As reported in our June corporate governance update, the Financial Reporting Council in the UK is to make a number of amendments to the UK Corporate Governance Code, to its related Guidance on Audit Committees, and also to the UK Stewardship Code. The changes are to apply from 1 October 2012.

UK Corporate Governance Code and Guidance on Audit Committees

Following the launching by the Financial Reporting Council (FRC) of a public consultation on proposed changes to the UK Corporate Governance Code and Guidance on Audit Committees which closed on 13 July 2012, the FRC published a feedback statement on 28 September 2012. The changes, as amended following feedback from the consultation, include the following:

  • The board must confirm in the annual report that the report and accounts, taken as a whole, are fair, balanced and understandable and provide the information needed for shareholders to assess the company's performance, business model and strategy, and the board should establish arrangements to enable it to make this assessment and give this confirmation.
  • FTSE 350 companies should put their external audit contract out to tender every ten years. The company’s intention to put the audit out to tender must be recorded in the previous year’s annual report.
  • The audit committee will be required to report to the board on the external audit, including the process by which they have assessed the effectiveness of the external audit.
  • The preface to the code will set out the features that the FRC regards as characteristic of an informative explanation.

New editions of the UK Corporate Governance Code and the Guidance on Audit Committees, incorporating the changes, will apply to reporting periods beginning on or after 1 October 2012. There will also be some transitional arrangements in relation to audit tendering, details of which will be available on the FRC’s website.

This development will be of interest to certain Irish companies as the Corporate Governance Code is followed in Ireland on a "comply or explain" basis by companies listed on the Main Securities Market of the Irish Stock Exchange.

For more information, please click here.

UK Stewardship Code

Changes are also to be made to the UK Stewardship Code. The Stewardship Code, which relates to institutional investors and their engagement with UK listed companies, was introduced by the FRC in July 2010. It is not applicable in Ireland and the ISE have indicated in the past that it did not intend to introduce a similar code here.

As with the Corporate Governance Code and Guidance on Audit Committees, the new changes follow a public consultation which closed on 13 July 2012 and a feedback statement which was published on 28 September 2012 along with a new edition of the code. The proposed changes to the code, following feedback from the consultation, include:

  • Clarifying what is meant by stewardship and to whom the code is directed;
  • Clarifying the respective responsibilities of asset owners and asset managers; and
  • Extending the guidance encouraging investors to disclose their policy on voting and the use made of any proxy voting or other voting advisory service, to encourage investors to also describe the scope of the services provided and identify the service providers.

Again the new edition of the code will apply from 1 October 2012.

For more information, please click here.

If you have any query or require any further information on any aspect of this note, please contact Miriam Kelly at +353 1 649 2246 or mskelly@algoodbody.com or your usual contact at A&L Goodbody.