Corporate Governance

Shearman & Sterling LLP 47 | UK Corporate Governance Developments In the U.K. chapter of our 19th Annual Corporate Governance & Executive Compensation Survey last year, we discussed the U.K. Government's proposals for a major reform of audit regulation and corporate governance, following three separate reviews that had been carried out into U.K. regulation in these areas and the audit services market more generally. In May this year, the Government published its final proposed reforms in these areas which we discuss below. The Financial Conduct Authority (FCA) — the U.K.'s regulator for financial services and securities markets — has also been very busy bringing forward several reforms and proposals for reform that will impact the corporate governance and disclosure obligations of U.K. listed companies. Of course, there have also been important developments over the past 12 months in the ESG space. We discuss a number of these various developments below. RESTORING TRUST The Government's audit and corporate governance reforms were published last year in a White Paper tellingly entitled "Restoring trust in audit and corporate governance." As regards corporate governance, these were focused on improving the transparency of boards' management of internal risk and their company's resilience to business, economic and other challenges, as well as the accountability of directors for action taken (or not taken) in these areas and disclosures made to the markets about this. With just one or two important exceptions, the Government intends to proceed with most of the reforms it proposed in the White Paper. Corporates Covered by the Reforms: PIEs The range of corporates (referred to as public interest entities (PIEs), in regulatory parlance) which will be caught by the new corporate governance reforms will be expanded so that they include not only listed companies and credit or financial institutions, but large private and other entities (e.g., LLPs) that satisfy a "750:750" size test — global workforce of 750 or more and an annual turnover of £750 million or more. U.K. parents of entities that qualify as a PIE based on the new size test will also be classified as a PIE. In addition, where a group comprises entities, none of which in their own right qualify as a PIE, but which does meet the new size test on a consolidated basis, the U.K. parent of the group will qualify as a PIE. Some of the reforms — the audit related reforms (audit committees, retendering and rotation of the audit) — will not apply to this new category of "size-based" PIE and others — particularly the new corporate reporting and dividend reforms — will only apply to PIEs that meet the new "size test" (and so will not apply to "small" listed companies). UK Corporate Governance Developments Phil Cheveley, Maegen Morrison and Michael Scargill Insights 20 YEARS

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