FRC review of how the UK Corporate Governance Code and the UK Stewardship Code are being implemented
The Financial Reporting Council published its first analysis of the “Impact and Implementation of the UK Corporate Governance and Stewardship Codes” on 14 December 2011. The analysis shows:
- A high level of take up of the provisions in these Codes announced in 2010 – for example, 80% of FTSE 350 companies put up all their directors for re-election in 2011.
- More companies are bringing in external advisers to assist with the evaluation of the board’s effectiveness.
- Many company chairman and committee chairs now make a personal statement in the annual report.
- Boards are paying considerable attention to understanding and overseeing the main risks facing the business, as required by the Governance Code.
- Over 230 asset managers, asset owners and service providers have signed up to the Stewardship Code, including most of the major investors in UK equity.
- The quality of engagement between investors and company boards is improving in certain areas (for example, in discussions around corporate risk).
The FRC analysis contains a useful overview of recent developments in the regulatory framework for UK listed companies, at both UK and European levels, at pages 7 to 10.
The analysis shows (at page 11) that compliance levels with the UK Corporate Governance Code among companies on the FTSE Small Cap and Fledgling indices are generally consistent with FTSE 350 companies.
A shot across the European Commission’s bows
The FRC comments, with regard to the work being done on corporate governance at the European Commission, which we discussed in this post, that:
“Some in Europe see boards and asset managers as part of the problem rather than part of the solution, and would therefore wish to restrict their freedom of action by replacing a ‘comply or explain’ regime with hard law. We believe that usurping the responsibilities of boards and the rights of shareholders, and transferring these to regulators, would only serve to slow the flow of equity capital to the region at a time when it is so clearly needed to support economic growth.”
The FRC states that it expects any actions to be taken as a result of the Commission’s Green Paper on the corporate framework for listed companies “are now expected to be announced in the second half of 2012, alongside the outcomes of a consultation on company law reform expected to begin in January 2012”.
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