Proposals for a revised UK Corporate Governance Code
12 January 2018
The Financial Reporting Council (FRC) is consulting on proposals for a revised UK Corporate Governance Code (Code) to reflect the changing business environment and help UK companies achieve the highest levels of governance. They also reflect the findings from the FRC’s report on corporate culture and the role of boards, which was published in July 2016 (see Business Edge September 2016).
The revised Code focuses on the importance of long-term success and sustainability, addresses issues of public trust in business and aims to ensure the attractiveness of the UK capital market to global investors through Brexit and beyond. In developing its proposals, the FRC has also engaged with many stakeholders and incorporated suggestions from the Government’s response to the Green Paper consultation on corporate governance reforms (See Business Edge September 2017).
The proposed new Code sets out good practice so that the boards of companies can:
- Establish a company’s purpose, strategy and values and satisfy themselves that these and their culture are aligned
- Undertake effective engagement with wider stakeholders, to improve trust and achieve mutual benefit, and to have regard to wider society
- Gather views of the workforce
- Ensure appointments to boards and succession plans are based on merit and objective criteria to avoid group think, and promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths
- Be more specific about actions when they encounter significant shareholder opposition on any resolution, including those on executive pay policies and awards, and
- Give remuneration committees broader responsibility and discretion for overseeing how remuneration and workforce policies align with strategic objectives.
If finalised as proposed, the revised Code would be shorter and sharper, with ‘supporting principles’ being eliminated and the number of provisions being reduced. The proposals also feature some significant changes to the Code’s structure. To compensate for this, the proposed revisions to the Code are accompanied by proposed revised Guidance on Board Effectiveness.
Read the FRC’s full proposals. The consultation closes on 28 February 2018 and the FRC aims to publish a final version of the Code by early Summer 2018, to apply to accounting periods beginning on or after 1 January 2019.
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