Changes to the UK Corporate Governance CodePrint publication
The Financial Reporting Council (FRC) has published changes to the UK Corporate Governance Code (the Code). The following are the principal changes of which issuers will need to be aware in their reporting:
- the preface has been amended to emphasise the importance of the board in setting the correct tone in corporate governance and highlighting that the board should seek to set an example which will flow down across all levels of the organisation. The amended preface highlights the danger of what the FRC calls “groupthink”, and emphasises that constructive debate can be achieved through a diverse board
- Section C on risk management and going concern has been amended so that companies will be required to make two statements in their annual report, one stating whether they consider it appropriate to adopt the going concern basis of accounting and the other a broader assessment of viability over a specified period. The FRC has said that it expects this period to be significantly longer than 12 months. The FRC is recommending that these statements be contained within the strategic report. This is probably the most important of the changes made to the Code
- Provision D.1 dealing with remuneration has been amended to make it clearer that remuneration policies must be designed to promote the long-term success of the company and that the performance-related elements of remuneration must be “transparent”. Schedule A (the design of performance-related remuneration for executive directors) has also been amended with a division into three sections – a balance between immediate and deferred remuneration; share-based remuneration schemes and pensions. Remuneration committees are required to determine an appropriate balance between “fixed and performance-related” remuneration
- The provisions in Section E of the Code relating to the constructive use of general meetings have been amended to clarify that they apply to all general meetings, not just AGMs. Provision E.2.4, which requires the Notice of AGM and related papers to be sent to the shareholders at least 20 working days before the meeting, has been extended to include a similar requirement for other general meetings, save that the period is 14 working days. Provision E2.2 has also been amended to require a company, which has received a “significant proportion of votes cast against a resolution” to explain, when announcing the results, the action it intends to take in order to understand the shareholders’ concerns.
The Code applies to Main Market companies but AIM companies also need to be aware of the changes as the Code is a best practice standard to which they are, in many cases, encouraged to aspire, subject to the guidelines of the Quoted Companies Alliance. The changes are not ground-breaking, although the requirement to report on the assessment of viability is a significant new requirement. The revised, September 2014 Code will apply to financial years beginning on, or after 1 October 2014.