FRC publishes consultation on UK Corporate Governance Code

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Summary: The FRC is consulting on its two-yearly review of the UK Corporate Governance Code (the “Code”). The review is in response to earlier consultations on directors’ remuneration, risk management, internal controls and going concern. Comments are requested by 27 June 2014 with any proposed changes applying for financial years beginning on or after 1 October 2014.
Read the Financial Reporting Council proposed revisions to the UK Corporate Governance Code consultation document

Directors’ remuneration

In October 2013, the FRC sought views on:

(a)   whether there should be a ‘comply or explain’ presumption in the Code that companies claw-back or withhold arrangements for pay;

(b)   whether non-executive directors who are also executive directors in other companies should sit on the remuneration committee; and

(c)   what a company should do if there is a “substantial” vote against the remuneration resolutions at an AGM.

The FRC is proposing to amend the Code to provide for (a) above.  There was no support for the recommendation against executive directors serving as non-executive members of a remuneration committee of another listed company. Therefore, the FRC is not proceeding with this proposal.

On the votes on remuneration resolutions, the FRC is proposing that companies explain, when announcing their AGM results, how they intend to engage with shareholders when a significant proportion of shareholders have voted against any resolution at the AGM.  This is considered preferable to focussing solely on the remuneration resolutions.

Risk management and going concern

In November 2013, the FRC consulted on draft guidance on risk management and going concern together with corresponding changes to the Code. In response to feedback, the FRC is proposing to amend the Code as follows:

  • To provide that companies must robustly assess their principal risks and report on how those risks are managed or mitigated (new Code Provision C.2.1); and
  • To clarify that boards have a responsibility to monitor the risk management and internal control systems on an on-going basis, rather than annually (revised Code Provision C.2.3).

The FRC is also proposing that companies state, in their financial statements, whether they consider it appropriate to adopt the going concern basis of accounting and to identify any material uncertainties in their ability to continue to do so.  Companies will also be required to make an explicit statement on the board’s broader assessment of the company’s on-going viability.

The FRC is not intending to re-consult on the revised guidance on risk management and going concern (to replace the Turnbull Guidance) but is seeking further views on parts of this guidance.

This update will be relevant to issuers who comply with the UK Corporate Governance Code

 

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