Officials at the Financial Reporting Council (FRC) are confident that, despite the far-reaching nature of plans to overhaul the UK Corporate Governance Code and amid a high volume of industry feedback, companies will be able to implement the changes successfully.
‘The best companies will not have to do anything,’ Maureen Beresford, a member of the FRC’s corporate governance team, tells IR Magazine. ‘They will just have to articulate what they do on a regular basis. The lesser companies will be looking for an answer to the code – and there isn’t an answer you can just write down. They should be embedding it into their culture: that is the answer.’
The code consultation closes at the end of February, after which there is a three-month period for the FRC to decide how to respond to feedback. Publication of the new code is penciled in for mid-June, with the code coming into force from January 1, 2019. ‘We hope that gives companies enough lead time to take on board the changes,’ says David Styles, director of corporate governance at the FRC.
‘It has generated a lot of interest – and a lot of interest from a wide range of stakeholders. With this revised code we are attempting to broaden the definition of governance and considering a wide range of stakeholders.’
The consultation is central to the successful formulation and then implementation of a new code, according to Styles. ‘We have put as much effort into the outreach of the consultation as we did in putting it together,’ he says. ‘And as a result, we have had an immense amount of constructive engagement. There hasn’t been anything that has surprised us. There seems to be a ‘like’ for the structure of the code and the idea that we are broadening the definition of governance.’
The revised code is intended to focus on the importance of long-term success and sustainability, address issues of public trust in business and ensure the attractiveness of the UK capital market to global investors until Brexit and beyond.
‘It is a rewriting of the code – not just a tinkering around the edges,’ Beresford says. ‘It is about moving away from a tick-box approach and getting companies to think more about and discuss governance and its many related issues.’
The wider definition of governance under the proposals includes three key elements: how the board and senior management relates to the workforce as a whole and its representatives, and whether there should be a worker representative on the board, for example; questions around director independence and board composition – particularly the role of the chair; and extending the remit of remuneration committees.
These elements are aimed at encouraging companies to take a long-term view of strategy and sustainability. ‘This is how companies are thinking post the financial crisis,’ Styles notes. ‘The revisions to the code will result in companies being able to demonstrate better transparency and accountability. And when that improves [it] will improve public trust in business, which is still at a pretty low ebb.
‘If you believe capital will flow to where it will be looked after properly, corporate governance is an important part of that.’