In December 2017, the Financial Reporting Council (FRC) published proposals for a revised UK Corporate Governance Code to reflect the changing business environment and help UK companies achieve the highest levels of governance. The revised Code is shorter and sharper, and builds on the findings from the FRC’s Culture Report published in 2016. It 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. The revised 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.
The revised Code is built on an updated set of Principles emphasising the value of good corporate governance to the sustainable growth of a company. By applying these Principles, following the more detailed Provisions and using associated guidance, companies will be better able to report how their governance structure contributes to its long-term success and achieves wider objectives.
Specific changes to the Code as requested by the Government’s response to the Green Paper Consultation on Corporate Governance Reform include:
• for companies to have a method of consulting with their employees;
• extending recommended minimum vesting and post-vesting holding periods for executive share awards from three years to five years;
• that chairs of remuneration committees should have at least 12 months’ previous experience; and
• specifying the steps companies should take when they encounter significant shareholder opposition to executive pay policies and awards.
The Code is supported by the revised Guidance on Board Effectiveness.
The consultation also includes questions to inform the future direction of the UK Stewardship Code, which will be published for consultation in late 2018.
Responses to the consultation should be sent to [email protected] by 28 February 2018.
For more information see www.frc.org.uk/news/december-2017