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Enhanced Transparency: FRC’s Overhaul of UK Corporate Governance Code

UK businesses will need to meet new standards following the Financial Reporting Council (FRC)’s “small but important” revisions to the UK Corporate Governance Code.

The UK Corporate Governance Code is a set of guidelines and standards that provide recommendations on corporate governance practices for UK-listed companies, aimed at ensuring transparency, accountability and responsible management within these organisations.

The FRC has introduced “important, revisions to the Code” aimed at promoting “smarter regulation” with a focus on “internal controls”, in a bid to restore trust in audit and corporate governance following a string of high profile corporate failures.

“A global reputation for high standards of corporate governance is a competitive advantage for UK plc and our revised Code helps this by enhancing transparency on internal controls, but in a way that is proportionate and minimises reporting burdens on businesses,” said Richard Moriarty, CEO at FRC.

“The small, but important, change to the expectations on internal controls will better support boards asking the right questions at the right time to help them gain the level of the assurance they require and to be able to demonstrate good governance to investors to and other stakeholders”.

The 2024 Code

The 2024 Code comprises five distinct sections, each addressing critical aspects of corporate governance: board leadership and company purpose; division of responsibilities; composition, succession, and evaluation; audit, risk, and internal control; and remuneration. It operates under a ‘comply or provide justification’ framework, allowing flexibility in adherence to its principles. This means companies can choose to depart from the Code, but they should provide an explanation for this non-compliance.

The FRC said it had dropped its earlier proposals for revisions to the Code related to the role of audit committees on environmental, social and governance issues; expanding diversity and inclusion expectations; over-boarding provisions, and expectations on Committee Chairs’ engagement with shareholders.

‌Reaction to the revisions

Ian Peters, director of the Institute of Business Ethics (IBE), said it welcomed the revised code – particularly the greater emphasis on the need for companies to embed a positive ‘ethical’ culture.

“This means that boards should go further than just assessing and monitoring culture but take concrete steps to ensure the desired culture is implemented effectively and that people across the organisation embrace ethical values and live by them,” he said. “The move is part of a global regulatory trend towards the explanation and evidence of ethical practice, with incoming laws such as the European Corporate Due Diligence Directive also now mandating evidence of compliance.”

However, he added that it was “disappointing that the UK government remains unwilling to legislate to put the Financial Reporting Council on a statutory footing, a move that has been due since the government announced plans in 2019”.

‌The 2024 Corporate Governance Code will apply to financial years beginning on or after 1 January 2025.

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