The Financial Reporting Council published its new UK Corporate Governance Code on 22 January 2024 (available here).
The new Code replaces the current 2018 iteration of the Code and applies to companies listed on the Main Securities Market of Euronext Dublin and companies with a premium listing on the London Stock Exchange, regardless of where they are incorporated. The new Code continues to operate the “comply or explain” regime, giving the board the flexibility to deviate from the Code once they provide a “cogent and justified” explanation for doing so.
The main changes to the Code are as follows:
Audit, Risk and Internal Control
- Principle O now not only requires companies to establish effective risk management and internal control frameworks, but also to maintain the effectiveness of such frameworks.
- A new Provision 29 requires the board to carry out a review of the effectiveness of the company’s risk management and internal control framework and to include in the company’s annual report:
- a description of how the board has monitored and reviewed the effectiveness of the framework;
- a declaration of the effectiveness of the material controls as at the balance sheet date; and
- a description of any material controls which have not operated effectively and the action taken (or proposed) to improve them.
Board Leadership and Company Purpose
- A new Principle C has been introduced to require companies’ governance reporting to focus on board decisions and their outcomes in the context of the company’s strategy and objectives.
- Provision 2 has been broadened to include that boards should not only assess and monitor culture, but also how the desired culture has been embedded within their company.
Composition, Succession and Evaluation
- Principle J has been altered so that diversity, inclusion and equal opportunities are still promoted but without referencing specific groups, reflecting that these policies can be wide ranging.
- Provision 23 has been amended to acknowledge that companies may have extra initiatives in place alongside their diversity and inclusion policy.
- Provision 37 has been amended to ask that directors’ contracts and other agreements which cover director remuneration should include malus and clawback provisions.
- A new Provision 38 asks that companies include a description of their malus and clawback provisions in their annual report. Provision 40 which detailed effective remuneration policy has been removed.
Guidance and Timeline
The FRC published guidance to the new Code on 29 January 2024 (available here), which provides advice and further examples of good practice with the FCR emphasising that the guidance is not an extension of the Code. The new Code will come into effect for financial years commencing on or after on 1 January 2025, except for Provision 29 which will come into effect a year later, on 1 January 2026.
Contributed by Trish McGrath & Oisin Callaghan