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Key takeaways from the New FRC Corporate Governance Code

July 16, 2018

The Financial Reporting Council (FRC) has today published the new, trimmed down, UK Corporate Governance Code (the Governance Code). 

What is the Governance Code and which companies does it apply to? The Governance Code is applicable to all companies with a premium listing, whether incorporated in the UK or elsewhere. The new Code applies to accounting periods beginning on or after 1 January 2019. The new Governance Code can be found here:  

Aims of the Governance Code: The stated aims of the updated Governance Code are to “put the relationships between companies, shareholders and stakeholders at the heart of long-term sustainable growth in the UK economy…It calls for companies to establish a corporate culture that is aligned with the company purpose, business strategy, promotes integrity and values diversity”. 

Philip Henson, Head of Employment Team at ebl miller rosenfalck says that: As there has been an extensive consultation process there are few surprises for professional advisors or directors in the new, slimmed down, Governance Code. The “Supporting Principles” have been removed, as was anticipated, and there are fewer Provisions. They key changes relate to workforce engagement and diversity.

From an employment law perspective the key takeaways of the new Governance Code are: 

Moving away from a Tick Box Approach – The Provisions establish good practice on a ‘comply or explain’ basis, and encourage companies to avoid a ‘tick-box approach’.

Board Composition – There is an emphasis on the importance of independence and constructive challenge of the boardroom.

The Governance Code provides that: “Where directors have concerns about the operation of the board or the management of the company that cannot be resolved, their concerns should be recorded in the board minutes. On resignation, a non-executive director should provide a written statement to the chair, for circulation to the board, if they have any such concerns”.

Philip Henson says: “This new provision may have some teeth as non-executive directors who resign their position may feel that it is incumbent upon them (possibly for legacy reasons) to set out how they have sought to challenge difficult decisions. That may have unexpected consequences of raising governance concerns that need to be formally addressed. As such, we can expect the creation of quasi exit interviews for departing non-executives”.

Excessive pay – References to “Excessive Pay” – discussed at length during the consultation – are notably absent from the new Governance Code.

Philip Henson says: This does not mean that there is an open cheque book for Remuneration Committee’s; quite the contrary. The new Governance Code encourages remuneration which is proportionate and supports long term success. Recent shareholder rebellions have pushed excessive pay into the headlines and perhaps the FRC is seeking to rely on that continued oversight from shareholders.

Board Responsibility for workforce policies – There is an emphasis on Board responsibility for workforce policies and practices which reinforce “a healthy culture”.

Philip Henson says: This – added to the move away from a tick box approach – may lead to meaningful consultations with the workforce, and potentially further internal provisions so that members of the workforce are listened to, and there is the potential for that to include more internal safeguards for corporate whistle-blowers and those who wish to raise grievances anonymously.

Focus on High Quality Board Composition – A focus on high quality board composition (subject to a “formal, rigorous and transparent procedure”), and a focus on diversity and effective “board refreshments”.

Workforce Engagement – The governance Code seeks to encourage engagement with the workforce, by the use of one or a combination of the following methods:

  • A director appointed from the workforce;
  • A formal workforce advisory panel;
  • A designated non-executive director.

Philip Henson says: This change will not satisfy those stakeholders who have pushed for a worker representative on each Board. However, we will watch with interest to see how many companies take the easier route of giving a non-executive director a wider remit to engage, rather than taking a more radical approach of developing a formal workforce advisory panel.

Annual report of the Nomination Committee – The Nomination Committee will be responsible for more effective succession planning that develops a more diverse pipeline. An annual report should describe the work of the nomination committee, including:

  • The process used in relation to appointments, its approach to succession planning and how both support developing a diverse pipeline;
  • how the board evaluation has been conducted, the nature and extent of an external evaluator’s contact with the board and individual directors, the outcomes and actions taken, and how it has or will influence board composition;
  • the policy on diversity and inclusion, its objectives and linkage to company strategy, how it has been implemented and progress on achieving the objectives; and
  • the gender balance of those in the senior management and their direct reports.

Philip Henson says: We hope that the focus on board composition, with reporting on gender balance on senior management might help to increase the amount of women on FTSE 100 Boards, and the change of the word Chairman to Chair throughout the new Governance Code is a meaningful change.  However, more needs to be done to embrace a wider diversity mandate.

30 % Club – On a related note, I would like to take the opportunity to highlight the excellent work carried out by the 30% Club. The goal of the 30% Club is to achieve a minimum of 30% women on FTSE-100 boards – the figure stand at 28.9% up from 12.5%. Click this link for more information, and how you can get involved


The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© Miller Rosenfalck LLP, July 2018