Chapter 8 - Relations With Shareholders

Question 1

According to the UK Code, in what ways should a listed company try to improve relations with its shareholders?

Answer 1

• through improved dialogue

- through constructive use of the AGM and other general meetings

Question 2

What are the three main groups on institutional investor?

Answer 2

• pension funds
• life assurance companies
• investment trust organisations

Question 3

What rights do shareholders have in UK law to approve remuneration arrangements or schemes for executives?

Answer 3

• right to approve remuneration policy at least every three years

Question 4

What issues do shareholders have a right to vote on at general meetings of the company?

Answer 4

• remuneration policy at least every three years

- election and re-election of a director

Question 5

What are preemption rights?

Answer 5

The right of a shareholder to have first refusal on a new issuance of shares.

Question 6

How may shareholders remove a director?

Answer 6

Under s168 CA, shareholders can vote to remove a director by ordinary resolution

Question 7

For which types of transactions does the DTR require companies to obtain shareholder approval?

Answer 7

• transactions above a certain size (Class 1 transactions)

- transactions with related parties

Question 8

According to the UK Code, what practical requirements are needed for a board of directors to maintain a dialogue with major shareholders?

Answer 8

• the chairman should ensure the views of shareholders are communicated to the board as a whole
• the chairman should discuss strategy with shareholders
• NEDs should be given the opportunity to attend meetings with shareholders
• the SID should attend enough meetings with a range of major shareholders to listen to their views

Question 9

What are the provisions of the UK Code for making constructive use of the AGM?

Answer 9

• encouraging attendance (sufficient notice)
• giving shareholders an opportunity to ask questions (committee chairmen should be present)
• voting procedures (separate resolutions for separate issues)
• proxy voting forms should allow “vote withheld”
• disclosure of information about proxy votes

Question 10

What are the benefits of electronic communications between the company and its shareholders?

Answer 10

• much cheaper
• more environmentally friendly
• much faster and more reliable
• more frequent communications are possible
• information is more likely to be seen by those who need it

Question 11

What are the limitations of the AGM?

Answer 11

• held annually
• difficult for shareholders to attend (particularly foreigners)
• limited time duration

Question 12

What is the title of ICSA’s electronic communications guidance?

Answer 12

“Electronic Communications With Shareholders 2013”

Question 13

What are the key points from ICSA’s guidance on electronic communications?

Answer 13

• electronic communications should be offered to all shareholders equally
• shareholders should be able to retain copies
• companies should implement proof of sending

Question 14

What are the 7 principles of the Stewardship Code?

Answer 14

1) Publicly disclose policy on stewardship
2) Publicly disclose policy on conflicts of interest
3) Monitor investee companies
4) Clear guidelines on how and when they escalate shareholder activism
5) Willingness to act collectively with other investors
6) Clear policy on voting
7) Report periodically on voting and stewardship activities

Question 15

What is the objective of the UK Stewardship Code?

Answer 15

To enhance the quality of engagement between investors and companies to help improve long term risk-adjusted returns to shareholders.

Question 16

What are the 4 stages of action to be taken by concerned shareholders, as recommended by the ABI?

Answer 16

• Voice
• Escalate
• Vote
• Exit

Question 17

What were the 4 main elements of the ICSA Guidance on Enhancing Stewardship Dialogue (2013) for companies?

Answer 17

1) Develop an engagement strategy
2) Get the housekeeping right
3) Strengthen the conversation
4) Provide feedback

Question 18

What are the two main ways in which shareholders can express dissatisfaction with a company?

Answer 18

Voting against its resolutions

Taking legal action against the directors