The Finance Reporting Council (FRC) has published the latest version of the Corporate Governance Code in a bid to improve the fairness and equal opportunities within UK boardrooms.
As of the 1st January 2019, the latest version of the Corporate Governance Code will be in practice. The first version of the Code was published in 1992 and defined Corporate Governance as the ‘system by which companies are directed and controlled’. The legislation has since set the tone for best practices in the boardroom, from good behaviours to ensuring Board Directors are remunerated fairly.
With the new Code comes good news for those seeking new Non-Executive Director positions. Three new clauses have been added to the Code, which signal that there will be a greater demand for non-executives once it comes into force. Firstly, all premium listed companies will be required to appoint a specific Non-Executive Director to increase engagement between stakeholders and shareholders. Secondly, at least half of the board of FTSE 350 companies must be made up of Non-Executive Directors and should be refreshed regularly. Lastly, companies outside the FTSE 350 will need to comply or explain on the annual re-election of Directors.
A summarisation of key changes within the revised Code include;
Comply or explain: The Revised Code enables transparency over corporate governance decisions, which deviate from best practices.
Corporate culture: The board must define its purpose, strategy and values for the company and consider which behaviours it would like to promote to achieve its strategy.
Removal of smaller company exemptions: Companies below the FTSE 350 should strive to achieve the highest standards of Corporate Governance.
Engagement of Board with the workforce: The Board of Directors must take responsibility for considering the needs of their workforce. The Revised Code suggests three options, through appointing a Director from the workforce, creating a formal workforce advisory council or appointing a designated Non-Executive Director. The rule forms part of a wider push to understand all stakeholders not just shareholders.
Whistleblowing: The new Code enables whistleblowers to be able to alert the board in confidence, and anonymously, to allegations and issues which would result in the failings of management. The Revised Code envisages that the board will be ultimately responsible for overseeing and reviewing the company whistleblowing arrangements.
Greater engagement of the board with the shareholders: Majority votes against any resolution require action and the company should engage with the shareholders to understand the reasons behind the vote. For votes to count as a majority, the percentage must reach 20%. An update should be published within 6 months of the vote with a final summary included in the annual report.
Greater responsibility of remuneration committees: With the board Chairman now requiring at least 12 months previous experience, the remuneration committee will take responsibility for overseeing company remuneration and wider workforce policies as those are supportive of long-term success and sustainability of companies.
Diversity and inclusion: Acknowledgements related to gender balance are extended to smaller companies. Boards have a responsibility to oversee the development of diversity and promote diversity in the appointment of board members and senior-level executives.
Although the new Code applies to financial periods commencing on or after 1st January 2019, many companies will now start to actively look for additional non-executives to add to their boards. Do you think you have what it takes to become a Non-Executive Director? Join our network today.