As you will be aware, last week the FRC published its awaited proposals for a revised UK Corporate Governance Code: a "comprehensive review to ensure that the Code remains fit for purpose". This is the biggest shake-up of the Code in recent years, and the changes will affect all companies on the premium segment of the Official List and others who voluntarily agreed to comply with the Code. As the FRC has already consulted with a broad range of stakeholders, it seems unlikely that the final Code will radically differ from what is set out in the current consultation.

The FRC is also consulting on amendments to its Guidance on Board Effectiveness, as well on the future direction of the UK Stewardship Code.

What are the key proposed changes?

Removal of exemptions for companies below the FTSE 350

  • The exemptions in relation to companies below the FTSE 350 will be removed – under the revised Code, all listed companies will be subject to all the Principles and Provisions of the Code. Currently, exemptions apply in relation to provisions relating to board composition, board evaluation, annual re-election of directors, and audit and remuneration committee composition.
  • All directors will therefore be expected to be subject to annual re-election.
  • The FRC is consulting in particular on the removal of the exemption in relation to independent board evaluation. The revised Code will state that all companies should have an externally facilitated board evaluation at least every three years. The removal of this exemption will inevitably impose a financial and logistical burden on those companies who do not currently need to comply with this requirement.

Shareholder dissent

  • Where more than 20% of votes have been cast against a resolution, the company should:
  • explain what actions it intends to take to consult with shareholders to understand the reasons behind the result;
  • publish an update no later than six months after the vote; and
  • provide a final summary in the annual report, or in the explanatory notes to resolutions at the next meeting, on the impact of the feedback on the decisions of the board, and any proposed actions or resolutions.
  • These actions, which have been included to cater for significant shareholder opposition in relation to executive pay, are aimed at ensuring that the company fully understands the reasons for its shareholders voting against a resolution, and will be able to discuss these matters further with them.

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