Corporate governance reforms – an update on timescalesPrint publication
Secondary legislation has been published setting out new reporting requirements. We look at how the changes to corporate governance will affect companies in 2019.
At the start of June the House of Commons Library published a briefing paper on corporate governance reform. The paper provides an overview of the existing corporate governance framework, including a history of the UK Corporate Governance Code and how it interacts with the directors’ duties codified in the Companies Act 2006. The briefing paper then goes on to explain the planned reforms announced by the Government in August 2017 and provides an update on timescales as to when these reforms will take effect.
As reported in our September Corporate Matters last year it was hoped that secondary legislation would be introduced in March of this year with the reforms taking effect by early summer. However, the Government has now indicated that the reforms will apply to financial years beginning on or after 1 January 2019 to coincide with the new UK Corporate Governance Code being introduced by the Financial Reporting Council.
To facilitate this new timescale draft secondary legislation was laid before Parliament on 11 June 2018. The draft Companies (Miscellaneous Reporting) Regulations 2018 (Regulations) introduce new company reporting requirements on executive pay, corporate governance arrangements, and how directors are having regard to the matters in section 172 of the Companies Act 2006. In the future, additional content will be required in the strategic report, directors’ report and directors’ remuneration report.
The Regulations will require quoted companies with more than 250 employees to:
- Report annually in their remuneration report on the ratio of CEO pay to the average pay of their UK workforce
- Provide a clearer explanation in remuneration policies of the range of outcomes from share based incentive schemes.
The Regulations also require:
- Companies to include in their strategic report a statement describing how the directors have had regard to section 172 of the Companies Act 2006 when performing their duties
- Companies with 250 or more UK employees to include in the directors’ report a statement on the extent of the company’s engagement with employees and other stakeholders and to provide further explanation on how the directors have complied with the duty under section 172 to have regard to these stakeholders
- Very large companies (more than 2,000 employees or a turnover of more than £200 million) to provide a statement of corporate governance arrangements in the directors’ report and also on the company’s website stating which corporate governance code, if any, they applied in the financial year in question.
The Department for Business, Energy and Industrial Strategy has published a list of frequently asked questions (FAQs) to help companies and stakeholders understand how they will be affected by the new reporting requirements. The Regulations are due to come into force on 1 January 2019 which gives companies six months to prepare for the changes. The team at Walker Morris can help if you are unclear as to how these changes will affect your corporate governance arrangements.