The Financial Reporting Council (FRC) has updated its code of conduct, placing the emphasis on firms building trust by forging good relationships with their stakeholders.
The shorter and sharper 2018 UK Corporate Governance Code, which was released today (16 July), calls for companies to establish a corporate culture that is aligned with their purpose and business strategy, and promotes integrity and diversity.
The code outlines how company boards can ensure they have the right mix of skills and experience, while promoting diversity through their succession planning.
The FRC regulates auditors, accountants and actuaries, and sets the corporate governance and stewardship codes.
The corporate governance code sets standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.
The new 20-page document says boards should consider the length of term that chairs remain in post beyond nine years.
It also emphasises that remuneration committees should take into account their workforce's pay and related policies when setting director pay.
Formulaic calculations of performance-related pay should be rejected and remuneration committees should apply discretion when the resulting outcome is not justified, it states.
There is also a renewed focus on the application of the body's Principles – the FRC stating it wishes to see clear, meaningful reporting from firms and the avoidance of a tick-box approach.
Sir Win Bischoff, chairman of the FRC, said: “Corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital.
"To make sure the UK moves with the times, the new code considers economic and social issues and will help to guide the long-term success of UK businesses.
"This new code, in its new shorter and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.”
The Investment Association has welcomed the update.
Andrew Ninian, director of stewardship and corporate governance at the Investment Association, said: "We particularly welcome the code's requirement of companies on the IA Public Register to acknowledge investor dissent and respond within six months.
"The Investment Association wants to ensure UK listed companies are accountable to their shareholders and run in a way that delivers long term returns for savers and pensioners."
He added the code's continuing evolvement was important to ensure the UK retains its global reputation as a leader in corporate governance.
Mel Kenny, chartered financial planner at London-based Radcliffe & Newlands, said: “Whilst more change per se is difficult to welcome, to have something shorter, sharper and more meaningful in place instead bodes well.”
aamina.zafar@ft.com
