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The new UK Governance Code which was published by the Financial
Reporting Council ("FRC") in July 2018
(the "Code") applies to accounting
periods beginning on or after 1 January 2019.
The UK Corporate Governance Code sets out standards of good
practice in relation to board leadership and effectiveness,
remuneration, accountability and relations with shareholders.
In addition to applying to Irish companies with a premium
listing on the London Stock Exchange, the Listing Rules of the Main
Securities Market ("MSM") of Euronext
Dublin require that companies with a listing on the MSM state in
their annual reports how the principles of the Code have been
applied and whether the company has complied with all relevant
provisions of the Code in addition to the provisions of the Irish
Corporate Governance Annex. Where a company has not complied with
all relevant provisions it is required to set out the nature,
extent and reasons for non-compliance.
The new Code is shorter than its 2016 predecessor and seeks to
encourage companies to focus more effectively on key areas
including the culture of the company; board quality, diversity and
independence; sustainability and purpose; positive shareholder and
stakeholder engagement and executive pay.
The FRC views the new Code as offering flexibility through the
application of principles and through 'comply or explain'
provisions and supporting guidance and views it as the
responsibility of boards to use this flexibility wisely and of
investors and their advisors to assess differing company approaches
thoughtfully. The FRC advises that by reporting on the application
of the principles in a manner that can be evaluated, companies
should demonstrate how the governance of the company contributes to
its long-term sustainable success and achieves wider objectives.
ISS proxy voting guidelines for the UK and Ireland in 2019 make
note of the updated guidelines and reiterate that ISS follows the
guidance provided by the FRC in the Code when assessing the quality
of a company's explanation in the context of reviewing the
'comply or explain' approach adopted by companies.
As the new Code applies to financial years beginning on or after
1 January 2019, reporting on compliance with the new Code will only
commence in annual reports issued during 2020 however certain
provisions are to be applied in 2019. This includes a new provision
which applies in instances where over 20% of votes cast are
against the board recommendation on a relevant
resolution, and provides that in such a situation the company
should explain what actions it intends to take to consult
shareholders in order to understand the reasons behind the results.
It also provides for follow up actions by the company including an
update, within six months of the meeting, on the views received
from shareholders and actions taken and a summary in the next
annual report on what impact the feedback has had on the decisions
the board has taken and any actions or resolutions subsequently
proposed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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