Following consultation, the Financial Reporting Council (FRC) released a revised 'shorter, sharper' Corporate Governance Code (Code) on 16 July 2018. 

The final version appears largely consistent with the version circulated for consultation in December of 2017 and outlined previously in Governance News though some changes to clarify FRC expectations (with respect to the respective roles of the board and remuneration committee and FRC expectations of workforce engagement) and to provide more 'flexibility' in meeting some requirements were made.

A high level overview of the key post-consultation changes to the Code is below.

A more in depth overview of the post-consultation changes is covered in a separate post in the 23/07/2018 issue of Governance News.

Key post-consultation changes to the Code

Post-consultation changes included the following (among others).

• Clarification of the respective roles of the board and the role of the remuneration committee with respect to remuneration. The FRC states that its intention was to broaden the role of the remuneration committee in a manner consistent with a 'non-executive role'. On this basis, various amendments were made to clarify the boundaries of the remuneration committee’s remit.
• Clarification that it is not the role of the remuneration committee to set remuneration beyond the 'first layer below board level'.
• Removal of language that could be 'perceived to be encouraging Long Term Incentive Plans (LTIPs).
• Clarification that the FRC does not expect companies to implement one of the three methods for workforce engagement set out in the draft version of the Code circulated in December, but that if the board has not chosen one or more of these methods, 'it should explain what alternative arrangements are in place and why it considers that they are effective'.
• Flexibility in determining the independence of the Chair: The final code has 'reverted to the approach in the current Code for the chair to be "independent on appointment".
• Flexibility on Chair tenure: The Chair tenure period (9 years) may be extended for the purpose of facilitating succession planning.
• Board and committee composition: The small company exemption has been retained but some 'flexibility' for smaller companies has been incorporated.
• Reporting on the Code — clarification of reporting requirements: The Code has been amended to clarify that requirements obliging companies to report on 'information that would enable shareholders to assess how the directors have performed their duty under section 172 of the Companies Act 2006 (the Act) to promote the success of the company' do not override or provide an 'interpretation of the statutory directors' duties under the Act.'

Key changes from the previous Code

• The FRC highlights, the focus on workforce and stakeholder engagement; culture; succession and diversity and remuneration as key changes.
• Sir Win Bischoff, Chairman, FRC, said: 'Corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital. To make sure the UK moves with the times, the new Code considers economic and social issues and will help to guide the long-term success of UK businesses. This new Code, in its new shorter and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.'
• Commenting on the changes, FRC Executive Director of Corporate Governance and Reporting, Financial Reporting Council Paul George highlights the following as of particular significance: the requirement for directors to report on how s172 Companies Act 2006 obligations have been met (which complements requirements in secondary regulations); increased emphasis on board engagement and shareholder engagement; 'new measures requiring that remuneration committees should take into account workforce remuneration policies and practices when setting director remuneration, and, importantly, to step back from formulaic calculations of performance-related pay awards and apply discretion when the resulting outcome is not justified' (among others as key changes).

[Note: The secondary legislation referred to is: The Companies (Miscellaneous Reporting) Regulations 2018.]

Timeframe: The new Code applies to all companies with a premium listing whether incorporated in the UK or elsewhere and to accounting periods beginning on or after 1 January 2019. Therefore, The FRC writes, apart from reporting on significant votes at shareholder meetings which 'will be appropriate to report on during 2019' and changes to existing remuneration policies, unless companies decide to adopt all or part of the new Code early, the first reporting will not be seen until 2020.