FRC announces new UK Corporate Governance Code

The FRC this week released the revised UK Corporate Governance Code. A ‘shorter, sharper’ Code, the FRC’s renewed focus is on the application of the principles with a move away from a tick box approach to more 'clear and meaningful' reporting.

The FRC this week released the 2018 UK Corporate Governance CodeA ‘shorter, sharper’ Code, the FRC’s renewed focus is on the application of the principles with a move away from a tick box approach to more 'clear and meaningful' reporting. The main changes to the Code include:

Workforce and stakeholders: There is a new Provision to enable greater board engagement with the workforce to understand their views. The Code asks boards to describe how they have considered the interests of stakeholders when performing their duty under Section 172 of the 2006 Companies Act. The new Code asks companies to explain how they have done this, consistent with the FRC’s guidance on the Strategic Report.

Remuneration: There has been much public concern over executive remuneration, and to address this, the new Code emphasises that remuneration committees should take into account workforce remuneration and related policies when setting director remuneration. Importantly formulaic calculations of performance-related pay should be rejected. Remuneration committees should apply discretion when the resulting outcome is not justified. LTIPs and share-based bonuses should run over at least five years; the previous code had no minimum period.

Shareholders:  Companies should explain the actions they intend to take to consult shareholders when more than 20% of votes have been cast against a resolution. They should also publish an update no later than six months after such a vote, and a final summary should be included in the annual report detailing the impact that shareholder feedback has had and any actions it has subsequently taken.

Culture: Boards are asked to create a culture which aligns company values with strategy and to assess how they preserve value over the long-term.

Succession and diversity: The new Code emphasises the need to refresh boards and undertake succession planning, to ensure that the boards have the right mix of skills and experience, constructive challenge and to promote diversity. Boards should consider the length of term that chairs remain in post beyond nine years. The new Code strengthens the role of the nomination committee on succession planning and establishing a diverse board. It identifies the importance of external board evaluation for all companies. The new code makes no recommendations for specific targets for ethnic-minority representation on boards, and there is no proposal that boardrooms have a worker representative.

Published 15 July, 2018

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