A quarter of a century after it was first published, the Financial Reporting Council (FRC) has announced plans for a fundamental review of the UK corporate governance code, in response to its work on corporate culture and succession planning, and the government’s focus on overhauling corporate governance and business standards
The regulator said its review will consider the issues raised in the government’s green paper and the BEIS select committee inquiry, which has been focussing on executive pay, directors duties, and the composition of boardrooms, including worker representation and gender balance in executive positions.
In its response to the government’s green paper on corporate governance reform, the FRC says it will highlight the importance of helping boards take better account of stakeholder views, linking executive remuneration with performance, and extending the FRC’s enforcement powers to ensure that disciplinary action can be taken against all directors where there have been financial reporting breaches.
The FRC says it will seek input from a wide range of stakeholders for the review of the code, including its recently established stakeholder advisory panel of high profile representatives from a wide variety of sectors.
The regulator indicated that it is mindful of the need to maintain ‘the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.’
Sir Win Bischoff, FRC chairman, said: ‘The prime minister has a vision of an economy that, in her words, “works for everyone”. This needs UK businesses to thrive so that all stakeholders including workers, customers, suppliers and society itself benefit through jobs growth and prosperity.
‘With all this in mind, we will conduct a review of the current UK corporate governance code. This will consider the appropriate balance between the code’s principles and provisions.
‘In pursuing any changes, the current strengths of UK governance: the unitary board, strong shareholder rights, the role of stewardship and the “comply or explain”’ approach, must be preserved. We must not throw out the baby with the bathwater.’
The FRC is to consult on its proposals later in 2017, based on the outcome of the review and the government’s response to its green paper.