Further consultation on UK Corporate Governance Code

Posted by RM2 at 14:44 on 9 Jan 2018

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The Financial Reporting Council (the “FRC”) have recently published a consultation document suggesting changes to the UK Corporate Governance Code as well as kicking off a consultation on the UK Stewardship Code. For more information, see here.

Unsurprisingly, they would like the UK Corporate Governance Code to be shorter and more concise - who wouldn’t agree with that! Most of the remuneration-related material remains the same (i.e. for those companies who have full stock exchange listings (and including listings on AIM as best practice)). However, there were a few points that caught our eye.

  • The FRC are proposing that 5 years (rather than 3 years) should become the “norm” as regards the vesting and holding periods for shares granted and other types of long-term share incentives.
  • The FRC want boards of companies to have a discretion to override certain outcomes which could be considered to be “formulaic” (i.e. perhaps overly mathematical and based on conditions set at the date of award).
  • Remuneration committees will potentially in the future need to consider the pay of not just executive directors and senior management but the wider body of employees as well.
  • Non-Executive Directors (“NEDs”) should no longer receive share options as part of their remuneration package. This proposal does already seem to be part of the corporate governance consensus on this area.
  • Finally, the FRC are promoting greater bureaucracy/consultation of shareholders around a situation where more than 20% of the shareholders have voted against a shareholders’ resolution.

It is worth noting that all the proposed changes would not (if taken forward) apply until accounting periods beginning on or after 1st January 2019.

If you want to respond to the consultation, you have till 28 February 2018. Responses should be sent by email to codereview@frc.org.uk.