The new Code is here. What’s changed?
Today, the FRC released the 2018 UK Corporate Governance Code. The Code, which has been described as a “new shorter, sharper Code”, will apply to accounting periods beginning on or after 1 January 2019. The Code is applicable to all companies with a premium listing on the London Stock Exchange, whether incorporated in the UK or elsewhere.
The new Code will see more emphasis being placed on the relationships between companies, shareholders and stakeholders, and will focus on creating a corporate culture that is more aligned to the Company’s purpose and strategy, whilst promoting an increase in integrity and diversity.
Sir Winfried Bischoff, Chairman of the FRC, said that “to make sure the UK moves with the times, the new Code considers economic and social issues and will help to guide the long-term success of UK businesses”.
What are the main changes?
- Workforce and stakeholders: the new Code will encourage the board to engage more with its workforce in order to understand its views. It will also be required to describe how it has considered the interests of its stakeholders when performing its duty.
- Culture: the board will be asked to create a culture which aligns its company values with its strategy, and to assess how it can preserve value over the long term.
- Succession and diversity: the Code emphasises the importance of refreshing the board and partaking in succession planning.
- Remuneration: the Code asks for remuneration committees to take into account workforce remuneration and policies when setting director remuneration.
The success of the Code depends crucially on the way that boards and companies decide to apply the principles. There is no rigid set of rules; the Code offers flexibility on a “comply or explain” basis. The focus should be on reporting how the principles have been applied, what action has been taken and the resulting outcomes.
The new changes are expected to “drive improvements in how boardrooms engage with employees, customers and suppliers, as well as shareholders, delivering better business performance and public confidence in the way businesses are run.” (Greg Clark, FRC Business Secretary)