In Conversation: Looking ahead to the first reporting cycle of the 2024 UK Corporate Governance Code

Published: 9 September 2024

8 minute read

In our latest in-conversation podcast, Kate O’Neill, the FRC’s Director of Stakeholder Engagement and Corporate Affairs is joined by Maureen Beresford, Acting Head of Corporate Governance and Stewardship, to discuss the changes to the UK Corporate Governance Code that are coming into effect at the beginning of 2025 and the impact on the corporate governance landscape.

You can also listen on Apple Podcasts and Spotify.

Transcript

0:10
Hello there, and welcome to another FRC in conversation.

0:14
My name is Kate O'Neill.

0:15
I'm the Director of Stakeholder Engagement and Corporate Affairs here at the FRC.

0:20
And today I'm joined by Maureen Beresford, the Acting Director of Stewardship and Corporate Governance here at the FRC.

0:27
Welcome, Maureen.

0:29
Hi, Kate.

0:29
Good to be here again.

0:31
So here we are, Maureen, during the first podcast of the new school year and it's on the important topic of the UK Corporate Governance Code.

0:38
I don't know if you think that the last nine months have speed by, but that's when we announced the new code in January of this year.

0:47
And I mean, it was a busy time.

0:49
It's been really interesting to hear from our stakeholders how they're thinking about it and how they're thinking about reporting on it at the end of this year.

0:58
Yeah, Kate.

0:59
It does seem like a long time ago since we released the new code.

1:03
And just to remind everybody listening, the 2024 code comes into effect 1st of January next year.

1:10
So This is why we're providing this opportunity to just remind people what's in that code, what isn't in that code, and what we're trying to achieve by that code.

1:18
And maybe if I could just quickly run through the key changes, a lot more emphasis on outcomes-based reporting.

1:25
I do think that, you know, with the interest in internal controls throughout the consultation, this issue went a little bit under the radar.

1:32
But outcomes-based reporting is so important to tell your story as a company, to explain what you've done, to demonstrate good governance, but also be proportionate.

1:43
You know, outcomes don't happen all the time.

1:45
It's not a tick box against every policy.

1:48
Tell the reader what's important to them.

1:50
So I think outcomes-based reporting, we're excited that more companies will start reporting in that way.

1:56
And Maureen, I guess one of the things you emphasised through the extensive consultation.

2:02
And when we launched the code in January was companies should be talking about those things relevant to their strategy and their operating model.

2:09
And we've never expected companies to talk about anything other than that.

2:14
Absolutely.

2:15
I mean, what I've said on many of these podcasts, Kate, that it's important that companies make the distinction and the link between their strategy, their objectives, their purpose, etcetera, and work their governance around that and look at the corporate governance code, take its principles and apply them to the work that they are doing and explain that in their reporting.

2:37
And it's hardly a regulator's job like ours to dictate that to companies.

2:42
It's up to the boards and management of companies to come up with what that strategy, operating model, material risks are and explain them absolutely.

2:52
Again, you know it isn't for us.

2:54
The code provides that framework and it's comply or explain against the provisions of the other change that we've made in the 2024 code is we've been very, very clear in the provisions that you can explain.

3:06
I said this and many events, you're probably tired of hearing me say that.

3:11
Please explain what you're doing in terms of governance because that explanation is much more important than a boilerplate phrase or tick box piece of report that frankly doesn't give any insight into the governance of the company and doesn't actually give any kind of confidence to investors if they believe that you're just tick boxing.

3:34
Absolutely.

3:34
But I think, you know, and I think I said it almost as many times as you did, Maureen, during the process, but you know, it's this compiler explain is something we're most proud of in the code because it's a principles based code.

3:47
But I mean, you've said many times this gives the flexibility and, you know, puts the power into the hands of the company to explain itself.

3:54
Yeah.

3:55
And lots of responses to the consultation said that companies actually value that flexibility that we give them.

4:02
And we heard concerns that this was comply or else it absolutely is not comply or else.

4:07
Every time as the regulator, we see good reporting and good explanations.

4:11
We try to highlight them in our review, which will be coming out later this year.

4:15
So take a look at it and and we really want companies to take that opportunity to, as I said before, tell their story and be insightful.

4:24
And also I think during the revision of the code, I mean, every company, every sector, every size is different of companies.

4:32
So the complier explained does give companies that ability to really tell their story because it isn't going to be the same as anybody else's.

4:40
It won't be the same.

4:42
And I think one thing that I've also said many times is it's so easy when you're writing an annual report to pick up last year's report and effectively change the date and change some of the references.

4:54
But essentially, you know, not much has changed.

4:57
And it never fails to amaze me that companies are happy to put that out because there's lots of dynamic work going on in companies, there's some valuable work going on, there's great governance in the UK and I think sometimes we fail to showcase that and we should be proud of our governance.

5:14
We are world leaders in governance and we should actually be bigging this up rather than actually hiding it.

5:20
Maureen, we talked a lot in the consultation and in the launch of the code about the internal controls framework, and we'll come back to that in a minute.

5:28
But in the conversations with many of our stakeholders, I mean, were you surprised when people were saying, well, tell us what our material risks are and we'll report against them?

5:39
Yeah, I mean it's what you touched on earlier, isn't it, Kate?

5:42
As the regulator, we're not in a position to tell anybody what their strategy is, what their risks are, what their controls are, what their diversity policies should be, etcetera, etcetera.

5:54
We can't do that.

5:54
It's for companies to do the right thing for their employees, stakeholders and investors to kind of have long term benefits for everybody.

6:04
So we couldn't possibly make a decision on what someone's internal controls are and whether they're material or not.

6:11
It's not our job.

6:12
Before we touch on what we've got planned for the next few months, Maureen, on this provision 29, there's an extra year for companies to kind of get their framework and reporting framework in order.

6:26
For some companies, it's not going to be a big stretch, given that they're probably doing it for other jurisdictions already, that there will be some companies that this is new for.

6:35
Yeah, I think what we heard loud and clear from the consultation was that some companies know that it's either new for them or slightly different to what they've been reporting before.

6:44
It's not socks, as I've said many, many times.

6:47
So the reporting is going to be different for those companies that do socks.

6:50
But I think touching on this now, and I think we're going to come back to internal controls throughout the next few months, is to make sure that everybody is informing their board, their board are prepared for this.

7:02
They're prepared to write a declaration in three years.

7:05
This time they're thinking about their material controls, they're thinking about their risks, and they're linking them together.

7:12
It's not something that you can do in September of 2020.

7:15
Sixth companies need to have started that now.

7:18
We know that many, many have, and it's just our role as a regulator to remind people that if you're not starting now, please do.

7:25
We're happy to talk to people about their internal controls.

7:29
Come along to our events that we've got planned throughout the rest of this year and probably into next year on on internal controls and the new code.

7:37
And Maureen, one thing it's very clear that people needed to understand, we were not going to have an opinion and nor should we on whether the internal controls framework of a company is the right one detailed enough going into the right type of risk that is for the board to sign off and attest to.

7:56
It's absolutely for the board.

7:57
It's well, it's for board and it's for management and it's for for board committees.

8:01
And, you know, lots of work will be going into this.

8:04
So Maureen, in the annual review, do you pick out examples of where people are talking about material risks and give those as good examples of how?

8:13
And let's face it, these aren't just always, you know, risks on the downside, you and the team want to see people describe risks that provide opportunities for companies to deliver on their strategy.

8:24
Exactly, Kate.

8:25
I think many companies fall into the trip over almost and look for the risk that could be a negative impact on their company.

8:33
But actually lots of risks are opportunities.

8:36
We fully understand that some of that will be sensitive.

8:39
You're not wanting to report on your every opportunity that you might see.

8:43
But we do think that we shouldn't just be looking at the declaration about material controls.

8:48
We need to think about if we get the material controls right, we're identifying the key risks and there may be opportunities out of that.

8:55
And companies should be bold and be clear about what they are.

9:00
And also this helps the growth agenda, it helps competitiveness.

9:04
It's been on top of those issues that are both positive and negative.

9:09
And Maureen, I guess you've really touched on an important issue there.

9:13
I mean, if we are all thinking about growth and productivity as an agenda for the UK, companies that are well managed, that are thoughtful about risks and opportunities are going to be the ones that attract capital, are going to be the ones that are successful in their trade and dealing with all of their stakeholder universe.

9:32
So Maureen, what have we got planned for the rest of the year?

9:34
I mean, have you been twiddling your thumbs thinking I need to do a few more webinars?

9:38
Or if it's into a stage where you really want to help people as they approach the first reporting season and as you say, help them navigate perhaps some areas that are new to them?

9:48
I think that's right.

9:48
I wish I'd been twiddling my thumbs.

9:51
What we're planning to do, it's a new code.

9:53
It's not a huge change, but we want to make sure that everybody's got to report against the new code.

9:58
Come next year is ready for those changes.

10:01
They're clear what those changes are.

10:03
We found out in our consultation that there's lots of misinformation out there.

10:07
So I think it's better that it comes from the regulator to kind of highlight the key issues.

10:12
So we've got planned a few more of these podcasts.

10:15
We hope to do something specific on internal controls before Christmas and maybe another webinar, so really get the message out.

10:23
We want good reporting, we want reporting that is relevant to the company and we don't want any boilerplate reporting.

10:31
I think that'll be music to people's ears who may report on everything, which I think has been such a strong message from you and the team that it isn't report on everything, it's report on relevant information to your company and your strategy.

10:44
So Maureen, message to our listeners is to watch out on our website and subscribe the notes.

10:49
When we do some more podcasts, when the webinars plan, there may be some opportunities for stakeholders to meet with the team to either seek some input because the guidance we put out was very different, easier to access and use more in.

11:03
But I think it's been well received as a good guidance, being the word of the day, not rules, not requirements, but really helping people put some tools in their toolkit to comply or explain with the new code.

11:16
I would advise everybody to take a look at that guidance.

11:18
It's so easy to use.

11:20
You click through from the code on our website takes you to guidance, and it even takes you through to additional guidance from external sources.

11:27
So please take a look at that.

11:29
Take a look at our FAQs as well & up for future events as they become available.

11:34
Right Maureen?

11:35
Well, look, I think that this is a great initiative and a very forward thinking one because as we know, the first reporting cycle on anything new can be daunting for some people.

11:45
And I think the extra year on Provision 29 has been widely applauded because as you said, there are companies who this is a new step for them in that type of risk and internal control framework.

11:58
Yeah, exactly.

11:59
Thanks, Maureen.

12:00
Well, watch this face listeners.

12:02
There will be lots of activity in the next few months around the new code and the first reporting period and plugging the always well received annual corporate governance review.

12:12
Whereas Maureen has reminded us there's some fantastic examples of good practise and good ideas that can be adapted by some of our listeners when they're preparing their reports.

12:23
So thank you Maureen, and look forward to lots more in the autumn from you and the team.

12:28
Thank you.