News April 2014 Consultation on the UK Corporate Governance Code published

Consultation on the UK Corporate Governance Code published

24 April 2014

PN 021/14

The Financial Reporting Council (FRC) today is consulting on its two-yearly review of changes to the UK Corporate Governance Code following earlier consultations on directors’ remuneration (October 2013) and risk management, internal control and the going concern basis of accounting (November 2013).

The UK Corporate Governance Code sets out good practice for UK listed companies on issues such as board composition and effectiveness, risk management, directors’ remuneration and relations with shareholders. The Code operates on a ‘comply or explain’ basis. It was established in 1992 and is usually reviewed by the FRC every two years with a full consultation on all proposed changes.

The proposed changes to the UK Corporate Governance Code are that:

  • greater emphasis be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee;
  • companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration;
  • companies should explain when publishing AGM results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution;
  • companies should state in their financial statements whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so;
  • companies should robustly assess their principal risks and explain how they are being managed and mitigated;
  • companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months; and
  • companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.

Commenting on the consultation, Stephen Haddrill explained:

“The role of the board is to ensure the sustained success of their company and exercise responsible stewardship on behalf of their shareholders. To do this effectively they need to understand and manage the risks to the future health of the company. The remuneration of executives on the Board must also incentivise them to put the company’s well-being before their own. These proposals, which reflect the views of investors and others on earlier consultations, are intended to encourage boards to focus on the longer-term, and increase their accountability to shareholders.”

Subject to the outcome of the consultation, which closes on Friday 27 June 2014, the proposed changes will apply to financial years beginning on or after 1 October 2014.

Notes to editors:

  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

  2. Under the UKLA’s Listing Rules, all companies with a Premium Listing of equity shares are required to report on whether they have complied with the provisions of the UK Corporate Governance Code and, if not, explain to shareholders the reasons why they have not done so.