John Britton, Governance and Industry Officer

Following several significant corporate failings over the preceding years, the government of Theresa May published a green paper on the reform of UK Corporate Governance in late 2016.

The green paper asked questions in relation to proposed options for reform in three key areas - executive pay, strengthening the voice of stakeholders and the corporate governance of large private businesses.

The key actions from the paper included:

  • Check circle iconIntroducing a register, maintained by the Investment Association (IA), logging the details of significant votes against company resolutions;
  • Check circle iconEncouraging the IA and Institute of Chartered Secretaries and Administrators (ICSA) to publish joint guidance on stakeholder engagement; and
  • Check circle iconInviting the Financial Reporting Council (FRC) to revise the UK Corporate Governance Code.

The FRC published their consultation on proposed changes to the UK Corporate Governance Code in late 2017. This was open for comments until February 2018.

On 16 July, the FRC published a revised UK Corporate Governance Code 

This revised Code emphasises (1) positive relationships between companies, shareholders and other stakeholders; (2) the importance of businesses having a clear purpose and strategy aligned to a healthy culture; (3) ensuring diversity and quality of boards; and (4) promoting remuneration which is proportionate and supports long-term success.

The changes in key areas of the Code are:

  • Check circle iconStakeholder engagement
    • Check circle iconImprove relationships between the board/company and wider range of stakeholders (for example, the local community)
    • Check circle iconEncourage engagement with the workforce using one or a combination of the following methods, or explain their alternative arrangements:
      • Check circle iconDirector appointed from the workforce
      • Check circle iconFormal workforce advisory panel
      • Check circle iconDesignated non-exec director.
  • Boardroom
    • Check circle iconFocus on diversity, length of board service and effective board refreshment
    • Check circle iconThe Chair should ideally not hold office for longer than nine years, unless it's only for a limited period and an explanation for the extension is provided
    • Check circle iconAnnual evaluation of the board members performance, both individually and the committees they form.
  • Remuneration
    • Check circle iconTightened criteria for remuneration policies and practices
    • Check circle iconBetter reporting on remuneration and how it will support the company's strategy and long-term success, while also explaining how it aligns to the wider workforces' remuneration.

As with previous revisions the Code doesn't provide set rules, but allows companies to flex their approach through the use of principles and the 'comply and explain' method of reporting. The Code is now supported by the Guidance on Board Effectiveness which can be found here.

The revised Code has been drafted to focus on the principles and allow for the board report to be effectively evaluated, and demonstrate how the company's governance contributes to its long-term success and wider objectives.

The 2018 Corporate Governance Code can be found here. It will take effect for financial years beginning on or after 1 January 2019.