The FRC has published a shorter and sharper Code which clarifies requirements for accountability, workforce engagement, and board diversity.
The revised Code will apply to all companies with a premium listing on the London Stock Exchange for accounting periods beginning on or after 1 January 2019.
The key points are:
- Board leadership and company purpose: The revised Code focuses on regular engagement with major shareholders, with companies being required to report on the actions taken if a board recommended resolution has received significant votes against it. The Code promotes greater “workforce” engagement through (i) a director appointed from the workforce, (ii) a formal workforce advisory panel, and/or (iii) a designated non-executive director responsible for “workforce” matters.
- Division of responsibilities: The Code largely restates existing principles, including (i) the independence of the chair being determined at the time of appointment, (ii) the board retaining discretion to determine the independence of non-executive directors, and (iii) the requirement that at least half the board, excluding the chair, should be independent.
- Composition, succession, and evaluation: The Code places emphasis on the promotion of gender, social, and ethnic diversity at the board and senior management levels. Directors should be subject to regular externally facilitated board evaluations and all directors should be subject to annual re-election.
- Audit, risk, and internal control: There is emphasis is on a robust assessment of the company’s emerging and principal risks including to the company’s business model, future performance, solvency, or liquidity and reputation.
- Remuneration: The revised Code continues to focus on executive pay, with amendments to (i) expand the remit of the remuneration committee to set senior management remuneration, and to review workforce remuneration in the context of setting executive remuneration, (ii) require the remuneration committee chair to have served at least 12 months on a remuneration committee before taking the role, and (iii) extending the total vesting and holding periods for executives’ awards from three years to five years.
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