The debate on the future of Corporate Governance in the UK rumbles on with The Financial Reporting Council announcing last week that they are undertaking a fundamental review of the UK Corporate Governance Code. They have stated that they will be taking into account, when doing the review their work, of the issues raised during the two recent consultations on corporate governance, the Government’s Green Paper and the BEIS Select Committee inquiry. High on the agenda in the on-going debate on governance has been corporate culture, success, the consideration of corporate governance in large private companies, consulting with employees and transparency of remuneration.
The announcement of the fundamental review by the FRC comes after their January 2017 release of their Annual Report 2016 – Developments in Corporate Governance and Stewardship.
In their Annual Report 2016 (“Report”), the FRC suggested that additional powers might be necessary to align the competing interests of business and stakeholders.
They suggested a number of powers such including the monitoring governance information in annual reports, requiring governance reporting by large private companies and taking action against directors who are not members of the professional bodies that the FRC oversee, amongst others.
The FRC in their Report also recommended widening the remit for the remuneration committee and shareholder consultation where the vote on a resolution at the AGM has been defeated. This comes on the back of reduced investor support for remuneration resolutions throughout the 2016 AGM season. Many investors expressed continued concern with the lack of transparency between executive pay and performance. The FRC in their Report also suggest that where companies did not comply with provisions of the UK Corporate Governance Code, the explanations provided in their annual reports were of a poor quality.
The Institute of Chartered Secretaries has also issued a paper on the Future of Corporate Governance which provides an interesting narrative on corporate governance in general. . The ICSA highlights the matter of sanctions on directors, which they say should be proportionate and justified. The paper also discusses the improvement of the mechanisms which hold companies to account including the role of investors in holding companies to account, whether the AGM and the Annual Report are sufficient to hold companies to account in their current format and greater accountability. The point about the AGM and Annual Report is an interesting one given the lack of interest most shareholders take in them, however there is no alternative suggested by the ICSA.
We will be continuing to watch the debate with interest and will keep you informed as the FRC consultation progresses as it will no doubt apply to Irish listed companies in future.