ICSA Shares Conference July 2016

The ICSA Shares Conference 2016

Introduction
Peter Swabey FCIS Director of Policy and Research, ICSA

The Investment Association’s Productivity Action
Plan
Andrew Ninian, Director, Corporate Governance and Engagement
7/18/2016 3
14 July 2016

THE UK’S PRODUCTIVITY PUZZLE
WHAT IS THE SCALE OF THE ISSUE?
Productivity Action Plan 4
1

The UK’s productivity growth remains 16% below its pre-2008 trend rate, and behind the G7 average
THE UK’S PRODUCTIVITY GAP
60
70
80
90
100
110
120
GDPperhourworked
UK G7 Ave. Pre-2008 trend
Source: OECD: Office for National Statistics

… WHEN COMPARED WITH THE G7 …
The UK is behind all but Japan in GDP per hours worked, and others are increasing the gap
60
70
80
90
100
110
120
130
140
Canada France Germany Italy Japan US
GDPperhourworked
2010 2011 2012 2013 2014
UK at
100
Source: OECD: Office for National Statistics

GOVERNMENT RESPONSE
Fixing the foundations:
Creating a more prosperous
nation (2015)
“Productivity will not be transformed
overnight, but reforms will deliver a
step change that can realise both the
aspirations of working people, and
the ambition that our children’s lives
will be better than our own.”
- George Osbourne, Chancellor of
the Exchequer

ROLE OF LONG-TERM INVESTMENT
RESPONDING TO GOVERNMENT
2

THE RESPONSE OF ASSET MANAGERS
Letter to the Chancellor:
• A group of our members wrote to the Chancellor, supporting the
Chancellor’s commitment to address UK competitiveness and
productivity.
• Letter acknowledged the important role that Asset Managers
play in supporting productivity improvements through long-term
investment.
• Committed the Investment Association to develop an Action
Plan.
The Investment Association:
• The Investment Association represents the UK investment
management industry.
• Our members manage over £5.5 trillion of assets on behalf of
UK and overseas clients - about 30% of the UK stock market.

UK investment as a proportion of GDP has declined since 2001, and is behind other G7 members
NEED FOR GREATER LONG-TERM INVESTMENT
Source: Office for National Statistics, 2014
10
12
14
16
18
20
22
24
2001 2003 2005 2007 2009 2011 2013
CapitalInvestmentasaproportionofGDP
Canada France Germany Italy Japan USA UK Trend (UK)

LONG-TERM INVESTMENT AND PRODUCTIVITY
Increasing productivity requires long-term investment in infrastructure, factories and equipment, research and
development and real estate.
However, the UK's post-financial crisis regulatory framework is not well-structured to facilitate long-term investment.
Improving the availability of and access to long-term investment would contribute to confidence, job creation and
business investment, from an SME raising money to invest in new machinery to multibillion pound infrastructure projects.
Increased
shareholder
value
Improvements
in Productivity
Confidence and
Job Creation
Long-term
investments

DEVELOPING OUR RESPONSE
REVIEW FRAMEWORK AND PRINCIPLES
3

METHODOLOGY
Investor-led:
• Intellectual stewardship and guidance
was provided by an industry Steering
Committee made up of CEO’s and senior
fund managers of some of the largest
investors in the UK
• The Steering Committee was tasked with
developing a framework for considering
the key components of, and challenges
to, long-term investment
• Considered how the industry can play a
vital role in helping businesses to drive
sustainable long term returns
• No single silver bullet, there needs to be
improvements across the investment
chain
STEERING GROUP MEMBERS
Nick Anderson
Head of Investment Research
Henderson Global Investors
Richard Bruxton
Chief Executive Officer
Old Mutual Global Investors
Elizabeth Fernando
Head of Equities
USS Investment Management
Simon Fraser
Chairman
The Investor Forum
Simon Gergel
Chief Investment Officer UK Equities
Allianz Global Investors
William Gilmore
Head of Private Equity
Aberdeen Asset Management
Trevor Green
Head of UK Equities
Aviva Investors
Jessica Ground
Global Head of Stewardship
Schroders
George Luckraft
Senior Portfolio Manager
AXA Investment Managers
James Macpherson
Co-Head of UK Equities
Blackrock
Helena Morrissey
Newton Investment Management
Rod Paris
Chief Investment Officer
Standard Life Investments
Iain Richards
Head of Responsible Investment
Columbia Threadneedle
Andrew Sentence
Senior Economic Adviser
PwC
Mark Zinkula
Legal & General Investment Management

IMMEDIATE ISSUES AND CHALLENGES
• How do we define ‘productivity’?
• ROCE? Efficiency? Profitability?
• Defining capital base – consistently?
• Cost of capital? Hurdle rates?
• Access to capital – debt and equity.
• Investors’ time horizon.
• Regulators and unintended consequences.

INVESTOR PRODUCTIVITY PRINCIPLES
Enhance company reporting for
efficient capital allocation
Through investment and analytical
expertise, the investment industry will seek
to identify and finance those companies
contributing productive growth in the
economy.
Enhance investor stewardship
and engagement
The investment industry will engage with
companies to help them achieve
sustainable value creation over the long-
term and support investments in improved
productivity.
Simplify behavioural incentives
and the investment chain
The investment industry will work to
ensure that the agreed incentives and
governance of the investment chain ensure
a clear alignment with clients’ long-term
investment objectives.
Develop efficient and diverse
capital markets
As key capital market participants, the
investment industry has a key role in the
development of asset classes and the
efficient functioning of capital markets.
Overcome tax and regulatory
impediments to support the
provision of long-term finance
The investment industry should contribute
to the debate on the tax and regulatory
impediments to investment so as to ensure
the right long-term outcomes for clients.
“A set of fundamental principles that seek
to define an ideal framework for how
investors can contribute to
productivity improvements”

REVIEWING THE CAPITAL CYCLE
Barriers and impediments:
• Unequal treatment of DB and DC
schemes.
• Solvency rules leading to excessive
de-risking.
• Mandates not always aligned with
long-term approach and stewardship.
• Quarterly reporting encouraging
short-termism and lacking focus on
productivity.
• Executive remuneration creating
perverse incentives and not linked to
the long-term interests of the
business.
• Tax-debt bias in funding structures
leading to financial stability risks.

THE PLAN
TURNING PRINCIPLES INTO ACTION
4

PRINCIPLE ONE: ENHANCE COMPANY REPORTING
FOR EFFICIENT CAPITAL ALLOCATION
SUPPORTING PRINCIPLE
Through investment and analytical expertise, the investment industry will seek to identify and finance those companies
contributing productive growth in the economy.
REC
1
IMPROVE REPORTING AND RESEARCH ON
PRODUCTIVITY AND REFOCUS ON LONGER-
TERM STRATEGIC DRIVERS
Seek clearer articulation and measurement of the long-
term drivers of productivity and work with companies to
develop appropriate Key Performance Indicators
Call for the provision of increased Longer-Term and
Thematic Investment Research.
Issue a Public Position Statement calling for listed
companies to cease quarterly reporting and refocus on a
broader range of strategic issues.

REC
2
IMPROVE REPORTING ON CAPITAL
MANAGEMENT AND CLARIFY INVESTOR
EXPECTATIONS OF CAPITAL MANAGEMENT
Work with companies to improve how they articulate their
capital management strategy and reporting of outcomes.
Develop an investment industry Public Position Statement
on how investor engagement can support and challenge
company capital management decisions.
Encourage the FRC’s Financial Reporting Lab to undertake
a project to develop best practice guidance on the
consistent disclosure of a company’s cost of capital.

REC
3
IMPROVE REPORTING ON CULTURE, HUMAN
CAPITAL AND ACCOUNTING FOR INTANGIBLES
Raise the profile of Human Capital Management as a
material investment consideration and promote better
company reporting to facilitate enhanced investor analysis.
Engage with the IASB to expedite its research on
accounting for intangible assets.
Support the work of the FRC’s Culture Project.

PRINCIPLE TWO: ENHANCE INVESTOR
STEWARDSHIP AND ENGAGEMENT
The investment industry will engage with companies to help them achieve sustainable value creation over the long
term and support investments in improved productivity.
REC
4
MORE FORMALLY INCORPORATE A FOCUS ON
LONG TERM VALUE CREATION AND
PRODUCTIVITY INTO ENGAGEMENT PRACTICES
Seek wider support and financing for the work of the
Investor Forum by launching an independent
membership fee.
Support asset managers in the public reporting
of stewardship activities.

PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES
AND THE INVESTMENT CHAIN
The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure
a clear alignment with clients’ long-term investment objectives.
REC
5
ENSURE THAT THE RELATIONSHIP BETWEEN
ASSET OWNERS AND INVESTMENT MANAGERS
IS GOVERNED IN WAY THAT DOES NOT
INADVERTENTLY EMBED A SHORT TERM FOCUS
Work with the pensions regulator, the PLSA, and
investment consultants to develop best practice guidance
on how stewardship and long term incentives can be
better incorporated into the Statement of Investor
Principles and Mandate design.
Investment consultants are encouraged to issue public
position statements describing how their activities support
the provision of long-term investment approaches and
stewardship in mandate design and performance
evaluation.

REC
6
CONSIDERATION OF HOW GREATER
OPPORTUNITIES FOR LONG TERM INVESTMENT
CAN BE MADE AVAILABLE TO INVESTORS IN
DEFINED CONTRIBUTION SCHEMES
Establish a working group of key stakeholders to consider
the key regulatory and market barriers to creating a Direct
Contribution investment environment more suited to long
term investment.

REC
7
FOSTER IMPROVED UNDERSTANDING OF THE
INVESTMENT HORIZONS OF INVESTMENT
MANAGERS
Examine methodologies for calculating average holding
periods with a view to developing a standard approach
across the industry.

REC
8
ENSURE THAT EXECUTIVE REMUNERATION
STRUCTURES ARE ALIGNED TO LONG-TERM
DECISION MAKING
Consider the findings of the Executive Remuneration
Working Group’s review of executive remuneration
structures and launch an extensive programme of
engagement with listed companies.

PRINCIPLE FOUR: DEVELOP EFFICIENT AND
DIVERSE CAPITAL MARKETS
As key participants, the investment industry has a key role in the development of asset classes and the efficient
functioning of capital markets
REC
9
ENCOURAGE EQUITY INVESTMENT AND
IMPROVE THE EQUITY OFFERING
PROCESS
Develop earlier engagement between institutional
investors and small and mid-size early stage pre-IPO
companies.
Engage with the European Commissions on the proposed
Prospectus Regulation.
Lower the cost of issuing capital and removing the
information asymmetry that exists at the expense of
investors.
Engage with key stakeholders to improve and support the
efficiency of the secondary market capital raising process
whilst maintaining investor protections.

PRINCIPLE FOUR: DEVELOP EFFICIENT AND
DIVERSE CAPITAL MARKETS
As key participants, the investment industry has a key role in the development of asset classes and the efficient
functioning of capital markets
REC
10
ENSURE THE EFFICIENT OPERATION OF
MARKETS FOR OTHER ASSET CLASSES TO
ENSURE THE PROVISION OF DIVERSE CAPITAL
MARKETS
Continue to engage with the
European Commission non the
proposed Prospectus Regulation to
promote the key priorities of asset
managers for non-equity securities
Promote a more efficient new
issuance process in fixed income
markets and aide secondary
market liquidity through the use of
clear terminology and definitions.
Promote appropriate behaviours
and investor expectations in fixed
income markets and support the
work of the FMSB and FCA Debt
Markets Forum.
Develop and promote guidelines
for Housing Associations raising
capital in public markets.
Work with the UK Municipal
Agency to promote the
development of a UK municipal
bond market and highlight the
interest of investors in this sector.
Support on-going work to develop
European Private Placements and
the revival of the securitisation
market in the UK and Europe.

PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO
THE PROVISION OF LONG-TERM FINANCE
The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to
ensure the right long-term outcomes for clients.
REC
11
ENSURE THAT SOLVENCY AND PRUDENTIAL
REGULATION DOES NOT INADVERTENTLY
IMPEDE INVESTMENT MANAGERS FROM
INVESTING IN A MANNER CONSISTENT WITH
THEIR CLIENTS’ LONG-TERM INTERESTS
Encourage the FCA to undertake a thematic review of
whether the approach to market risk in prudential and
conduct regulation is resulting in investment decisions that
are consistent with the long-term investment objectives of
clients.
Convene a multi-stakeholder Working Group to review the
extent to which current accounting standards and
solvency and prudential regulatory requirements may be
resulting in excessive de-risking by insurers and pension
funds and impeding the provision of longer-term forms of
finance.

PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO
THE PROVISION OF LONG-TERM FINANCE
The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to
ensure the right long-term outcomes for clients.
REC
12
REVIEW THE CAUSES OF “DEBT-BIAS” AND ITS
EFFECT ON FINANCIAL STABILITY AND
PRO-CYCLICAL DECISION-MAKING
Undertake a comprehensive review of why companies
favour funding through debt rather than equity.

EXAMPLE OF IMPLEMENTATION:
LONG-TERM REPORTING GUIDANCE
Companies
Working
Group to
develop
guidelines
B
Investors
Institutional Voting
Information Service
(IVIS)
Review Annual
Reports for adherence
to published Long-
Term reporting
guidelines and to
measure progress.
Evaluate
Conduct periodic
reviews to assess
impact and whether
adjustments are
needed
Consultation Education Implementation Review
Guidelines
issued
Briefings/
Blogs
Investors
raise
issues
Sent to
Companies
Direct
engagem.
Regulate
IVIS
Reports
Continue
Adjust

CONTACT:
Andrew Ninian, Director, Corporate Governance and Engagement - Andrew.Ninian@theia.org
David McCarthy, Productivity Action Plan Analyst - David.McCarthy@theia.org 31

Market Abuse
Regulation (“MAR”)
ICSA Shares Conference 2016
James Poole, Manager, Capita Company Secretarial Services

33
Agenda
• Welcome & Introduction
• Post MAR world
• Brief overview of the impact of MAR
• Focus on:
- Share dealing and closed periods
- PDMR/ PCA transactions
- Impact on share plan transactions
• Panel discussion & questions

The post MAR world…
34
3 July 2016:
MAR
Brexit Political fall out
Iceland beat England

35
Brief overview: The good news
Definition of inside information remains largely
the same
Potentially increased flexibility to delay
disclosure
FCA confirmation that approach to ‘closed
periods’ ahead of prelims can continue

36
Brief overview: The bad news
Changes to regime on dealing by PDMRs
Administrative burden increased significantly

37
Brief overview: Uncertainties
Delay in finalising implementation measures
and guidance has resulted in rushed
implementation
Uncertainty on guidance from regulators raises
questions on the acceptability of established
market practice
Relevant rules and guidance have become
more dispersed and harder to locate

Key elements of the definition of Inside Information have not changed:
38
Brief overview: Inside Information and delaying
disclosure
Inside
Information

Issuers can still delay disclosure subject to certain conditions:
39
Brief overview: Inside Information and delaying
disclosure
Delayed
disclosure
permitted
Likely to
prejudice
legitimate
interests
Not likely to
mislead the
public
Confidentialit
y assured

• Standard format insider lists required; containing much more
information
• Single insider list with different sections per project, possibly
including a ‘permanent insiders’ section
• Uncertainty over whether advisers/ third parties continue to keep
their own insider list
• Employees to acknowledge in writing that they are aware that they
are on the insider list and of the connected duties and sanctions.
40
Brief overview: Insider lists

• Buyback regime stays largely the same;
• Requirements to benefit from MAR safe harbour:
- Prescribed disclosures prior to trading
- Notify FCA of trading information and make public disclosures;
• Safe harbour can enable trading in closed period if, for example, the
programme is independently lead.
41
Brief overview: Share buybacks

42
Brief overview: Market soundings
• New requirements for conducting market soundings are onerous
• Obtain prior consent of the recipient and inform them when the
market sounding ceases to be inside information
• Market soundings to be made on recorded lines if available
• Keep detailed electronic records of the information given and to
whom for 5 years and provide to FCA on request.

• Model code removed from Listing Rules – most issuers expected to
retain their own updated dealing code;
• Closed period: 30 calendar days before announcement of interim or
year end report – or preliminary announcement;
• PDMR’s expressly prohibited from dealing during closed periods;
• PCA’s are not covered by this restriction (but caution is advisable due
to insider dealing concerns and reputational issues).
43
Focus: Share dealing & Closed periods

PDMR Transactions during closed period (assuming a clearance
process will be followed)
44
Focus: Share dealing & Closed periods
Is it a
transaction?
Apply for
clearance
✓ No
restrictions
✘ Clearance
refused
Does the PDMR
have PSI?
Is PSI relevant
to transaction?
Is it
appropriate?
Is it a closed
period?
Does an
exemption apply?
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
✓ Give
clearance

Permitted dealings
The list of circumstances in which dealing is permitted during a closed
period has been narrowed to:
• the existence of exceptional circumstances, such as severe
financial difficulty; or
• transactions under an employee share scheme; or
• transactions where the beneficial interest does not change.
Notifying PDMRs and their PCAs
• Issuers must notify their PDMRs of their obligations in writing and
draw up a list of PDMR’s and their PCA’s.
• PDMRs must notify their PCA’s in writing of disclosure obligations
and retain a copy of the notification.
45
Focus: Dealings by PDMRs and PCA’s

Notifications
Threshold for notifications
Transactions only need to be reported once a threshold of €5,000 has
been reached within the calendar year by that PDMR. It is unlikely that
issuers will utilise this exception for dealings by PDMRs.
Time limit
Deadline for notification has been reduced from 4 to 3 business days.
Issuers may wish to reduce PDMR notification in order to meet this
deadline.
FCA form
The FCA has produced a new online form for notification of transactions:
https://marketoversight.fca.org.uk/electronicsubmissionsystem/MaPo_PDM
R_Introduction.
46
Focus: Dealings by PDMRs and PCA’s

47
Focus: Dealings by PDMRs and PCAs

During closed periods:
• Acceptance of an invitation:
- Is permitted as long as it does not give rise to a right to shares
(e.g. SAYE)
- Is not permitted if it equates to the acceptance of an offer (e.g.
bonus election if the acceptance would occur during the closed
period)
• Grant of option/ award of shares:
- It is not clear whether the grant is a transaction by the PDMR
- Permitted if set up in advance (conditions, timing, participants and
amounts determined outside of closed period)
48
Focus: Impact on share plan transactions

Other share transactions:
• DRIPs: permitted if entered into during an open period and no
changes
• SIP monthly purchases: permitted if entered into during an open
period and no changes
• Issue of shares on vesting: no issues – contractual obligation
City of London Law Society Q&A
http://www.citysolicitors.org.uk/attachments/category/114/Market%20Ab
use%20Regulation%20EU%20MAR%2005%2007%2016.pdf
49

• Is the PDMR permitted to trade during closed periods?
• Are transactions caught under the disclosure regime?
50
Action Trading permitted Disclosure arising
Adoption of plan ✓ ✘
Amendment of plan ✓ ✘
Sending out invitations ✓ ✘
Accepting an invitation ✓ ✓
Grant of option or award ✘ ✓
Vesting of option or award ✓ ✘
Exercise of option ✘ ✓

51
Action Trading
permitted
Disclosure
arising
SAYE Options: Invitations ✓ ✘
Applications ✓ ✘
Grants ✘ ✓
Exercises ✘ ✓
Sale of shares ✘ ✓
SIPs: Invitations ✓ ✘
Applications ✓ ✘
(Monthly) allocations of shares ✘ ✓
Transfers of shares to PDMR ✘ ✓
Sale of shares ✘ ✓
• Is the PDMR permitted to trade during closed periods?
• Are transactions caught under the disclosure regime?

52
Panel discussion
Peter Swabey FCIS Director of Policy and Research, ICSA
Guy Dixon Governance Consultant,
Bridgehouse Company Secretaries
Nilufer von Bismarck Partner, Slaughter and May
James Poole Team Manager, Company Secretarial
Services, Capita Asset Services

53
Viviane Joynes, CFind out more
Capita offers a range of services and online resources about MAR:
www.capitaassetservices.com/MAR

54
Viviane Joynes, CContact us
James Poole
Team Manager
T: +44 (0)344 39 11 926
M: +44 (0)7736 492 773
E: James.Poole3@capita.co.uk

MAR: panel discussion
James Poole, Team Manager,
Company Secretarial Services
Nilufer von Bismarck, Partner,
Slaughter and May
Guy Dixon, Governance Consultant,
Bridgehouse Company Secretaries

MAR: panel discussion
During the panel discussion, it was suggested that a link to the ICSA guidance note on MAR
addressing dealing codes and the Slaughter and May guidance on other MAR issues would
be helpful.
The ICSA guidance
https://www.icsa.org.uk/knowledge/resources/mar-dealing-code
Slaughter and May guidance
https://www.slaughterandmay.com/media/2535170/the-new-eu-market-abuse-regulation-
an-overview-for-uk-issuers.pdf

Davis Polk & Wardwell London LLP is a limited liability partnership formed under the laws of the State of New York, USA, and is authorised and regulated by the Solicitors Regulation Authority with registration number 566321.
Davis Polk & Wardwell London LLP
Continuing obligations: what premium and
standard listed companies need to know
Presented by
Will Pearce
Partner, Davis Polk
July 14, 2016

The UK listing regime
59
 Securities law has been harmonised
across the EU – minimum and maximum
harmonisation
 Differences in regulatory approach remain
 Listing in the UK is a dual track process
 London Stock Exchange (market) – LSE
Admission and Disclosure Standards
 Official List (regulatory) – Listing Rules
 Premium vs. standard segment
 Supervision by the FCA
 Reviews and approves admission and
documents
 Regulates compliance with continuing
obligations
 Monitors market disclosures
 www.the-fca.org.uk/markets/ukla
Prospectus Directive, Market
Abuse Regulation and
Transparency Directive
Delegated regulations
ESMA guidance
Financial Services and
Markets Act 2000
Listing Rules, Prospectus
Rules, Disclosure Guidance
and Transparency Rules
UKLA guidance

Communicating with the regulator
60
• Primary Market
Bulletin
• Procedural and
Technical Notes
• Status of
guidance
Knowledge
Base
• Urgent live market
situations only
• 020 7066 8354
from 7:00 am to
6:00 pm
Urgent
enquiries • Technical issues
relating to
sponsor services
only
• Named basis only
Enquiries by
sponsors
•Other requests
must be made in
writing
•Named basis only
•Fax 020 7066 8349
•ESS
Other
requests

Listing Principles
 Premium and standard
 Basis of FCA enforcement
Eligibility
 Premium only
 Eligibility requirements
additional to LR 2
 Controlling shareholder
regime
Transfer, suspension
and cancellation
 Reverse takeovers
Sponsor regime
 Premium only
 Obligation to consult or appoint
a sponsor
 Responsibilities of a sponsor
Continuing obligations
 Premium only
 Continuing compliance with
eligibility requirements
 Share issues
 Mandatory RIS
announcements
 Contents of Annual Report
Circulars
 Premium only
 Documents requiring FCA
approval
 Content requirements
Continuing obligations – listing
61
LR 7 LR 8
LR 9LR 6
LR 5 LR 13

Related party transactions
 Premium only
 Definition of related party
 Exempt transactions
 Relief for smaller transactions
 Shareholder approval
Class transactions
 Premium only
 Class tests
 Class 2 announcement
 Class 1 announcement,
circular and shareholder
approval
Reverse takeovers
 Requirement for
suspension
 Avoiding suspension
Share issues
 Premium only
 Rights issues, open offers and
placings
Prospectuses
 Requirement for prospectus –
public offer or admission to
trading
 Content, approval and
publication requirements
 Advertisement regime
Share buy-backs
 Premium only
 Requirements for purchases
from related parties,
purchases under 15% and
purchases of 15% or more
Continuing obligations – corporate transactions
62
LR 11 LR 9.5
PRLR 10
LR 5.6 LR 12

Dealings by managers
 Regime applies to PDMRs and
CAPs
 No dealing in closed periods
 Notification obligations
Insider lists
 Must keep insider lists
 Prescribed form
Disclosing inside
information
 Obligation to disclose
inside information
 Delay if in legitimate
interests
Financial reporting
 Half-Yearly Financial Report
 Annual Financial Report
Dealings by shareholders
 Notification obligation – 3% and
every percentage thereafter
 Requirement to announce total
voting rights
Corporate governance
 Requirement for audit
committee
 Annual corporate governance
statement
Continuing obligations – disclosure and transparency
63
MAR Art 19
& DTR 3
DTR 4
DTR 5
MAR
Art 18 &
DTR 2
MAR
Art 17 &
DTR 2
DTR 7

Regulatory enforcement
64
Lamprell fined
£2.4m by FSA
Oil rig maker Lamprell has
been fined £2.4m by the
Financial Services Authority
(FSA) over a “serious” failing
of its internal control systems
before it issued a series of
profit warnings last year.
March 2013
Reckitt
Benckiser
fined for
failing to
disclose
executive
share
dealings
The Financial Conduct
Authority found
weaknesses in the
company’s systems and
controls between July
2005 and October 2012.
January 2015
Russian oil firm
Exillon fined for
failing to disclose
payments to
chairman Maksat
Arip
Russian oil company Exillon
Energy paid out nearly £1m
on private jets, school fees
and credit card payments
for its former chairman
Maksat Arip - but failed to
disclose the payments.
April 2012
Nestor fined £175,000 over trades
Nestor Healthcare Group, a provider of social and primary care services
now part of Saga, has been fined £175,000 for allowing its directors to
trade in company shares without obtaining necessary approvals from the
board. The Financial Services Authority found that Nestor, listed on the
London Stock Exchange until the 2010 buyout, had proper policies in place
to prevent improper trading but “weak procedures allowed for this policy to
be forgotten by the board”.
February 2013
Tribunal sends out
warning on inside
information in wake of
Hannam case
Star rainmaker, Ian Hannam,
found to have committed
market abuse by tribunal
May 2014
Pru moves into top five
of FSA penalty league
with £30m fine
The regulator announced it had fined “companies
in the Prudential Group £30m” for breaching its
principles and the listing principles of the UK
Listing Authority. The fine was broken down into
£14m for Prudential plc for listing rules breaches
and £16m for Prudential Assurance Company.
April 2013
FCA fines Asia
Resource Minerals
£4.65m for listing
violations
June 2015

Questions?
65
Will Pearce
Partner, Corporate
will.pearce@davispolk.com
T: +44 (0)20 7418 1448
M: +44 (0)7785 254 976
This presentation has been prepared for general information only: it is not intended to be
exhaustive or to constitute legal advice.

Employee Share Schemes:
Balancing Risk and Reward
The ICSA Shares Conference 2016
14 July 2016
Stephen Woodhouse
Partner
Charlotte Fleck
Solicitor
www.pettfranklin.com

Employee Share Schemes
• Share plan design
• Taxation of employee share plans
– Basic tax treatment and statutory share schemes
– Operating an ESOT
• Malus and clawback
• Reporting requirements
• Market Abuse Regulation
©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 67

Employee Share Schemes
• Executive share plans
– Incentivise performance
– Align interests with shareholders
• Increasing criticism of option plans as focusing
executives on short-term share price rather than
long term value
– Need to think hard at the outset about performance
targets and metrics used
– How long is the long term?
• What do investors want?

Tax Treatment of Employee Share Plans
• Basic tax treatment
– Income tax on upfront value or on option exercise
– Capital gains tax on gain in value thereafter
• Need to make sure plan provides for operation of
PAYE - any holding requirements should normally
allow for sale of enough shares to cover tax
– S.222 charges – what about leavers?
• Tax is a reputational risk and there is increasing
concern about any planning perceived as tax
avoidance

Statutory Share Plans
• CSOP
– Market value share option with gain in value
above exercise price subject to CGT
– £30,000 award limit
• Sharesave/SAYE
– All-employee share option plan
– 3 or 5 year monthly savings contract – current nil
interest rates but option may be at a discount
– Employee can exercise or take out cash

Statutory Share Plans
• Share Incentive Plan
– Free shares – up to £3,600 pa
– Partnership Shares – up to £1,800 pa
– Matching Shares – up to £1,800 pa
– Dividend Shares
• Must offer to all employees on equal terms
• Concern over disparity between executive pay
and lower-paid employees – do share plans have
a role?
• Group plans – need to be careful to track
employee eligibility

Malus and Clawback
• Essential – but need to think hard at the
outset about circumstances in which operate
– Negative publicity over “rewards for failure”
– Discretion must be exercised reasonably and in
good faith
• How can you make sure clawback is
enforceable?
– Clauses should be clearly drafted and drawn to
attention of employee

Reporting requirements
• Directors’ remuneration reporting
– Can this become too complex and legalistic?
– Commercially sensitive information (e.g. performance
targets) should still be disclosed after the fact
• Voting on remuneration policies – shareholder
expectations becoming stricter?
• HMRC annual share scheme reporting
– Reporting by employees in Self Assessment returns –
should share awards be reported even where all tax
has been deducted under PAYE?
• Need to notify PDMR transactions to the market

Market Abuse Regulation
• MAR closed periods
• Insider dealing
• PDMR notification requirements
– Does not retain all Model Code exceptions for
employee share plans
– Need for clear internal policies and procedures
more acute than ever – can be fined for failing to
notify so not an afterthought

Questions?

Contact details
David Pett david.pett@pettfranklin.com mobile: 07836 657 658
William Franklin william.franklin@pettfranklin.com mobile: 07889 726767
Stephen Woodhouse stephen.woodhouse@pettfranklin.com mobile: 07836 756031
Charlotte Fleck charlotte.fleck@pettfranklin.com mobile: 07703 826 321
Office: 0121 348 7878
Twitter: www.twitter.com/pettfranklinLLP
For lots of information, go to our website:
www.pettfranklin.com

Brexit: panel discussion
Andrew Ninian, Director, Corporate Governance
and Engagement, The Investment Association
Will Pearce, Partner,
Davis Polk & Wardwell LLP
Stephen Woodhouse, Partner,
Pett, Franklin & Co. LLP

Brexit: panel discussion
During the panel discussion, it was suggested that a link to a reminder published by
the Financial Reporting Council on 12 July, highlighting “some matters for directors to
consider when preparing their forthcoming half-yearly and annual financial reports”
might be useful for delegates.
https://www.frc.org.uk/News-and-Events/FRC-Press/Press/2016/July/Reminders-for-
half-yearly-and-annual-financial-rep.aspx

ICSA Shares Conference July 2016

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ICSA Shares Conference July 2016