The unveiling of the revised UK Corporate Governance Code 2024 galvanises the UK as being at the forefront of the ever-evolving corporate governance landscape. The modifications, in line with prior Financial Reporting Council (FRC) communications, didn’t bring any surprises but they do cement the UK's global reputation for unwavering commitment to high standards.
Pleasingly there remains a continued focus on outcomes-based reporting, which can be seen throughout the revisions to the code. And most notably, the revisions spotlighted Internal Controls, indicating a strategic move towards fortifying companies while reducing their reporting burdens. Here are four key highlights:
Whilst the revised code is set to take effect as of January 1, 2025, Provision 29, concerning Risk Management and Internal Controls, will come into force a year later. The staggered implementation timeline is a sound strategic move by the FRC as it furnishes businesses with a grace period to align their practices with the new provisions – and acknowledges the inherent complexities involved in enhancing risk management and internal controls.
Composition, succession and evaluation
Further light is shed on the diversity and inclusivity of corporate boards by the amendment of Principle J. Its deliberately broadened phrasing, urges companies to 'promote diversity, inclusion, and equal opportunity' in board composition, signals a progressive stance towards fostering diverse perspectives at the highest levels of corporate decision-making. Together with the updates to provision 23, the changes allow for greater flexibility when boards make decisions around diversity and inclusion initiatives.
Audit, risk and internal controls
The minimum standard for Audit Committees published in May 2023 has been brought into the code via cross reference to reduce duplication. The change relates to provision 29 which places focus on monitoring control frameworks for risk management and internal controls. In particular, companies will need to ensure that they provide:
- A description of how the board has monitored and reviewed the effectiveness of the framework;
- A declaration of effectiveness of the material controls as at the balance sheet date; and
- A description of any material controls which have not operated effectively as at the balance sheet date, the action taken, or proposed, to improve them and any action taken to address previously reported issues.
Addressing a perennial concern, Provision 38 marks a significant revision. This provision, focusing on executive pay, introduces a clear articulation of malus and clawback provisions. By doing so, it seeks to strike a balance between rewarding performance and mitigating the risks associated with excessive executive compensation. This not only further aligns with shareholder interests but also fosters a culture of accountability as executives are now acutely aware of the potential consequences tied to their performance or poor conduct.
What does this mean in practice?
As companies prepare to embrace these changes, it is evident that the UK is not merely upholding its global standing in corporate governance but is actively shaping the future landscape. Likewise, in the midst of these revisions, the fundamental principle of 'comply or explain' endures, serving as a sensible and nuanced solution to the diverse needs of individual companies. Governance is not a mere tick-box exercise and the revised Code underscores the importance of a robust governance framework as not just as a regulatory requirement but as a strategic business enabler propelling companies towards sustainable growth and resilience in an ever-evolving business environment.
These changes also give companies an opportunity to step back, and review processes and procedures by carrying out gap analysis procedures as a useful way to identify where companies are compliant and where disclosures can be enhanced. Crucially, governance framework documentation such as Terms of Reference and Matters Reserved for the Board will also need to be updated.
There is certainly no one-size fits all approach. Companies should seek advice and Company Secretaries should reach out to their governance networks to understand how their peers are approaching these changes. We would also recommend that you review the FRC Corporate Governance Code Guidance which provides further details and guidance.
If you would like to discuss the Revised UK Corporate Governance Code 2024 in more detail, please do get in touch.
Senior Manager, Computershare Governance Services, UKMore details
Senior Manager, Computershare Governance Services, UKNick is a fellow of the Chartered Governance Institute with 10 years’ experience in financial services including at large corporates like Deutsche Bank and Aon. Nick is responsible for, amongst other disciplines, overseeing Computershare’s listed client service offering including: IPO preparation and support, technical guidance regarding Listing Rules, Disclosure Guidance and Transparency Rules, Companies Act and Corporate Governance Code compliance. He dedicates his attention to supporting companies listed on the Main Market, AIM and AQUIS including FTSE100, FTSE250, SmallCap, and Investment Trusts.