UK roundup: Top governance group warns against ‘race to the bottom’

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A leading international corporate governance group has warned UK Chancellor of the Exchequer against adopting a dual class share regime and lowering free-float standards as part of his plan for regulation to make the UK more attractive to business.

In response to a speech by Rishi Sunak last week on the future of British finance and how regulation would diverge from EU rules after Brexit, the International Corporate Governance Network (ICGN) wrote to him saying it was concerned the quality of regulatory standards may be under threat.

In his speech, Sunak, the UK’s finance minister, had said that as part of a series of reviews the government was undertaking “to ensure regulation enhances the UK’s attractiveness to business and position as global financial hub”, it would set up a taskforce to propose reforms to the UK listings regime.

The aim of these reforms would be “to attract the most innovative and successful firms and help companies access the finance they need to grow,” he said.

The ICGN – an investor-led coalition of governance professionals which includes many major asset owners as members – said that although Sunak’s statement itself provided little detail about the planned review of the UK listing regime, it had been widely reported that it would consider the introduction of a dual class share regime and lowering current free-float standards.

“Our message to you is that such developments would be unwelcome by a substantial number of institutional investors globally – who are critical stakeholders in the ecosystem of the UK’s financial markets,” the network said.

“We are concerned in particular that we are witnessing a ‘race to the bottom’ by major global stock exchanges seeking to attract listings by watering down governance safeguards,” the ICGN wrote.

Smiths Industries Pension Scheme secures £146m buy-in

The £3bn (€3.3bn) Smiths Industries Pension Scheme has secured a fourth bulk annuity, a £146m buy-in with Canada Life.

According to Aon, which advised the sponsor and trustees, 71% of pensioner liabilities across Smiths Group’s two UK schemes are now de-risked through bulk annuities.

Nicholas Godden, chair of the trustee of the Smiths Industries Pension Scheme, said: “This is another well-timed step in our de-risking strategy, adding further to member protection despite a challenging market environment.

“Thanks to our advisers and to the group’s continued support, the scheme is well positioned for the steps to come.”

Dominic Grimley, risk settlement adviser at Aon, said: “Through extra planning, this transaction was designed to fit the circumstances we face in lockdown.

“This meant the focus was firmly on straightforward execution and price capture, while opportune timing also enabled a gain to be made against the scheme’s funding target.”

The main Smiths Group UK pension schemes have bought 10 bulk annuity policies in total, with Aon advising on all of them. Redington advised on the investment aspects of the transaction disclosed today.

IA tightens executive pension stance, issues climate change position paper

Investors will be taking a tougher stance on companies’ pension contributions for executive directors, according to the UK asset manager’s updated annual pay guidelines.

In a letter sent to the chairs of the remuneration committees of FTSE 350 companies, the Investment Association (IA) informed companies that its corporate governance research service would be assigning a “red-top” warning to those that fail to draw up a credible action plan to align incumbent directors’ pension contributions with the majority of the workforce by the end of 2022, if the contributions are 15% of salary or more.

This lowers the threshold from last year, which was set at 25% of salary. New executive directors are expected to automatically join with a pension contribution aligned to the workforce rate.

The IA introduced the executive pension alignment principle in 2019.

For this year’s AGM season, the IA’s Institutional Voting Information Service “red-topped” 10 FTSE 100 companies for having at least one executive director receiving a pension contribution of 25% or more with no commitment to bring this in line with the rest of the workforce by the end of 2022.

Separately, the IA today also published a position paper on climate change, setting out seven commitments by the industry and three asks of government.

The commitments include working with pension fund clients to help them meet their climate-related disclosure requirements and “link with advanced initiatives to support disclosure of Paris-alignment of portfolios”.

With respect to the former the IA said it and the Pensions and Lifetime Savings Association were setting up a joing steering group “to address how the relationship between asset owners and investment managers can be governed in a way that promotes a long-term focus and aligns stewardship expectations”.