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FRC consults on a new-style UK Corporate Governance Code

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05 Dec 2017

The Financial Reporting Council (FRC) has today published a new-style UK Corporate Governance Code for consultation together with revised Guidance on Board Effectiveness and some questions on the future of the Stewardship Code.

This is not a tweaking of the Code, as in recent years, but a substantial re-write and simplification/reduction with the idea at its foundation that the focus of the revised Code is the company’s approach to governance through the application of the Code principles - principles which emphasise the value of good corporate governance to long-term success.

The revised Code also incorporates elements of the Government’s corporate governance reform agenda and proposes the removal of exemptions currently available for smaller listed companies (those outside the FTSE 350).

The revised Code proposes a number of new principles and provisions.

New Code principles on:

  • alignment of company purpose, strategy, values and corporate culture;
  • responsibilities of the board to the workforce and other stakeholders;
  • demonstrating independent and objective judgement from the chair (coupled with a hardening of the Code provision on independence so, for example, a tenure of longer than nine years would mean that a director was no longer independent); and
  • alignment of remuneration and workforce policies to the long-term success of the company and its values.

New Code provisions on:

  • the board’s role in monitoring and assessing culture;
  • mechanisms for gathering the views of the workforce;
  • reporting on how stakeholder interests, and the other matters set out in section 172, have influenced the board’s decision-making;
  • board conflicts of interest;
  • the chief executive’s responsibility for strategy and board information;
  • succession planning and board member contribution;
  • diversity and inclusion;
  • holding periods for long-term incentive schemes; and
  • pension arrangements.

It is proposed that the updated Code will be applicable to all companies with a premium listing of equity shares for periods commencing on or after 1 January 2019.

The consultation period ends on 28 February 2018.

The FRC plans to consult on specific changes to the Stewardship Code during the course of 2018.

A press release and the full consultation paper are available on the FRC website.  Our related Governance in brief publication is available here.

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