Eight key changes in UK Corporate Governance Code

by Fiona Cullinan for The Boardroom Blog –  Grant Thornton, February 17th, 2011.

In the fast-changing landscape of UK corporate governance, what are the key recent changes that UK boards need to be aware of?

We’re going to be pulling out some of the key elements of our recently released 2010 FTSE 350 Corporate Governance Code – Evolving with the Code which highlights key issues in UK governance and assesses whether the UK’s leading companies are prepared for the requirements of new governance guidance.

We start with a list of the most recent developments and new board responsibilities in the UK Corporate Governance Code (applicable to reporting periods beginning on or after 29 June 2010).

You can find further information on each change within the report (download the PDF here) – we’ve listed the relevant pages here for easy reference.

Key changes in the 2010 Code:

1. The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives (see page 35). Further guidance on internal controls is expected later this year following a proposed FRC review of the Turnbull Guidance.

2. More emphasis on the role of chairman (see pages 15 and 38).

3. Enhanced role for the senior independent director (see page 16).

4. Diversity, including gender, to be taken into account for new board appointments (see page 33). This is a topical issue and the subject of a government consultation led by Lord Davies.

5. Externally facilitated evaluations of the board at least every three years for FTSE 350 companies (see page 19).

6. Annual election of directors for FTSE 350 companies (see page 19).

7. Further guidance on the design of performance-related remuneration (see page 31):

  • challenging performance criteria, including non-financial metrics for achievement of executive bonuses;
  • ‘claw-back’ provisions for bonuses; and
  • no performance-related elements in non-executive directors’ remuneration.

8. Enhanced disclosure of business model and strategy in the annual report (see page 41). The future of narrative is the subject of a government consultation and further changes are expected in this area.

We’re also expecting the FRC to issue best practice guidance on improving board effectiveness. This is replacing the Higgs guidance, which was limited to the role of non-executive directors.

 

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