Revised NAPF Corporate Governance Policy and Voting Guidelines

Revised guidance for shareholders sets out what is expected from boards in key areas

The National Association of Pension Funds (NAPF) has published updates to its Corporate Governance Policy and Voting Guidelines, issued to help shareholders assess how the listed companies in which they invest comply with the UK Corporate Governance Code. The revised Guidelines replace the previous Guidelines (dated November 2011) and will be relevant to both companies and investors for the forthcoming 2013 AGM season.

The Guidelines refer to the latest version of the UK Corporate Governance Code, published in September 2012, and continue to state that NAPF’s policy is rooted in the provisions of the Code. As a result, the revised NAPF Guidelines do not introduce major new requirements but, on the whole, serve to re-emphasise certain matters. The Guidelines also refer favourably to the significant Government reforms to company reporting and executive remuneration which are currently in progress and to the Financial Reporting Council’s work to improve audit committee reporting and transparency.

Investors and stewardship

The Guidelines stress the importance of dialogue between issuers and investors, in particular, over the next year in developing their responses to the Government’s proposed reforms affecting company reporting and directors’ pay.

Tweaks to the wording of the Guidelines also indicate a renewed focus on the importance of responsible investment, in line with the FRC’s re-published Stewardship Code (September 2012) and NAPF’s first ever Stewardship Policy, issued in November 2012. Companies should continue to report effectively and listen to shareholder concerns, whilst investors are now also urged to appreciate the company’s approach to governance. The NAPF welcomes the increasing use of the Chairman’s statement to set out governance policies.

In addition, shareholders are actively encouraged to make use of all the powers at their disposal to support the highest standards of governance, including in relation to director re-elections, adoption of the report and accounts, approval of the remuneration report and appointment of the auditors, which NAPF notes “at present are only rarely challenged”.


The revised Guidelines clarify and re-emphasise what is expected from companies in order to promote greater diversity, in particular of gender.

Explanations to shareholders should include a description of the board’s policy on diversity (including professional, international and especially gender diversity), any measurable objectives that the board has set for implementing the policy and progress on achieving the objectives.

Statements on succession policy should cover the company’s policy on diversity, including gender. This means setting out diversity objectives and progress towards achieving them. The NAPF also states that it is opposed to diversity quotas but expects companies to set targets for gender diversity and to demonstrate progress towards achieving these.

Absence of a diversity policy may lead to shareholders abstaining on or opposing the re-election of the chairman of the nominations committee and/or the chairman of the board.

Absence of a statement on a diversity policy and its application may lead shareholders to vote against the election of a director, or in extreme cases the chairman.

Accountability and audit

The revised Guidelines strongly support the recent changes to the UK Corporate Governance Code which encourage enhancing the audit committee report to include an assessment of the effectiveness of the external audit process, the approach taken to auditor appointment and re-appointment, the length of tenure of audit firms, when tenders were last conducted and explaining how auditor objectivity and independence are safeguarded.

According to the NAPF, investors believe that auditor independence is crucial to audit quality. The NAPF, therefore, supports the Code recommendation that the external audit contract should be put out to tender at least every ten years, as this should allow the audit committee to compare audit firm services. This goes further than the previous encouragement that companies consider periodic tenders. Shareholders should be informed in advance of the decision to tender the audit contract.


NAPF believes companies should provide simpler remuneration arrangements and directors should be required to hold greater numbers of shares for long periods. Companies which choose to adopt the new Government regulations on directors’ pay in advance of their formal introduction in October 2013 can expect shareholders to review compliance rigorously, whilst acknowledging that best practice will still be evolving.

In addition, changes to the NAPF policy include a new statement that increases in directors’ base pay should be in line with the rest of the workforce. Remuneration committees should be prepared to use discretion when finalising pay arrangements to ensure that awards are aligned with the success of the business over time. In addition, the Guidelines stress that the remuneration committee should be in charge of its policies, not totally reliant on the advice of consultants and able and willing to justify its plans to both directors and shareholders.

Shareholders on the other hand should judge the suitability of pay arrangements by looking at how these link to the long term success of the company.


As before, companies are asked to explain in the annual report if directors are unable to attend a number of board or committee meetings. The Guidelines now clarify that this applies to all meetings, whether they were scheduled or ad hoc.

In addition the Guidelines include a new recommendation for directors’ contracts to be made available on-line for inspection by shareholders.

Shareholder dissent at meetings

NAPF continues to advise that where there have been significant votes against a resolution at a meeting companies should seek to understand and address the reasons for this. In addition, companies are now asked to disclose the outcome by way of an RNS announcement.

The new Guidelines

The revisions to the NAPF Guidelines were published on 4 December 2012. On the same day the NAPF published revised Corporate Governance Policy and Voting Guidelines for Smaller Companies (aimed primarily at AIM companies) and for Investment Companies. All three sets of revised Guidelines are available here.

Published by David Doughty

Serial entrepreneur, Software sales and marketing specialist, Chartered Director, Chief Executive, Chair, Non-executive roles in private and public sector, Business consultant and mentor.

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