet achieved the previous 33% target for the end of 2020, to do so.
- The scope of the review is extended beyond FTSE 350 companies to include the largest 50 private companies in the UK by sales.
It also highlighted the progress made across the FTSE 350 for Women Leaders, reporting that:
- The numbers of women on Boards is at 37.6%, up from 34.3% in 2020;
- The number of women in the Chair role has increased to 48, up from 39 in 2020; and
- The UK FTSE 100 is in second place when compared internationally to 11 countries also working to improve the gender balance on the boards of public listed companies. This is up from 5th place in 2020 and the highest ranking since tracking began.
Parker Review 2022 update report on ethnic diversity on boards
The Parker Review Committee has published an update report which includes the results of its latest survey on the ethnic diversity of FTSE 350 companies’ boards. The report indicates that as of 31 December 2021:
- 89 FTSE 100 companies had at least one director from a minority ethnic group on their board (up from 74 in 2020; for background. A further five have since announced new ethnic director appointments and another three are actively engaged in recruitment. The number of board appointees from minority ethnic groups splits evenly between genders, with women comprising 49% of the total.
- 128 FTSE 250 companies reported they had ethnic diversity on their boards, which represents good progress towards meeting the Parker Review target for all such companies to have minority ethnic representation on their boards by 2024. Of all board positions held by minority ethnic directors across the FTSE 250, 73 (44%) are held by women.
The social housing regulation bill was published today – more to come on that shortly!
We have our next round of networking events for Senior Independent Directors and Committee Chairs coming up in the next few months – watch this space.
Over the next few months our Bevan Brittan colleagues will be attending at a variety of national conferences including the NHF Climate Change & Sustainability in Housing; CIH Housing 2022 and the NHF Housing Governance. If you are looking to attend and would like to meet for a chat, please do let us know – it would be lovely to see you!