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INTRODUCTION
During the course of 2009, the Financial Reporting Council (FRC) carried out a review of the impact and implementation of the Combined Code, the results of which were published in December. The main findings of the review are set out in "2009 Review of the Combined Code: Final Report", which is available at: http://www.frc.org.uk/corporate/reviewCombined.cfm.
As a result of the review the FRC consulted on a number of changes to the Code; that consultation closed on March 5th 2010.
Among other things, the proposed new UK Corporate Governance Code sets out to improve the ‘engagement' between companies and their shareholders, thus putting investor relations teams squarely in the hot seat. At the same time, the proposed Code emphasises throughout that simple ‘compliance' with the Code is inadequate; embracing the spirit of the Code through best practice shareholder communication is more important.
This therefore begs the question as to what constitutes good practice in investor relations and shareholder engagement, as it relates to governance.
The IR Society set out to create "Guidance for Investor Relations Practitioners on the UK Governance Code" on which we are consulting today. This has been drafted by the IR Society Policy Committee, with input and assistance from senior in house IR colleagues, governance professionals, other professional bodies, and the Financial Reporting Council. Their work and help is very much appreciated.
Views are invited from all interested parties on the proposed Guidance. The FRC has indicated that it intends to publish the revised UK Governance Code in April or May 2010. It is intended that the revised Code should apply to accounting periods beginning on or after 29 June 2010.
Subject to the outcome of this consultation, the intention is to publish the IR Society "Guidance for Investor Relations Practitioners on the UK Governance Code" in late May, following the publication of the revised UK Governance Code.
How to comment
Comments on the proposed Guidance set out in this consultation document are requested by 7th May 2010. Responses should be sent by e-mail to Michael.Mitchell@IRS.org.uk or in writing to Michael Mitchell, General Manager, the Investor Relations Society, 3 Bedford Street, London WC2E 9HD.
It is the IR Society policy to publish on its website all responses to consultations issued by the Society unless the respondent explicitly requests otherwise.
Thank you in advance for your participation.
"Guidance for Investor Relations Practitioners on the UK Governance Code"
Introduction & Scope
This Guidance has been drawn up by the Investor Relations Society and covers the activities of those involved in Investor Relations activities at Premium Sector listed companies ("The IR team"). This includes but is not restricted to, heads of IR and their teams, Company Secretaries, corporate responsibility teams and others involved in governance work in the UK in their relationships with institutional investors . It is aimed at providing practical guidance to companies, in how to meet the spirit - as well as the letter - of the UK Corporate Governance Code.
It also offers guidance as to how to ensure that the requirements of investors detailed in the Stewardship Code published for consultation in January 2010 by the Financial Reporting Council (FRC) can be met.
It is not intended to be an exhaustive list of the activities of the IR team , but to offer good practice guidance in how the IR team can support the listed company Board in its compliance with the UK Corporate Governance Code and the Stewardship Code. This Guidance will be reviewed after one year from date of first publication, and then in parallel with reviews of the UK Corporate Governance Code.
Two principal conclusions were drawn by the FRC from its review of the 2008 Combined Code on Corporate Governance (Combined Code). First, that much more attention needed to be paid to following the spirit of the Combined Code as well as its letter. Secondly, that the impact of shareholders in monitoring the Combined Code could and should be enhanced by better interaction between the Boards of listed companies and their shareholders.
Definition of Investor Relations
Investor Relations is the two-way communication of information and insight between a company and the investment community. This process enables a full appreciation of the company's business activities, strategy and prospects and allows the market to make an informed judgement about the fair value and appropriate ownership of a company.
The Investor Relations Society's mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community.
The core beliefs which underpin the achievement of the IR Society's mission include:
• Investor relations should be at the heart of corporate strategy development;
• Proactive, universal, prompt and clear investor communications;
• Proportionate regulation that promotes equity and fairness;
• The value of engagement between companies and investors.
The IR Society believes that these principles can best be achieved through strong two-way communication between the Board and its IR team. A direct reporting line from the head of IR to the Board is the most effective way to achieve this.
Consequently this Guidance aims to help companies enhance the quality of their dialogue with those institutions who own their shares, and to help enhance a long term understanding of the companies' prospects and governance. The advantages stemming from good communications between Boards and the company's owners far outweigh the potential costs and risks of such a dialogue.
This Guidance sets out good practice for companies; it does not constitute an obligation to micro-manage the affairs of listed companies. Companies' decisions on how and when to engage with individual shareholders should be considered in light of a range of factors, including the size of holding, the company's own situation and affairs and the wider business environment.
Principle 1: Companies should communicate effectively with their investors.
Guidance.
A key task of the IR team is the communication of the long term strategy of the company, in such a way that investors understand the context in which individual events can be seen.
IR teams should create proactive investor outreach programmes including site visits, road shows, as well as regular, financial-calendar linked conference calls. Where practical, events should be communicated to the market as a whole.
Companies should produce investor materials in line with current best practice (held as Appendix 1) with an open and inclusive approach to communication on governance issues.
Principle 2. Companies should ensure that boards are provided with appropriate information in regard to the company's investors.
Guidance.
IR teams will produce a report to the Board on a regular basis which includes:
• significant changes in the share register, including shareholders who have recently sold or significantly reduced their shareholding, (where possible) significant strategic short sellers, and any noted activist shareholders;
• details of contacts with shareholders and summaries of material matters discussed;
• summary of broker or analysts feedback relating to shareholder views;
• details of findings of any perception studies conducted by the IR team (this should be separate - not part of a monthly report);
• summary of share price movements compared to the market and sector peer group;
• any corporate governance issues raised by shareholders;
• material concerns raised by company analysts or the media;
• a regular analysis of internal and external earnings expectations.
Principle 3: Companies should create, maintain and implement a formal, written policy which underpins their processes of disclosure of inside information and investor communication. This policy should be subject to periodic review by the company.
Guidance
The Communications Policy should include:
• Tests that will be applied within the company to identify inside information in accordance with the DTR's and associated FSA communications.
• Identification of management responsible for dealing with investors.
• Processes and timings for communicating the company's financial outlook, and company policy on offering guidance.
The Disclosure Policy should be continuously reviewed, updated and communicated to those employees responsible for interface with external audiences.
Principle 4: Investor Relations teams should support members of the Board in their dialogue with institutional investors.
Guidance
The IR team should support the Board in its meetings and contacts with shareholders. To do so, the IR team should:
• Ensure that they can identify and obtain contact details for the investors in the majority of their shares .This should include shareholders who have recently sold or significantly reduced their shareholding, (where possible ) significant strategic short sellers, and any activist shareholders;
• Make themselves available as a ‘first port of call' resource for institutional investors seeking information;
• Create a structured plan for regular IR contact with a representative group of shareholders, including through an investor survey;
• Give careful consideration to, and evaluation of any material investor concerns, and ensure that the Board is aware of them;
• Create a strategy for Board consideration on when and how proactive outreach to specific investors is appropriate, and on collective engagement with shareholders;
• Facilitate meetings with management if investors are expressing specific and material concerns;
• Facilitate attendance by the Chairman and other non-executive directors at roadshows / analyst meetings with management to understand shareholders' major issues;
• Ensure adequate contact with proxy advisors to gain insight into any investor concerns;
• Provide to the Board a regular analysis of internal and external earnings expectations, such that all members are aware of potential challenges.
Where investors choose to engage collectively, such as at times of significant corporate or wider economic stress, the IR team should:
• Keep channels of communication with all investors open so that concern can be addressed at an early stage;
• Keep the market updated of any material changes in the economic or corporate environment and how they impact on the company.
Boards should ensure that processes exist for the dissemination of information to their IR team on internal strategic decision making and processes and others in order than they can maximise their value to institutional investors.
The IR team should support the Chairman and Non Executive Directors in their meetings with investors, as well as supporting management in their day to day contacts. This may include:
• attending company roadshows;
• dialling in to analyst briefings, or attending a selection of analyst meetings;
• attending post-results meetings;
• Remuneration committee chairmen attending meetings with the major shareholders to seek views on the remuneration scheme.
Principle 5. IR teams should provide support for the Board in specific situations.
Guidance.
The IR Team will provide support for the Board, in specific situations where investor feedback is required, by:
• Reporting to the Board previous discussions with shareholders on the issues;
• Acting as a sounding Board in meetings with shareholders, providing a "listening post" to investors and providing feedback to the Board;
• Monitoring external, public debate on the issues in the media, blogs, social media.
Principle 6. IR teams should support the Board by the provision of skills and knowledge in dealing with shareholders.
Guidance
The IR team in conjunction with other departments of the company will provide any required updates to the skills of Directors on issues including:
• Compliance with the Financial Services Authority Listing Rules and Disclosure and Transparency Rules (DTRs);
• Implications of patterns of trading in the company's shares and positions taken by specific shareholders;
• Provision of meetings with major shareholders.
The IR team will make available details of professional development opportunities available on investor relations-related issues, particularly for new directors.
Principle 7. IR teams should provide assistance and support, where practicable, for all shareholders
Guidance on support to institutional investors.
Companies can best manage effective dialogue with shareholders when they provide shareholders with access to appropriate governance officers and relevant Board directors. The IR team will provide support to institutional investors in their monitoring of companies. This includes:
• One on one meetings with the IR team, or as necessary facilitating meetings with members of the Board or other governance professionals;
• Making available public information through its website, press releases, webcasts, conference calls, in line with best practice (see Appendix x);
• Providing context for events and public announcements;
• Facilitating investor understanding of the company's long-term objectives and gaining familiarity of the connection between the governance and commercial activities of the company;
• Providing insight into market and sector developments.
Guidance on support for private shareholders.
Where appropriate companies should consider incorporating into their investor relations programmes specific events or meetings which are targeted at private and smaller investors. These could include:
• Presentations or meetings around the AGM
• Regional meetings with shareholders
• Meetings with regional and private client stockbrokers
• Webcasting of results presentations and other announcements
• Corporate videos or interviews with board members on the website
• Provision of question and answer facilities on the company's website
Appendix 1.
• Appendix 2. (NB this list is not comprehensive).
Published: 29 March, 2010