UK: The 2018 UK Corporate Governance Code

Last Updated: 25 October 2018
Article by David Collins, Richard Barham and Candice Chapman

The Financial Reporting Council (FRC) has published the 2018 UK Corporate Governance Code.  The new Code is designed to set higher standards of governance to promote transparency and integrity and attract investment in the UK. The new Code will apply to premium-listed companies (and other companies that voluntarily choose to comply with it) for their financial years beginning on or after 1 January 2019.   

The new Code retains much of the current version of the Code (the 2016 Code) with an emphasis the importance of:

  • positive relationships between companies, shareholders and stakeholders;
  • a clear purpose and strategy aligned with healthy corporate culture;
  • high quality board composition and a focus on diversity;
  • remuneration which is proportionate and supports long-term success.

The new Code is a "shorter and sharper" document than the 2016 Code. It now consists of 18 Principles and 41 corresponding provisions. These are divided into five sections as follows:

  1. Board leadership and company purpose
  2. Division of responsibilities
  3. Composition, succession and evaluation
  4. Audit, risk and control
  5. Remuneration

The new Code refocuses on applying the Principles as well as the need to comply with the Provisions (or explain any failure to comply).  

Publication of the new Code follows the FRC's consultation in December 2017 (which we reported on here). Not all the changes proposed in the consultation have been incorporated in the final version of the new Code. In particular:

  • the proposal to remove all exemptions available to companies outside the FTSE 350 has been relaxed, in favour of more limited removal (as mentioned below);
  • the proposal to turn the factors which boards must consider when determining directors' independence into conditions which to be satisfied has not been taken forward; and
  • the proposal to require a company's chair to be independent throughout their tenure, rather than only on appointment, has not been taken forward (but see below).   

Significant changes which the final version new Code makes to the 2016 Code include the following:

Shareholder and stakeholder engagement

  • Shareholder resolutions: When 20 per cent or more of shareholder votes are against a resolution recommended by the board, the company should:
    • explain, when announcing voting results, what actions it intends to take to consult shareholders so it can understand the reasons behind the result;
    • publish an update within six months of the vote; and
    • provide a final summary in the annual report, or in the explanatory notes to resolutions at the next meeting, on what impact the feedback has had on the decisions the board has taken and any actions or resolutions now proposed.
  • Stakeholder engagement: The board should take steps to understand the views of the company's other key stakeholders and describe in the annual report how their interests and the matters set out in section 172 of the Companies Act 2006 have been considered in board discussions and decision making. The board should keep engagement mechanisms under review so that they remain effective.
  • Workforce engagement: Companies should choose one or a combination of the following methods for gathering the views of the workforce: a director appointed from the workforce, a formal workforce advisory panel or a chosen non-executive director. If a company does not choose one or more of these methods, it should explain what alternative arrangements are in place and why it considers that they are effective. Additionally, there should be a means for the workforce to raise concerns in confidence and, if they wish, anonymously.
  • Long term success: The principle of promoting the long-term sustainable success of the company is linked not only to generating value for shareholders but also contributing to wider society. This generated some criticism during the FRC consultation, on the basis that it reinterprets section 172 of the Companies Act 2006 which makes no reference to contributing to wider society. The new Code, therefore, now states explicitly that nothing in it overrides or is intended as an interpretation of the statutory statement of directors' duties in the Act.

Corporate culture and alignment with purpose and strategy 

  • The board should satisfy itself that the company's culture is aligned with its purpose, values and strategy and all directors must act to promote that culture. The board should assess and monitor culture.

Board composition and diversity

  • Chair independence: A company's chair should not remain in post beyond nine years from the date of their first appointment to the board, though that period can be extended for a limited time to facilitate effective succession planning and the development of a diverse board, particularly where the chair was an existing non-executive director on appointment. A clear explanation should be provided.
  • Director independence: Companies below the FTSE 350 will now need to ensure that at least half of their board, excluding the chair, is independent. This brings the requirement for these companies into line with the requirements for companies within the FTSE 350.
  • Annual re-appointment: Directors of companies below the FTSE 350 will be subject to annual re-election, bringing the requirement for these companies into line with the requirements for companies within the FTSE 350. 
  • Diversity: Appointments and successions plans for board and senior management positions should promote diversity not only of gender but also of social and ethnic backgrounds.  The nomination committee's role is expanded to ensure that plans are in place for orderly succession to both the board and senior management positions, and to oversee the development of a diverse pipeline for succession. To improve transparency, the annual report should, among other matters, describe the actions of the committee in these areas, and include information about the gender balance of those in the senior management and their direct reports.
  • Audit committees: The chair of a company outside the FTSE 350 may no longer sit on the company's audit committee, bringing the position for these companies into line with the requirements for companies within the FTSE 350.

Remuneration

  • Remuneration committee chair: Before appointment as chair of the remuneration committee, the appointee should have served on a remuneration committee for at least 12 months.
  • Remuneration committee remit: The remuneration committee will have a broader remit which includes reviewing workforce remuneration and related policies and the alignment of incentives and rewards with culture, taking these into account when setting the policy for director remuneration.  
  • Performance awards: The recommended minimum vesting and post-vesting holding period for executive shares awards is increased from three to five years to encourage longer-term outcomes. Remuneration schemes and policies should give boards discretion to override formulaic outcomes.
  • Pensions: Pension contribution rates for executive directors, or payments in lieu, should be aligned to those available to the workforce

Companies familiarising themselves with the new Code should be aware that some of the procedural aspects of governance which were in the 2016 Code have been moved to a separate "Guidance on Board Effectiveness". This also provides extensive guidance and suggestions and should, therefore, always be read in conjunction with the new Code. The FRC has also published a useful feedback statement which includes a detailed comparison between the 2016 Code and the new Code and a redline showing the changes between the consultation draft of the new Code and the final version of the new Code.   

UK Corporate Governance Code - July 2018; Guidance on Board Effectiveness - July 2018; Feedback statement: UK Corporate Governance Code; Feedback statement annex: UK Corporate Governance Code

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
Travers Smith LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
Travers Smith LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions