UK Corporate Governance Code what changes have been proposed and do they go far enough?
It has been five years since the Financial Reporting Council (FRC) last overhauled the UK Corporate Governance Code.
Since then (2018), a series of corporate scandals at companies including retailer BHS, outsourcer Carillion and café chain, Patisserie Valerie, have ramped up calls for stricter controls on risk management and for more transparency in the decision-making process at top companies.
Those devastating collapses prompted a 2021 government consultation to shake-up the audit and corporate governance regimes. Ministers have decided not to legislate on some of the more contentious issues, opting instead for the more business friendly approach of overhauling the Corporate Governance Code.
The FRC (which oversees the Code) has responded with plans, aimed at increasing boards’ responsibility for accurate accounts and strengthening board accountability for misconduct, including measures to clawback directors’ remuneration in the event of misconduct or other serious failings.
As a result, under the revised Code companies would be expected to include such provisions in directors’ employment contracts.
Companies would also be expected to disclose in annual reports the “minimum circumstances” in which these provisions could be triggered and whether they have been used in the most recent financial year. Revisions to the Code are open to public consultation until mid-September and will come into force from 1 January 2025.
The Code applies directly to companies with a premium London listing and board directors can choose not to comply so long as they explain their reasons.
Many of the new recommendations in the Code will also be relevant to large unlisted companies falling within the definition of a Public Interest Entity (businesses with more than 750 employees and a turnover of more than £750 million). In the future, all such companies (listed and unlisted) will have to publish a Resilience Statement setting out their approach to risk management. It should also be noted that the Code is often used as a reference point for organisations of all kinds as it is seen as an exemplar to aspire to, even for relatively small businesses.
The Institute of Directors has submitted its consultation response to the Financial Reporting Council in respect of proposed changes to the UK Corporate Governance Code.
On 26 July 2023, the IoD hosted a webinar – UK Corporate Governance Code: what changes have been proposed and do they go far enough?
We look here at some of the key changes to the Code and what our expert panel had to say about it.