Direction of FRC’s Code revealed

Now that the FRC is analysing responses to its Corporate Governance Code consultation, companies can start to prepare for changes, says Julia Penny.

March 2018

The FRC issued its promised consultation on the Corporate Governance Code last December. It is worth picking up on the direction of travel, so that preparations can be made.

The consultation closed on 28 February 2018, so the results are now being analysed, but that doesn’t mean that you or your clients should wait before thinking about some of the changes expected.

Overall, the aim is to shorten and sharpen the code, but also to ensure that it properly identifies the characteristics of good governance in the current era. This means there are a number of key themes throughout including:

• The importance of a good culture;
• The voice of the workforce and how companies ensure this is considered;
• Diversity on the board and in the management pipeline;
• Encouraging governance policies that generate value for shareholders and society in the long-term;
• Extending minimum vesting periods for executive share awards to five years;
• The requirements for smaller (outside FTSE 350) and large listed companies being aligned.

Let’s look at just one of these issues: the “voice” of the workforce. Three models are suggested for achieving this, allowing companies the flexibility to choose what works best for them:

• A director appointed from the workforce;
• A formal workforce advisory council;
• A designated non-executive director. 

Companies will therefore have to consider how best to implement this requirement, if they do not already have something in place. 

Note that the use of the phrase workforce, instead of employees, is designed to recognise the multiple methods in which labour is obtained. This requirement extends potentially to subcontractors, agents, self-employed contractors or any others who effectively contribute to the workforce. It is likely to take some time to implement such changes, so early consideration is a must.

There is, of course, much more detail in the consultation regarding the planned changes to the Corporate Governance Code, so do consider the whole document and its likely impact.

Julia Penny FCA, is technical director at SWAT UK Ltd. Follow her @JSPenny

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