Reforming Corporate Governance

Improving trust in business has arguably never been more important. Companies need to consider what steps they can take to help bridge the widening gap between them and the public.

As we mark the 25th anniversary of the UK Corporate Governance Code (the Code), there is reason to celebrate its achievements. But the world has changed dramatically since 1992, and last month the FRC published a consultation on revisions to the Code, as well as to the Guidance on Board Effectiveness and the Stewardship Code.

These consultations run until 28th February and can be accessed here.

An area of particular interest to us and to the public is sustainability. The public expects companies to play a key role in achieving the Sustainable Development Goals (SDGs), and meeting this challenge will be central to restoring trust in business. Specifically for ICAEW, playing our part in delivering the SDGs is central to our vision of a world of strong economies. For these reasons we will be supporting the FRC’s proposal to reference the SDGs in the new Code.

Board members and advisers will also be interested in other revisions to the Code. I know that the following areas are being actively discussed by boards, who are mindful that the new Code will apply to accounting periods beginning on or after 1st January 2019:

Succession planning

Planning needs to reflect what the new Code says about the independence of the board chair, the stronger presumption that directors will serve nine years maximum, and the requirement for chairs of remuneration committees to have served on the committee for at least twelve months.

Employee engagement

Recent corporate scandals have made employee engagement a political imperative. Boards and remuneration committees need to consider if they would prefer to appoint an employee director, establish a formal employee advisory council or make a non-executive director responsible for employee engagement.

Committee remit

Nomination committees have a new responsibility for ensuring diversity in the management pipeline. In future, remuneration committees will oversee pay and incentives across the workforce, and they must take this into account when making recommendations on executive pay.

We will of course be responding to the consultation, so please email us your thoughts at corporategovernance@icaew.com.

ICAEW is already developing practical solutions to the biggest and most difficult questions in corporate governance. There is a wealth of strong opinion on this topic and I again encourage all members to join the conversation.

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