New corporate governance compliance requirement for some Irish listed PLCs

The 2018 UK Corporate Governance Code (the New Code) replaces the version of the Code issued by the UK's Financial reporting Council (FRC) in April 2016.  The New Code applies to financial years beginning on or after 1 January 2019. Consequently, companies that are subject to the New Code must take the necessary steps to ensure that their policies and procedures are updated this year, in order to ensure compliance with it during 2019, so that such compliance can be reported on in the company's annual report issued in 2020.

Application of the New Code to some Irish listed PLCs

The New Code will apply to any Irish-incorporated PLCs with a premium listing on the London Stock Exchange. Although the Main Securities Market (MSM) Listing Rules of the Irish Stock Exchange (ISE) (now trading as Euronext Dublin), do not appear to have yet been updated to refer to the New Code- they still refer to the 2016 version- the ISE has indicated that it views the New Code as also applying to Irish-incorporated PLCs admitted to trading on the MSM of the ISE, on a "comply or explain" basis (see the Irish Corporate Governance Annex set out in Appendix 4 to the MSM Listing Rules for more information). 

New Code requirement

An interesting issue that arises for Irish-incorporated PLCs that are subject to the New Code relates to the obligation that the annual report should describe how "key stakeholder" interests, and the matters under section 172 of the UK Companies Act 2006, have been considered in board discussions (there is incidentally also a separate legal requirement under another UK law for large UK companies to explain how their directors have had regard to the employee and other non-shareholder interests set out in section 172).

This requirement to specifically address s 172 of the UK 2006 Act was not contained in the 2016 version of the Corporate Governance Code. 

Section 172 of the UK 2006 Act requires directors of an English company to have regard to a wide range of matters (such as the likely consequences of any decision in the long term, and the interests of its employees), in seeking to "promote the success" of the company for the benefit of its members as a whole.  

There is no equivalent to Section 172 of the UK Act in our Companies Act 2014. The closest approximation is probably to be found in s. 228(1)(a), which codifies the common law duty to act in good faith in what the director considers to be the interests of the company.

Compliance with the new requirement

While Irish-incorporated PLCs are not generally subject to the provisions of the UK Companies Act 2006, it seems likely that the board of an Irish PLC which is anxious to be seen to be in compliance with the New Code will be expected to describe, in its annual report for 2020, how the matters mentioned in section 172 of the UK Act have been considered, during 2019. This would require the board to consider how the directors have, in practice, acted during 2019 in the way they considered would be most likely to "promote the success" of the company, within the meaning of s 172 of the 2006 Act- even though this is a provision of English law which is not binding on the Irish PLC. 

Another interesting point is that the expression "key stakeholders" is not defined in the New Code, but it appears to mean persons with an interest in the company, other than its shareholders. According to FRC guidance, the expression is "likely to include the workforce, customers and suppliers. It may also include other stakeholders who are specific to the company’s circumstances, such as regulators, government, bondholders, banks and other creditors, trade unions and community groups". 

As a practical matter, the PLC's board may need to take legal advice in relation to this, in order to be sure that that it has identified its "key stakeholders", and that the relevant issues under s 172 will be properly considered throughout 2019 (and subsequent years), in the light of recent UK case law and UK PLC board practice, e.g. as to how to comply with the so-called "enlightened shareholder value" principle, which is said to underpin s 172. They may also need to consider recent guidance on issues to look out for in this area, such as that published by Institute of Chartered Secretaries and Administrators and the Investment Association, and recent GC100 Guidance on Directors’ Duties. 

For more information in relation to this topic, please contact Jack O'Farrell, Consultant, or any member of A&L Goodbody's Corporate and M&A team.

Date published: 30 January 2019