Financial Reporting Council to review UK Corporate Governance Code
The Financial Reporting Council (FRC) has announced plans for a fundamental review of the UK Corporate Governance Code. The review will take account of work done by the FRC on corporate culture and succession planning and the issues raised in the government’s Green Paper and the BEIS Select Committee inquiry, published in November last year. The Green Paper formed the subject of a previous Equity Issues entitled ‘BEIS' Green Paper on corporate governance reform’.
The review will build on the Code’s globally recognised strengths developed over the past 25 years, namely the unitary board, strong shareholder rights, the role of stewardship and the "comply or explain" approach, while considering the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.
The BEIS consultation was launched against a background of concerns around levels of executive pay, to increase shareholder representation and influence on boards and to create a stronger corporate governance framework for large, privately-held companies. The consultation was part of the government’s commitment to ensure a level playing field in relation to corporate governance rules.
The Green Paper considered three aspects of corporate governance where the government considers there could be particular scope to build on and enhance the current framework:
1. Executive pay - the government's objective is to achieve executive pay that is long term, fair, transparent and related to performance;
2. Strengthening the employee, customer and supplier voice in the boardroom; and
3. Corporate governance in the UK’s largest privately-held businesses.
The Green Paper also invited suggestions on other themes, ideas or proposals that could be explored which could strengthen the UK's corporate governance framework.
The FRC will commence a consultation on its proposals later in 2017, based on the outcome of the review and the government's response to the Green Paper. To guide the review, the FRC will seek input from a range of stakeholders, including its recently established Stakeholder Advisory Panel of high profile representatives from a wide variety of sectors.
In its response to the Green Paper, the FRC will highlight the importance of helping boards take better account of stakeholder views, linking executive remuneration with performance, and extending the FRC’s enforcement powers to ensure that disciplinary action can be taken against all directors where there have been financial reporting breaches.
In the FRC press release, Sir Win Bischoff, Chairman of the FRC, states that: “The Prime Minister has a vision of an economy that, in her words, ‘works for everyone’. This needs UK businesses to thrive so that all stakeholders including workers, customers, suppliers and society itself benefit through jobs growth and prosperity. With all this in mind, we will conduct a review of the current UK Corporate Governance Code. This will consider the appropriate balance between the Code’s principles and provisions. In pursuing any changes, the current strengths of UK governance: the unitary board, strong shareholder rights, the role of stewardship and the ‘comply or explain’ approach, must be preserved.”
He went on further to say: “Values, behaviours and corporate culture are central to the way an organisation achieves its objectives and embeds an effective governance structure. By weaving these attributes into a business model, companies are not just contributing to the overall success of their business but creating an environment on which all stakeholders can depend. And in that way, they create sustained growth for the long-term.”
This document is for general guidance only. It does not contain definitive advice.
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6 March 2017