The Financial Reporting Council (FRC) has recently published an update to the UK Corporate Governance Code in order to address risk management strategies and increase the level of information that investors receive about a company.
These amendments, which will apply to accounting periods beginning on or after 1 October 2014, will be of interest to companies, including Irish companies, that apply the Code. This follows draft guidance published by the FRC in relation to the Code in 2013 (see our previous article here).
The main elements which the guidance addresses include:
- Companies should state whether it is appropriate to apply the going concern basis of accounting and should list any material uncertainties relating to a continuing ability to do so. This assessment should relate to a period longer than 12 months.
- Companies should undertake a comprehensive assessment of the principal risks and detail how they are being addressed. There should also be an annual review of and report on the internal risk management and control systems.
- Greater emphasis should be placed on tailoring remuneration policies to align with the long-term success of the company. Remuneration committees should be used to ensure this. More specifically, a process which (i) enables the company to recover or withhold variable pay and (ii) provides for holding periods for deferred remuneration should also be catered for.
- A clear policy should be made available in relation to how a company intends to engage with shareholders when a significant percentage of them have voted against any resolution.
There is also an emphasis placed on ‘top-down’ culture. Directors should set the standards and examples by which company culture and values are to be judged, and this will flow down through the lower levels of the organisation.
In order to facilitate informed debate and discussion at board level, there is further emphasis on board diversity. It is expected that board diversity (especially in the context of succession planning) will be considered in the next update to the Code, due in 2016.