Corporate governance reviews
A roundup of current and recently concluded corporate governance reviews and inquiries.
Restoring trust in audit and corporate governance
The government published a white paper on 18 March 2021 setting out 'proposals to strengthen the UK’s framework for major companies and the way they are audited.' the proposals area response to the Kingman review, the CMA study in to the statutory audit market and the Kingman review of the Financial Reporting Council.
With regard to corporate governance, the summary of proposals in the white paper states that the following:
Directors are responsible for running their companies and are ultimately responsible for a company’s accounts and reports. They have statutory duties to promote the success of their company and various duties in relation to the preparation and auditing of the company’s accounts and reports. Responsible behaviour by directors is the fundamental starting point for high quality and reliable corporate governance and reporting. It is particularly vital that we hold the directors of our largest companies to account, both to protect the interests of shareholders in those companies and because loss of trust in those directors and those companies can have far-reaching adverse effects across the UK.
The current framework, however, is inadequate in holding the directors of such companies to account in the rare but serious case that they neglect their reporting responsibilities. The Financial Reporting Council does not have any powers to enforce directors’ duties other than when a director is a member of a professional accountancy body. Further, there are weaknesses in reporting and accountability in three key areas of management relating to internal controls over financial reporting, dividend and capital maintenance decisions, and the steps that directors are taking to consider and strengthen a company’s future resilience. The consultation document addresses these weaknesses through proposals for new reporting and attestation requirements covering internal controls, dividend and capital maintenance decisions, and resilience planning, designed to sharpen directors’ accountability in these key management areas within the largest companies.
There are also proposals to ensure that the regulator has effective investigation and civil enforcement powers to hold to account directors of large businesses which are of public importance for breaches of their duties in relation to corporate reporting and audit.
Recently concluded consultations
Corporate governance: delivering on fair pay inquiry
The Business, Energy and Industrial Strategy (BEIS) Committee launched an inquiry on 22 March 2018. The inquiry investigated:
- the compliance by business with reporting requirements on the gender pay gap and to consider what steps they are taking to address the gap;
- the implementation of the recommendations on executive pay by the previous Committee in its 2017 report on Corporate Governance and recent developments on executive pay;
- the effectiveness of Remuneration Committees and institutional investors in combatting excessive executive pay.
Wates Corporate Governance Principles for large private companies
The Financial Reporting Council launched a consultation in June 2018, following the Government's 2016 Green Paper and BEIS Select Committee report of 2017 which identified the need for greater transparency and accountability in large private companies which were not currently covered by the UK Corporate Governance Code. The consultation is chaired by James Wates CBE, Chairman of the Wates Group. The Principles were published on 10 December 2018
Revised UK Corporate Governance Code
The FRC announced plans for a comprehensive review of the UK Corporate Governance in February 2017. The public consultation ended on 28 February 2018. The publication of the revised code was announced on 16 July 2018.
BEIS Corporate Governance Inquiry
The Business, Energy and Industrial Strategy Select Committee launched an corporate governance inquiry in September 2016. The three main areas to be explored were: Directors duties; Executive pay; and Composition of boards. The report was published in April 2017 and the governments responded in September 2017.
Corporate governance reform
The Department for Business, Energy and Industrial Strategy published a green paper on Corporate Governance reform in November 2016. The green paper covered three main areas: executive pay; Strengthening the employee, customer and wider stakeholder voice; Corporate governance in large privately-held businesses. The consultation closed 17 February 2017 and the Government response was published 29 August 2017.