Recent Changes to the UK Corporate Governance Code
The UK Corporate Governance Code (CGC) is a set of principles and recommendations that sets out the expected standards of good practice for board leadership and company purpose, division of responsibilities, composition, succession and evaluation, audit, risk and internal control, and remuneration.
The CGC is not legally binding, but companies listed on the London Stock Exchange are required to comply or explain their reasons for not doing so.
In July 2023, the Financial Reporting Council (FRC) published a consultation paper on proposed changes to the CGC. These changes were designed to strengthen corporate governance in the UK and to ensure that boards are more accountable to shareholders and stakeholders.
The consultation closed in September 2023 and the FRC is currently reviewing the feedback received. However, the FRC has confirmed that the revised CGC will come into effect for financial years starting on or after 1 January 2025.
The main changes proposed to the CGC are as follows:
Risk management and disclosure: The FRC is proposing to strengthen the requirements for companies to disclose their risk management and internal control arrangements. This includes requiring companies to disclose their approach to managing climate change and other ESG risks.
Remuneration: The FRC is proposing to simplify the remuneration reporting requirements and to make it more transparent how companies set executive pay. The FRC is also proposing to require companies to have a remuneration committee charter that is approved by shareholders.
Significant appointments of directors: The FRC is proposing to require companies to disclose all of their board members' significant appointments in their annual report. Each company's annual report would also have to explain how directors can undertake their roles effectively, taking account of their other commitments.
In addition to these main changes, the FRC is also proposing a number of other minor changes to the CGC. These changes are designed to clarify the Code's requirements and to make it easier for companies to comply with the Code.
The proposed changes to the CGC have been welcomed by some stakeholders, but others have raised concerns that the changes will be too burdensome and costly for companies to implement. The FRC is currently considering the feedback received and is expected to publish the final revised CGC in early 2024.
What do the changes mean for companies?
The proposed changes to the CGC will require companies to review and update their corporate governance practices. In particular, companies will need to focus on the following areas:
Risk management and disclosure: Companies will need to strengthen their risk management and internal control arrangements, and to improve their disclosure of these arrangements. Companies should also consider how they can better manage climate change and other ESG risks.
Remuneration: Companies will need to simplify their remuneration reporting and make it more transparent how they set executive pay. Companies should also consider having a remuneration committee charter that is approved by shareholders.
Significant appointments of directors: Companies will need to disclose all of their board members' significant appointments in their annual report and explain how directors can undertake their roles effectively, taking account of their other commitments.
Companies should start planning now for the revised CGC to come into effect in 2025. This will give companies time to make the necessary changes to their corporate governance practices and to ensure that they are in compliance with the new Code.
How we can Peak Governance help?
If you are a business owner or director who is concerned about the recent changes to the UK Corporate Governance Code, our business advisory company can help. We have a team of experienced professionals who can help you to review and update your corporate governance practices to ensure that you are in compliance with the new Code.
We can also help you to develop and implement a risk management framework, to develop a remuneration policy that is aligned with the new Code, and to disclose your board members' significant appointments in your annual report.
Peak Governance Business Advisors can help businesses with the new UK Corporate Governance Code in a number of ways, including:
Reviewing and updating corporate governance practices: We can help you to review your current corporate governance practices and identify any areas where they need to be updated in order to comply with the new Code.
Developing and implementing a risk management framework: We can help you to develop and implement a risk management framework that is tailored to your specific needs and that meets the requirements of the new Code.
Developing a remuneration policy that is aligned with the new Code: We can help you to develop a remuneration policy that is aligned with the new Code and that is fair and transparent.
Disclosing board members' significant appointments in the annual report: We can help you to disclose your board members' significant appointments in your annual report in a clear and concise way.
We also offer a range of other services that can help businesses to improve their corporate governance, such as:
Board effectiveness reviews: We can conduct an independent review of your board's effectiveness and provide recommendations for improvement.
Director development: We can provide training and development for your directors on a range of topics, including corporate governance, risk management, and financial reporting.
Corporate governance consulting: We can provide ongoing advice and support on all aspects of corporate governance.