The revised UK Corporate Governance Code which comes into effect for financial years beginning on or after January 2019 is set to make business more accountable, according to Ibi Eso, founder and managing director of Bridgehouse Company Secretaries (https://bhcsecretaries.co.uk/). The new Code follows on from proposals published by the Financial Reporting Council (FRC) at the start of this year with the aim of helping “companies achieve the highest levels of governance”.
Ibi Eso, founder and managing director of Bridgehouse Company Secretaries comments:
“In the wake of the BHS and Carillion collapses, the new shorter and sharper Code places more emphasis on long-term success and sustainability, addresses the issue of public trust in business and aims to ensure the UK capital market remains attractive to global investors despite Brexit.
“My view is that the proposed changes are very welcome and we urge businesses to embrace them as a trigger for genuine culture change. Wholeheartedly adopting the revised code, rather than treating it as a box-ticking exercise should result in greater diversity, give stakeholders a louder voice and reduce short-termism in corporate planning – all admirable objectives.
“The requirement to be more accountable to stakeholders should be seen as an opportunity to improve the board’s decision-making capabilities, knowing that their choices will be open to public scrutiny. And with greater transparency highlighting the chasm between executive pay and that of the workforce, the need for justification may curb the worst examples of corporate excess.”
The main changes to the Code can be summarised as:
- Wider stakeholders – For the first time there will be a new principle setting out companies’ responsibilities to their wider stakeholders and a provision requiring the board to explain in the annual report how it has engaged with employees and other stakeholders, as well as how their interests have influenced the board’s decision-making.
- Employee engagement – Whether through an employee council, appointing a director to represent employees or other means, companies will be required to explain how they are engaging with employees and considering their input.
- Corporate culture – the board will be expected to explain how it promotes a culture that is aligned with the company’s purpose, strategy and values.
- Shareholder opposition – all listed companies with significant shareholder opposition to any resolutions will be obliged to publish an interim action statement within six months and a final summary in the next annual report.
- Diversity and succession planning – boards must demonstrate how senior level and board appointments are designed to promote diversity – ensuring a mix of genders, social and ethnic backgrounds. The company’s nomination committee will be required to explain its approach to succession planning to promote diversity.
- Board independence – the new Code states that independent non-executive directors – including the chairman – should form the majority of the board.
- Remuneration – the remuneration committee will be required to show how executive pay is aligned to strategic achievements and the long-term success of the business. The new Code will make long-term incentives subject to a vesting period of five years instead of the current three, to promote longer-term thinking.