Corporate Governance 2020 A practical cross-border insight into corporate governance law 13th Edition Featuring contributions from: Advokatfirmaet BAHR AS Hannes Snellman Attorneys Ltd Olivera Abogados / IEEM Business School Al Hashmi Law Herbert Smith Freehills Pinsent Masons LLP Arthur Cox Houthoff Schoenherr Rechtsanwälte GmbH Baker McKenzie Lacourte Raquin Tatar SZA Schilling, Zutt & Anschütz Rechtsanwaltsgesellschaft mbH Bowmans Law Firm Neffat Tian Yuan Law Firm Cravath, Swaine & Moore LLP Lenz & Staehelin Uría Menéndez Creel Abogados, S.C. Macfarlanes LLP Wachtell, Lipton, Rosen & Katz Cyril Amarchand Mangaldas Mannheimer Swartling Advokatbyrå Walalangi & Partners (in association with Davis Polk & Wardwell LLP Marsh & McLennan Companies Nishimura & Asahi) Ferraiuoli LLC Nielsen Nørager Law Firm LLP Wolf Theiss GSK Stockmann Nishimura & Asahi Zunarelli – Studio Legale Associato Table of Contents Expert Chapters Dual-Class Share Structures in the United States 1 George F. Schoen & Keith Hallam, Cravath, Swaine & Moore LLP Legal Liability for ESG Disclosures – Investor Pressure, State of Play and Practical Recommendations 11 Katherine J. Brennan & Connor Kuratek, Marsh & McLennan Companies Joseph A. Hall & Betty Moy Huber, Davis Polk & Wardwell LLP Corporate Governance for Subsidiaries and Within Groups 17 Martin Webster & Tom Proverbs-Garbett, Pinsent Masons LLP Global Transparency Trends and Beneficial Ownership Disclosure 22 Nancy Hamzo, Bonnie Tsui, Olivia Lysenko & Paula Sarti, Baker McKenzie Q&A Chapters Australia Mexico 28 Herbert Smith Freehills: Quentin Digby & 143 Creel Abogados, S.C.: Carlos Creel C., Gustavo Philip Podzebenko Struck & Ilse Bolaños Austria Netherlands 36 Schoenherr Rechtsanwälte GmbH: 149 Houthoff: Alexander J. Kaarls Christian Herbst & Roman Perner Norway China 156 43 Advokatfirmaet BAHR AS: Svein Gerhard Simonnæs Tian Yuan Law Firm: Raymond Shi & Asle Aarbakke Czech Republic 52 Oman Wolf Theiss: Jitka Logesová, Robert Pelikán, Radka 161 Al Hashmi Law: Omar Al Hashmi & Syed Faizy Ahmad Václavíková & Kateřina Kulhánková Poland Denmark 166 61 Wolf Theiss: Maciej Olszewski, Joanna Wajdzik, Nielsen Nørager Law Firm LLP: Monika Gaczkowska & Izabela Podleśna Peter Lyck & Thomas Melchior Fischer Puerto Rico Finland 172 Ferraiuoli LLC: Fernando J. Rovira-Rullán & 70 Hannes Snellman Attorneys Ltd: Andrés I. Ferriol-Alonso Klaus Ilmonen & Lauri Marjamäki Romania France 179 Wolf Theiss: Ileana Glodeanu, Mircea Ciocirlea, 78 Lacourte Raquin Tatar: Serge Tatar & Luciana Tache & George Ghitu Guillaume Roche Slovenia Germany 188 89 SZA Schilling, Zutt & Anschütz Law Firm Neffat: Leonardo Rok Lampret & Rechtsanwaltsgesellschaft mbH: Domen Neffat Dr. Christoph Nolden & Dr. Michaela Balke South Africa 195 India Bowmans: Ezra Davids, Ryan Kitcat & Lauren Midgley 97 Cyril Amarchand Mangaldas: Cyril Shroff & Amita Gupta Katragadda Spain 203 Uría Menéndez: Eduardo Geli & Ona Cañellas Indonesia 105 Sweden Walalangi & Partners (in association with Nishimura 214 & Asahi): Andhika Indrapraja, Femalia Indrainy Mannheimer Swartling Advokatbyrå: Patrik Kusumowidagdo & Raditya Pratamandika Putra Marcelius & Isabel Frick Switzerland Ireland 220 112 Arthur Cox: Brian O’Gorman & Michael Coyle Lenz & Staehelin: Patrick Schleiffer & Andreas von Planta Italy 120 United Kingdom Zunarelli – Studio Legale Associato: 228 Luigi Zunarelli & Lorenzo Ferruzzi Macfarlanes LLP: Tom Rose & Dominic Sedghi USA Japan 237 128 Nishimura & Asahi: Nobuya Matsunami & Wachtell, Lipton, Rosen & Katz: Kaoru Tatsumi Sabastian V. Niles Uruguay Luxembourg 248 136 GSK Stockmann: Dr. Philipp Moessner & Olivera Abogados / IEEM Business School: Anna Lindner Juan Martín Olivera 228 Chapter 31 United Kingdom United United Kingdom Tom Rose Macfarlanes LLP Dominic Sedghi 1 Setting the Scene – Sources and duties, requirements for directors’ appointment, removal and remuneration, and various rules in respect of companies’ finan- Overview cial (and other) disclosure obligations. The principal constitu- tional document of a UK company is its articles of association. 1.1 What are the main corporate entities to be A company’s articles govern the regulation of its internal affairs discussed? (including with respect to various governance issues), subject to overriding statutory and common law requirements. Although The main corporate entities to be discussed are UK public UK companies have substantial discretion over the content of companies with a premium listing of equity shares traded on the their articles, most (particularly premium-listed public compa- Main Market of the London Stock Exchange. Other publicly nies) tend to follow a similar format. traded companies, such as entities whose shares are admitted The UKCG Code applies to companies with a premium to trading on AIM, are subject to similar (but typically less listing of equity shares in the UK by virtue of the Listing Rules. onerous) regulatory regimes. The Listing Rules do not mandate compliance with the UKCG Code; rather, they require companies to state (in their annual report and accounts) whether they have applied the UKCG Code 1.2 What are the main legislative, regulatory and other (which consists of “principles” of good governance together with sources regulating corporate governance practices? more detailed “provisions”) and to explain and justify any areas of non-compliance. This is known as the “comply or explain” The UK’s corporate governance landscape derives from (or is regime, which is a common theme throughout the UK corpo- influenced by) a number of legislative, regulatory and other rate governance regulatory framework. The current version sources. The key legislation is set out in the Companies Act 2006 of the UKCG Code was published in July 2018, and applies to (the “Companies Act”), together with the Listing Rules and the accounting periods beginning on or after 1 January 2019. The Disclosure Guidance and Transparency Rules (the “DTRs”) UK Stewardship Code, which also operates on a “comply or made by the Financial Conduct Authority (the “FCA”). The explain” basis, sets out good practice for institutional investors main governance-focused regulations are the UK Corporate (principally asset owners, asset managers and service providers) Governance Code (the “UKCG Code”) for companies and the when engaging with UK listed companies. UK Stewardship Code for institutional investors, each of which A key feature of the UK corporate governance regulatory is currently issued and administered by the Financial Reporting framework is its constant evolution in the face of changing Council (the “FRC”), although the FRC is soon to be replaced “cultural” expectations. For example, the FRC has announced by a new regulator (see question 1.3 below). The current version plans to conduct a detailed review into how effectively the of the UKCG Code came into force on 1 January 2019, and the UKCG Code is being implemented by companies (now that Stewardship Code on 1 January 2020 (see question 2.4 below). reporting under the revised code is fully effective). The City Code on Takeovers and Mergers (the “Takeover Code”) will also be relevant if the company in question is or may be the subject of a takeover or merger transaction. The 1.3 What are the current topical issues, developments, trends and challenges in corporate governance? UK government announced in December 2019 that it intends to bring forward the implementation of the National Security and Investment Bill, which will increase its powers to scrutinise and Some of the most important recent corporate governance devel- intervene in takeovers, mergers and investments in the interests opments, trends and challenges in the UK market include the of national security. following: Finally, companies should also consider the application of ■ Brexit: The departure of the UK from the European Union guidelines produced by investor protection groups, such as (the “EU”) on 31 January 2020 marked the start of a transi- the Investment Association and the Pensions and Lifetime tion period that is expected to last until 31 December 2020. Savings Association. While these guidelines are technically During this time, the majority of EU legislation (including non-binding, investors in UK companies increasingly expect any new or amended legislation during the transition period) them to be observed or any non-compliance publicly explained. will continue to apply to the UK. The UK Government has The Companies Act is the primary statutory rulebook for indicated that it will not be extending this transition period, all UK companies. In the context of corporate governance, it and the UK Parliament has passed legislation to this effect. includes (among other things) provisions governing directors’ The European Union (Withdrawal) Act 2018 (as amended by the European Union (Withdrawal Agreement) Act 2020) Corporate Governance 2020 © Published and reproduced with kind permission by Global Legal Group Ltd, London Macfarlanes LLP 229 provides that the body of EU law (so-called “retained EU significant financial difficulties. An independent review law”) will be incorporated directly into UK law from the published by Sir Donald Brydon in December 2019 recom- end of the transition period. A range of secondary legis- mended wide-ranging reforms, including establishing a lation has been passed to deal with deficiencies in retained separate audit industry with its own governing principles, EU law arising as a result of the UK’s departure. The full increasing stakeholder engagement in the audit