News September 2012 FRC publishes updates to UK Corporate Governance Code and Stewardship Code

FRC publishes updates to UK Corporate Governance Code and Stewardship Code

28 September 2012
PN 010

Following consultation in April, the Financial Reporting Council (FRC) has today announced limited changes to the UK Corporate Governance Code and Stewardship Code intended to increase accountability and engagement through the investment chain. Both Codes will continue to apply on a “comply or explain” basis.
Changes to the UK Corporate Governance Code include:


  • FTSE 350 companies are to put the external audit contract out to tender at least every ten years with the aim of ensuring a high quality and effective audit, whether from the incumbent auditor or from a different firm. The FRC will be holding discussions with companies, auditors and investors to consider whether guidance on tendering would be useful;
  • Audit Committees are to provide to shareholders information on how they have has carried out their responsibilities, including how they have assessed the effectiveness of the external audit process;
  • Boards are to confirm that the annual report and accounts taken as a whole are fair, balanced and understandable, to ensure that the narrative sections of the report are consistent with the financial statements and accurately reflect the company’s performance;
  • Companies are to explain, and report on progress with, their policies on boardroom diversity. This change was first announced in October 2011, but its implementation was deferred to avoid piecemeal changes to the Code
  • Companies are to provide fuller explanations to shareholders as to why they choose not to follow a provision of the Code.
Changes to the Stewardship Code include:


  • Clarification of the respective responsibilities of asset managers and asset owners for stewardship, and for stewardship activities that they have chosen to outsource; 
  • Investors are to explain more clearly how they manage conflicts of interest, the circumstances in which they will take part in collective engagement, and the use they make of proxy voting agencies; 
  • Asset managers are encouraged to have the processes that support their stewardship activities independently verified, to provide greater assurance to their clients. 
Announcing the changes to the Codes, chairman of the FRC Baroness Hogg explained,

“The changes to the UK Corporate Governance Code are designed to give investors greater insight into what company boards and audit committees are doing to promote their interests, and to provide them with a better basis for engagement. The changes to the Stewardship Code are designed to give companies and savers a better understanding of how signatories to the Code are exercising their stewardship responsibilities.
We have aimed to keep these revisions to a minimum and change only those elements of the codes where consultation indicated real improvements could be made”.

The updated codes will apply from 1 October 2012.
The FRC has also published an updated edition of its Guidance on Audit Committees to reflect the changes to the UK Corporate Governance Code, and set out on its website transitional arrangements with respect to the introduction of ten year retendering, to ensure it can be introduced without significant disruption.
The UK Corporate Governance Code, which celebrates its twentieth anniversary in November, sets out good practice for UK listed companies on issues such as board composition and effectiveness, risk management, audit committees and relations with shareholders. It is normally reviewed every two years.
The FRC will carry out further consultation on whether changes are needed to those parts of the UK Corporate Governance Code dealing with remuneration when the Government’s legislation on remuneration reporting and voting has been finalised. Any changes following this consultation will be effected in the next edition of the Code.
The Stewardship Code, first published in 2010, sets out good practice for institutional investors on monitoring and engaging with investee companies and reporting to clients and beneficiaries.

Read or download the Guidance on Audit Committees - September 2012 (PDF)

Read or download the UK Corporate Governance Code - September 2012 (PDF)

Read or download the UK Stewardship Code September 2012 (PDF)

Read or download the Feedback statement on UK Corporate Governance Code and Guidance on Audit Committees - September 2012 (PDF)

Read or download the Feedback Statement UK Stewardship Code - September 2012 (PDF)

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. In addition to the publication of these documents, the FRC is also updating its revised International Standards on Auditing (ISAs) (UK and Ireland). The revisions give effect to proposals originally identified in Effective Company Stewardship: Next Steps published by the FRC in September 2011 and support changes to the UK Corporate Governance Code and Guidance for Audit Committees.