FRC issues new UK Corporate Governance Code

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16 Jul, 2018

The Financial Reporting Council (FRC) has published the new UK Corporate Governance Code together with revised Guidance on Board Effectiveness. The new Code applies for periods commencing on or after 1 January 2019.

The changes introduced are far reaching in some areas, and reflect the Prime Minister’s broad social reform agenda and desire to restore trust in UK business.

There are new Code principles on:

  • alignment of company purpose, strategy, values and corporate culture;
  • effective engagement with shareholders and stakeholders;
  • responsibilities of the board to ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success;
  • consideration of the length of service of the board as a whole and the need for regular board refreshment; and
  • alignment of remuneration and workforce policies to the long-term success of the company and its values.

There are 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;
  • succession planning and board member contribution;
  • diversity and inclusion;
  • the length and tenure of the chair;
  • board responsibility for identifying and assessing emerging risks (in addition to the principal risks);
  • holding periods for long-term incentive schemes; and
  • pension arrangements.

This is not a tweaking of the Code as in previous 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 to long-term success.

In addition to the changes to the Code, investors are bringing their own pressures to bear and increasing focus on matters such as director competence, the impact of climate change and alignment of KPIs to the drivers of long term value creation.

A press release, the Code itself and the Guidance on Board Effectiveness are available on the FRC website.  The FRC have also released a podcast which is available on its website here.

Our related Governance in brief publication is available here.

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