TICK-BOX MENTALITY UNDER THE COSH AS UK CORPORATE GOVERNANCE CODE CALLS TIME ON SIMPLE COMPLIANCE
The revised UK Corporate Governance Code came into force on 1 January 2019, refocusing attention on the principles of good governance, rather than on compliance. Shorter and sharper than the previous version, the new Code brings with it new reporting requirements that UK PLC will need to apply in 2020.
Although reporting will not be required against the new Code until 2020, companies will be expected to apply the new provision requiring an explanation of proposed actions in the event that a resolution receives less than 20 percent support at the 2019 annual general meeting (AGM). With AGM peak season set to kick off in April, this is likely to be the first application of the new Code that most companies will need to grapple with.
Out with the old, in with the new
Much of the new Code is the same as the Financial Reporting Council’s (FRC’s) consultation draft published in December 2017, but there are some significant differences as a result of the consultation of which companies need to be aware. For the purposes of this article, the changes have been categorised against ‘leadership and purpose’, ‘division of responsibilities’, ‘board composition’, ‘succession planning and board evaluation’, ‘audit, risk and control’ and ‘remuneration’.
Leadership and purpose
The FRC has increased the focus on the board’s relationship with the workforce, with the workforce defined in paragraph 50 of the FRC’s guidance as “those with formal contracts of employment (permanent, fixed-term and zero hours) and other members of the workforce who are affected by the decisions of the board”.
Principle E states that “The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success”. Furthermore, Provision 2 requires that the annual report “should include an explanation of the company’s approach to investing in and rewarding its workforce”.
Jan-Mar 2019 Issue
ICSA: THE GOVERNANCE INSTITUTE