On 5 December 2017, the Financial Reporting Council (the “FRC”), as part of an on-going consultation process, published proposals for a revised UK Corporate Governance Code (the “Code”). The proposals, according to the FRC, aim to make the Code “shorter and sharper” and build on the findings from the FRC’s Culture Report published in 2016.
The revised Code, reduced in length from 32 pages to 13, is built on an updated set of 17 Principles, emphasising the value of good corporate governance to the sustainable growth of a company, followed by a more detailed set of 41 Provisions.
The revised Code places greater importance to the application of the Principles, with companies expected to demonstrate through their reporting how these are reflected in their strategy and business model, including the actions taken by the company.
The revised Principles and Provisions address the elements of governance most important to board effectiveness and corporate purpose, including a new focus on stakeholders, integrity and corporate culture, diversity and how the overall governance of the company contributes to its long-term success.
The key changes outlined in the revised Code include provisions to:
- adopt a method for obtaining workforce views;
- facilitate action to be taken in response to significant shareholder opposition to resolutions;
- intensify efforts to promote diversity;
- establish a whistleblowing procedure to allow anonymous reporting;
- review the independence of individual non-executive directors and the chair;
- ensure that any newly appointed chair of their remuneration committee has 12 months’ prior remuneration committee experience; and
- broaden the role of the remuneration committee to senior management as well as oversight for the wider workforce.
The revised Code has five sections:
- Leadership and purpose;
- Division of responsibilities;
- Composition, succession and evaluation;
- Audit, risk and internal control; and
The majority of changes have been made to the first three sections of the current Code, which broadly correlates to Sections A (Leadership) and B (Effectiveness). Section E of the current Code (Relations with shareholders) will be integrated within the revised Code. Section 4, which deals with audit, risk and internal control, remains largely unchanged.
Final responses to the consultation are due by 28 February 2018. The FRC anticipates that the revised Code will apply to all companies with a premium listing of equity shares on or after January 1, 2019.
The FRC has also published a revised Guidance on Board Effectiveness (which will be revisited once responses to the consultation on changes to the Code have been considered) and has started an initial high-level consultation on the future direction of the UK Stewardship Code, with specific changes to the UK Stewardship Code to be published in mid-2018, once the review of the Code has been finalised.
A full copy of the revised Code is available via the link below.