In conversation with Sir Keith Skeoch, Chair of the Pre-Emption Group

Published: 5 March 2024

4 minute read

Following the publication of the Pre-Emption Groups’ first report, Stephanie Blenko, senior policy associate in the Stewardship team at the FRC sits down with Sir Keith Skeoch, Chair of the Pre-Emption Group to discuss the first report monitoring the use of the 2022 statement of principles on the disapplication of pre-emption rights for UK listed companies.

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Transcript

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Welcome to this FRC podcast. On behalf of the Pre-Emption Group, I'm Stephanie Blanco, a Senior Policy Associate on the Corporate Governance and Stewardship team at the Financial Reporting Council. We carry out the Secretariat function for the Pre-Emption Group. Pre-emption rights give existing shareholders of the company priority to participate in future share issues, protecting their ownership status from being diluted. However, UK companies can seek authority from their shareholders to disapply these rights through special resolutions at general meetings. The Pre-Emption Group is responsible for issuing

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guidance on how companies may seek to disapply pre-emption rights. I'm speaking today with the chair of the Pre-Emption Group to discuss the group's first report monitoring the use of the 2022 statement of Principles. Hello, I'm Sir Keith Skeoch. I am the chair of the Pre-Emption Group and took on that role in 2022 following Mark Austin’s review of secondary capital raising in the UK. Thanks, Keith. You mentioned the Treasury's UK secondary capital raising review. Its objective was to improve the efficiency of the capital

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raising processes of listed companies. What recommendations were made to the Pre-Emption Group in the final report? The first thing I should say, Stephanie, is the group did welcome the review and at the time we released a statement committing to action. The recommendations which broadly focused on two areas. The statement of principles attached to pre-emption rights and also the group's governance. So, on updating the statement of principles, we really look to do two things. First of all,

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increase the routine disapplication authority request from 5 + 5% to 10 + 10%. And that reinstated the temporary increases that were in place during the pandemic in 2020 when companies were themselves responsible in seeking enhanced authority based on their needs and market conditions. The second thing in our update was to create the opportunity for an additional 2% follow on for each component. And then the

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second big thing we did was started to implement the recommendations on improving the governance and transparency of the Pre-Emption Group. So we updated the terms of reference. We put in place a new membership which better reflects the UK marketplace. There's an improved web page now hosted on the FRC website and we reinstated the annual monitoring report. Yes, we certainly had our work cut out for us and we've been very hard at work since July 2022

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implementing many of those changes and updates. So that brings us to the release of this report, the 1st Annual Monitoring Report. Looking at the 2022 Statement of Principles, what information were we most interested to examine within the data analysis? The first thing, Stephanie, we were interested in was the size of company disapplication requests for authority. The new statement of principles increases the maximum threshold, but companies may seek a smaller percentage depending on their anticipated needs and circumstances

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over the subsequent 12 months. We were also very interested on shareholder voting on disapplication authority requests and we wanted to understand investor support in particular for that enhanced level of disapplication. Excellent. We were really keen to capture within the report both the company view as well as the investor view of the new statement of principles. So the report monitors the market from the point of implementation of the new principles

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in November 2022 all the way to the end of July 2023 to roughly capture the bulk of AGM season. What did the data show over this. It showed that there was quite a lot of attention to this issue. So 289 out of the Footsie 350 companies tabled resolutions seeking disapplication authority. Just under 56% of these companies sought enhanced disapplication authorities and those were really beyond what was previously

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permissible under the PEG guidelines. And then just under 99% of companies tabled a resolution seeking disapplication authorities and had these resolutions passed by their shareholders. But you said it was just under 99% that had those resolutions passed. So that there were in fact a few companies that weren't successful in seeking this application authority. What can you tell us about that small percentage of resolutions that failed? It was a very small number of companies that saw resolutions failed. In fact 5 in all, I think it's

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important to say that this didn't illustrate a pattern of dissent against the enhanced authority. What we can tell from stakeholder engagement is the group the PEG is confident that dissent in these cases was due to company specific concerns with capital raising. We were also aware that a small minority of investments are voting against all resolutions seeking enhanced disapplication authorities due to a fundamental disagreement with the new principles.

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It's our hope that the findings in this report will generate a degree of confidence in these investors and that they will see the benefits of enhanced disapplication authority. But we will continue to monitor votes against and it may be useful for the peg to engage further to fully understand the concerns of the minority absolutely. Well, we'll certainly keep an eye on that segment of the market in our subsequent monitoring reports. Are there any other key messages that readers should take away from the report?

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There's one really important issue and that is the key objective of the pre-emptions group is to improve transparency between companies and their investors so we can look at and see and analyse the impact of the changes that have been made. Therefore, it's really important that where companies use the disapplication authority granted to them by their shareholders, they also submit a post transaction report detailing how shareholders have been

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consulted and their needs considered in the capital raising. These reports should be sent to the group secretariat e-mail. More details can be found in Part 2B of the principles. But this is something which is really, really important if we're going to continue to build and grow confidence in this new set of principles. Absolutely. And I know that the report touches on the fact that one of our key objectives for this coming year is to implement one of the final recommendations of the UK secondary capital raising review,

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which is to implement a public database of these post transaction reports so that the information is widely available. Well, thank you very much for your time today. You've given us some really useful insights into the work of the Pre-Emption Group and the key findings from the monitoring report. Thank you so much. And I know that those listening will find this very helpful. Thank you. Stephanie.