By Steve Playford, Senior Manager, Company Matters
We kicked off the summer by inviting the Financial Reporting Council (FRC) to host three Ahead events across our Leeds and London offices to discuss the changes to the UK Corporate Governance Code with our community of governance professionals.
Following these events, I, Steve Playford (Senior Manager, Company Matters), sat down with David Styles (Director, Corporate Governance and Stewardship, FRC) who is currently helping his organisation conduct an open consultation for the corporate governance community to ensure the Code developments are suitable and beneficial to companies.
Why do the changes to the UK Corporate Governance Code matter?
The consultations the FRC are conducting this year surrounding the Code updates are not focusing on the typical and obvious subjects commonly raised when discussions around the Code arise. Subjects like shareholder rights and directors’ remuneration are often only raised during the aftermath of corporate failure rather than during a period when preventing corporate failure is possible. Issues in section 4 of the Code (including internal control, risk and audit) are often glossed over, however, these issues have become the key focuses of this year’s Code review.
A big contributor to The FRC’s decision to revise their Corporate Governance Code is to make businesses aware of these governance subjects before it’s too late. The period between the previously revised Code and this current update was also intentional, as the short intervals between updates in previous years made it difficult for the corporate governance community to catch up with the changes. After the Code was last updated in 2018, the FRC have been receiving positive responses to the current revisions, especially around the potential for improved reporting.
“Comply or explain” vs “Comply or else”?
The purpose of the FRC’s “Comply or explain” regime is simply to encourage total transparency from businesses when reporting on their Code compliance. In recent years, there’s been an increase in companies willing to disclose non-compliance to the Code – which is a positive, as this promotes transparency between investors and businesses while providing learning and growth opportunities for boards.
The FRC have identified how important good corporate governance reporting is to investors as it allows them to see how well the companies they’re investing in comply with the Code and the guidance that comes with it. During 2022, the guidance they released about what good explanations when reporting looks like, received positive feedback across the board. However, the FRC continue to push for new ways to make the comply or explain policy work better for everyone.
To make the new Code updates easier to understand for businesses, the FRC are currently aiming to improve the guidance that comes along with the Corporate Governance Code. Consolidating the different varieties of guidance they currently offer and introducing new elements of guidance will help company boards and board committees better understand how to apply the new Code to their particular circumstances.
How can you find out more about the Code and get involved?
You can find out more about the consultation and how to get involved by visiting the FRC's website at https://www.frc.org.uk/. You can also follow them on LinkedIn where they post regularly about the work they’re doing around the code and more.
This Ahead discussion was a great chance to engage in this consultation period and these events are an integral part of our commitment to supporting our clients and partners around the industry. Ahead is a series of regularly held events that offer guidance and insight into industry updates and issues to corporate governance professionals.
To avoid missing out on our next Ahead event, click here and sign up to be added to our Ahead community.
You can also listen back to our exclusive conversation with the FRC via our LinkUp360 podcast by clicking here