The revised UK Corporate Governance Code takes a step closer

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As reported previously, on 5 December 2017 the Financial Reporting Council (FRC) published for consultation proposed revisions to the UK Corporate Governance Code and Guide on Board Effectiveness (Code). The proposed revised Code is fundamentally rewritten and is shorter and more concise than the existing version, comprising 17 Principles and 41 Provisions.

The period of consultation closed on 28 February 2018 and various responses were received from bodies such as the Pension and Life Savings Association (PLSA), the Institute of Directors (IoD), the Law Society, NEDonBoard and various accountancy practices.

In general the new ‘shorter and sharper’ Code was welcomed with a few provisos. The PLSA in particular welcomed the measures to incorporate stakeholder perspective in corporate governance structures. It also set out its views on the various characteristics that different vehicles for stakeholder representation should include. The response from the PLSA went on to include recommendations to enhance the stewardship code, including clearer guidance for asset owners that invest in companies through an asset manager, rather than directly, and enhanced provisions relating to the social and environmental impact of investments.

In its response, the IoD has called for tougher rules on executive pay including greater transparency over the effect of share buybacks and clearer criteria covering when bonuses can be clawed back for failures. The remuneration committee at large listed companies should be made to report whether boards which had decided to buyback the company’s shares had then seen a boost in the packages paid out to executives. The IoD has also called for the revised Code to force companies to make clear that executives would have to pay back bonuses in cases of gross misconduct, material accounting restatements or insolvency.

WM comment

The FRC aims to publish a final version of the Code by early summer 2018 and we will keep you updated as to progress. The new Code will apply to accounting periods beginning on or after 1 January 2019. The FRC plans to publish a consultation on changes to the Stewardship Code during the middle of 2018.