UK Round up: Dividend disclosure improves

The quality and quantity of dividend policy and practice disclosures have improved in the UK, according to a study conducted by the Financial Reporting Council’s (FRC) Financial Reporting Lab.

The study examined how companies had responded to the Lab’s earlier report, Disclosure of dividends – policy and practice, published in 2015. This report recommended improvements to dividend policy and dividend practice disclosures.

dividend policy

Stephen Haddrill FRC chief executive

Based on input from companies and investors this report proposed that good dividend policy disclosure should provide an understanding of the board’s considerations in setting the policy; the rationale for the approach selected, and sufficient detail to understand how the policy will operate.

Good dividend practice disclosure was identified as including the key judgements and constraints considered by the board in applying the dividend policy; the availability of dividend resources, including cash and distributable profits, to pay dividends and a clear linkage from the disclosed policy to its application in the period.

This latest study reviewed all the FTSE 350 annual reports published in 2016 that was also in the FTSE 350 at the end of 2015 – 313 companies in total – to assess the extent to which disclosure practice had changed. The Financial Reporting Lab looked for indications of change, either in the amount or nature of reporting.

The study found that 132 companies now implemented some of the disclosure recommendations from the dividends report being the most noticeable change, the inclusion of a reference to distributable profits or distributable reserves with 58% of the FTSE 100 making some level of disclosure compared with 40% in 2015.

The survey also found that 48% disclosed the specific level of distributable profits/reserves of the holding company; or the elements of distributable profits/reserves which are not distributable; or referred to distributable reserves as sufficient or significant.

The largest improvements have been seen in the FTSE 100 with only 30% of companies in the FTSE 250 making some disclosure on distributable profits/reserves.

The latest report recommended four ways in which disclosures could be improved further:

  • Identifying the explicit links between the dividend policy and the potential impact of the company’s principal risks and viability;
  • Enhancing the disclosure on any constraining factors to dividend payments;
  • Explaining more fully what the policy means in practice; and
  • Clarifying where profit is generated in the group, how profits might flow to the top of the company and any relevant constraints (current or potential) to that flow.

Phil Fitz-Gerald, Director of the Financial Reporting Lab, said: “We are pleased that companies have responded to what investors asked for in the Lab’s report findings in 2015. Investors find this information particularly useful to evaluate the board’s stewardship of the company and assess prospective dividends.

“We urge more companies, particularly those outside of the FTSE 100, to take on board the findings of the original Lab report to improve their disclosures in the coming reporting season.

Deloitte publishes UK corporate governance checklist

Accountancy firm Deloitte has published a checklist for UK listed companies to ensure they meet the key corporate governance disclosure requirements.

The checklist covers the requirements that companies must meet under the Listing Rules, the 2016 UK Corporate Governance Code, the 2016 revised Guidance on audit committees, the Disclosure & Transparency Rules and the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.

FRC Annual Meeting: Regulator emphasises stakeholder engagement

At the FRC’s recent annual meeting chief executive Stephen Haddrill said that the regulator had refreshed its mission statement to be to promote transparency and integrity in business which he said was sharper language than the FRC had before.

Haddrill explained that “transparency” made a stronger connection with the wish for more relevant information from the business. “Integrity” aligned with the FRC’s work on culture, the role of leadership and the pursuit of improved governance, both in the corporate sector and in the professions and audit firms.

He added that the new mission also aligned with the needs of the broader stakeholder audience – while the investor audience remained very important. He said now more than ever the FRC must take into account broader public expectations and the FRC’s new stakeholder panel was helping it achieve this.

Standard Life Aberdeen chairman speaks out at Tory Party Conference

Sir Gerry Grimstone, chairman of Standard Life Aberdeen, stated that the government’s corporate governance reforms are not radical enough according to a report in the Daily Telegraph.

The comments were made at a fringe event at the Conservative Party Conference. Grimstone was also reported to have backed plans for a listing of petroleum giant Saudi Aramco in London. This is considered controversial as it would involve the relaxing of listing rules for state-backed entities. Grimstone, however, said there was no evidence the company was badly run.

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