FRC responds to BEIS Select Committee inquiry on corporate governance

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02 Nov, 2016

The Financial Reporting Council (FRC) has published a response to the Department for Business, Energy and Industrial Strategy (BEIS) Select Committee’s Corporate Governance Inquiry. In their response, the FRC acknowledge that although international investor confidence in the UK’s corporate governance is strong, the right balance needs to be struck between enterprise, investment and accountability to wider stakeholders.

In September 2016 BEIS launched an inquiry on corporate governance that focused on executive pay, directors’ duties and the composition of boardrooms, including worker representation and gender balance in executive positions. In their response to the BEIS inquiry the FRC make a number of key recommendations:

  • Closer attention should be paid by boards to their responsibilities under s172 of the Companies Act 2006 (duty to promote the success of the company) as regards both shareholders and wider stakeholders and reporting should cover how they have discharged these responsibilities.
  • A code or guidance directly applicable to the governance arrangements of large private companies should be developed.
  • A future review of the UK Corporate Governance Code should consider the role of the remuneration committee in having responsibility for a wider remit including the pay and conditions of the company workforce and reporting on the link between the company’s remuneration structure and its strategy.
  • The Government should review the current enforcement framework in order to establish an effective mechanism for holding directors and others in senior positions to account when they fail in their responsibilities.

Click here to access the related press release (link to FRC website).

Click here to access the FRC Response (link to FRC website).

Update 30 November 2016.

The FRC has written to BEIS to provide proposals as to how its recommendations on corporate governance, contained within its response indicated above, could be taken forward.  In its letter the FRC indicates that many of the changes that it is proposing will require changes to the UK Corporate Governance Code which the FRC can put into effect without additional powers.  However it does indicate that some regulatory reforms will need the Government to implement.  The full letter is available on the FRC website.

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