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The FRC issues revised Corporate Governance Code

Key changes include increased focus on outcomes reporting, reinforcement of ‘explanations’ (where Code departures are more appropriate) and improved transparency around internal controls and 'malus and clawback' arrangements/usage. Revised supporting guidance has also been issued, aimed at being less prescriptive.

The FRC's revised Corporate Governance Code was released on 22.1.24. Most key changes come into effect from January 2025 and include:

  • Boards being asked to make a declaration that their material controls are effective as at the date of the balance sheet (NB delayed until January 2026);
  • Reporting on governance should focus on evidencing the outcomes of good governance (new Principle C), rather than making boilerplate statements;
  • Specific reference within the Code (Principle C) to the use of explanations in the context of 'comply or explain', to try to dispel the misperception of 'comply or else';
  • Boards should assess and monitor how their desired culture has been embedded (Provision 2);
  • Principle J has been amended to remove the list of diversity characteristics and allow diversity policies to be wide ranging; and
  • The inclusion of a specific reference to malus and clawback, with new Provision 38 requiring a description of malus and clawback provisions in the ARA (effective from January 2025), including:
    • the circumstances in which malus and clawback provisions could be used:
    • a description of the period for malus and clawback and why the selected period is best suits to the organisation; and
    • whether the provisions were used in the last reporting period. If so, a clear explanation of the reason should be provided in the ARA.

Revised supporting guidance was published on Monday 29th January, available here, which has been re-cast as less presciptive. For the first time there is a section covering good practice for the successful management of board committees, and other new additions include reference to:

  • Outcomes based reporting;
  • Board performance reviews;
  • Audit Committees and the External Audit: Minimum Standard;
  • The determination material controls; and
  • Declaration of effectiveness of material controls.

The FRC prepared a useful summary of the key changes to the Code here, and a 2024 Code 'mythbuster' here.

FRC Press release: FRC Revises UK Corporate Governance Code

The FRC hosted a webinar on the updated Code on 23 January (recording is available), with a further 'deep dive' webinar on internal controls on Tues 30 January (recording also available).

Published 29 January, 2024