FRC Revised UK Corporate Governance Code 2018

Board Leadership and Company Purpose Fact Sheet

To down load a pdf version of this fact sheet please click here.

Green text indicates new requirements

Five Principles

  1. A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term, sustainable success of the company, generating value for shareholders and contributing to wider society.
  2. The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.
  3. The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.
  4. In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.
  5. The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term, sustainable success.  The workforce should be able to raise any matters of concern.

Eight Provisions

  1. The board should assess the basis on which the company generates and preserves value over the long-term.  It should describe in the annual report how opportunities and risks to the future success of the business have been considered and addressed, the sustainability of its business model and how its governance contributes to the delivery of strategy.
  2. The board should assess and monitor culture. Where it is not satisfied that policy, practices or behaviour throughout the business are aligned with the company’s purpose, values and strategy, it should seek assurance that management has taken corrective action. The annual report should explain the board’s activities and any action taken. In addition, it should include an explanation of the company’s approach to investing in and rewarding its workforce.
  3. In addition to formal general meetings, the chair should seek regular engagement with major shareholders in order to understand their views on governance and performance against the strategy. Committee chairs should seek engagement with shareholders on significant matters related to their areas of responsibility. The chair should ensure that the board as a whole has a clear understanding of the views of shareholders.
  4. When 20% or more of votes have been cast against the board recommendation for a resolution, the company should explain, when announcing voting results, what actions it intends to take to consult shareholders in order to understand the reasons behind the result. An update on the views received from shareholders and actions taken should be published no later than six thereafter. The board should then provide a final summary in the annual report and, if applicable, in the explanatory notes to resolutions at the next shareholder meeting, on what impact the feedback has had on the decisions the board has taken and any actions or resolutions now proposed.
  5. The board should 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. For engagement with the workforce, one or a combination of the following methods should be used: a director appointed from the workforce; a formal workforce advisory panel; a designated non-executive director. If the board has not chosen one or more of these methods, it should explain what alternative arrangements are in place and why it considers that they are effective.
  6. There should be a means for the workforce to raise concerns in confidence and – if they wish – anonymously. The board should routinely review this and the reports arising from its operation. It should ensure that arrangements are in place for the proportionate and independent investigation of such matters and for follow-up action.
  7. The board should take action to identify and manage conflicts of interest, including those resulting from significant shareholdings, and ensure that the influence of 3rd parties does not compromise or override independent judgement.
  8. 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. Blue text indicates new requirements

Contexis Commentary

The revised Corporate Governance Code has caused significant comment and a fair amount of anxiety on Listed Company boards.  Without doubt, the new Code significantly extends the governance reporting required of premium listed companies.

The requirements for Directors to formally establish the company’s purpose, personally promote culture and ensure that the strategy and culture are aligned break new ground.

As does the requirement to demonstrate an ability to measure performance and explain what arrangements are in place to ensure workforce engagement.  The FRC have made clear that traditional staff engagement surveys are insufficient demonstration of adherence to the Code.

Our work with Cambridge University, Plymouth University and others seeks to solve this problem, without adding significant costs and distraction, by providing a robust set of metrics that reveal how purpose, strategy and values are working, in real time, within the organisation and providing a road map to ensure strategy is aligned with culture and staff are engaged in both.

You can find out more about this cutting-edge work here