FRC announces changes to UK Corporate Governance Code

In a bid to increase accountability and engagement, the Financial Reporting Council (FRC) has been busy working on changes to the UK Corporate Governance Code and Stewardship Code.

The watchdog said that a “comply or explain” basis will continue to be used for the codes throughout the investment chain.

Explaining the alterations, Baroness Hogg, the chairman of the FRC, said that investors will be able to gain a greater insight into what company boards and audit committees are doing to promote their interests. This should therefore provide them with a better basis for engagement.

“The changes to the Stewardship Code are designed to give companies and savers a better understanding of how signatories to the Code are exercising their stewardship responsibilities.”

Baroness Hogg added that the revisions, which came into play on October 1st, were kept to a minimum and only carried out where consultation highlighted that improvements could be made.

Among the changes made to the UK Corporate Governance Code include making FTSE 350 companies putting the external contract out to tender at least every decade, which should ensure a high quality and effective process takes place.

Audit committees will also have to show shareholders how they have carried out their responsibilities. This will include assessing the effectiveness of the external audit process.

In addition, companies should provide a more detailed answer if they do not follow a provision of the code.

When it comes to the Stewardship Code, investors will have to explain more clearly how conflicts of interest are being managed, with asset managers encouraged to have processes supporting their stewardship activities verified independently.

Finally, there will be clarity of the respective responsibilities of asset managers and asset owners for stewardship, along with activities that they have outsourced.

Richard Sexton, board member for reputation and policy at PwC, said that the misconception of a lack of competition will be countered by more regular tendering, which will only benefit the audit market.

“PwC has always maintained that the audit market is fiercely competitive and this new provision will create more opportunities to demonstrate that competitiveness on a regular basis,” he told Accountancy Age.

Corporate governance recruitment at Barclay Simpson