The Financial Reporting Council confirmed on 28 September 2012 that it is going ahead with changes to the UK Corporate Governance Code and the Stewardship Code. These changes were consulted on in April 2012, as we discussed here. The changes to both Codes are ”intended to increase accountability and engagement through the investment chain”. The FRC’s press release is here.
The new version of the Governance Code is here and the new version of the Stewardship Code is here. The updated Codes apply from 1 October 2012.
The FRC has also published an updated edition of its Guidance on Audit Committees to reflect the changes to the UK Corporate Governance Code, and will carry out further consultation on whether changes are needed to those parts of the UK Corporate Governance Code dealing with remuneration when the Government’s legislation on remuneration reporting and voting has been finalised. Any changes following this consultation will be effected in the next edition of the Code.
UK Corporate Governance Code
Here is the FRC’s summary of the changes to the Governance Code:
- “FTSE 350 companies are to put the external audit contract out to tender at least every ten years with the aim of ensuring a high quality and effective audit, whether from the incumbent auditor or from a different firm. The FRC will be holding discussions with companies, auditors and investors to consider whether guidance on tendering would be useful;
- Audit Committees are to provide to shareholders information on how they have has carried out their responsibilities, including how they have assessed the effectiveness of the external audit process;
- Boards are to confirm that the annual report and accounts taken as a whole are fair, balanced and understandable, to ensure that the narrative sections of the report are consistent with the financial statements and accurately reflect the company’s performance;
- Companies are to explain, and report on progress with, their policies on boardroom diversity. This change was first announced in October 2011, but its implementation was deferred to avoid piecemeal changes to the Code
- Companies are to provide fuller explanations to shareholders as to why they choose not to follow a provision of the Code.”
Stewardship Code
Here is the FRC’s summary of the changes to the Stewardship Code:
- “Clarification of the respective responsibilities of asset managers and asset owners for stewardship, and for stewardship activities that they have chosen to outsource;
- Investors are to explain more clearly how they manage conflicts of interest, the circumstances in which they will take part in collective engagement, and the use they make of proxy voting agencies;
- Asset managers are encouraged to have the processes that support their stewardship activities independently verified, to provide greater assurance to their clients.”
See also: Improving communications to audit committees and auditor reporting: Revised auditing standards
New Stock Exchange guide to corporate governance for Main Market and AIM companies
Follow us on Twitter @CoFinLaw
