This Code places emphasis on businesses building trust by forging strong relationships with key stakeholders. It calls for companies to establish a corporate culture that is aligned with the company purpose, business strategy, promotes integrity and values diversity.
There is a renewed focus on the application of the Principles – the FRC wishes to see clear, meaningful reporting. Investors and proxy advisors must assess explanations carefully and not take a tick-box approach.
The main changes include:
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Workforce and stakeholders: There is a new Provision to enable greater board engagement with the workforce to understand their views. The Code asks boards to describe how they have considered the interests of stakeholders when performing their duty under Section 172 of the 2006 Companies Act.
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Culture: Boards are asked to create a culture which aligns company values with strategy and to assess how they preserve value over the long-term.
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Succession and diversity: To ensure that the boards have the right mix of skills and experience, constructive challenge and to promote diversity, the new Code emphasises the need to refresh boards and undertake succession planning. Boards should consider the length of term that chairs remain in post beyond nine years. The new Code strengthens the role of the nomination committee on succession planning and establishing a diverse board. It identifies the importance of external board evaluation for all companies. Nomination committee reports should include details of the contact the external board evaluator has had with the board and individual directors.
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Remuneration: To address public concern over executive remuneration, the new Code emphasises that remuneration committees should take into account workforce remuneration and related policies when setting director remuneration. Importantly formulaic calculations of performance-related pay should be rejected. Remuneration committees should apply discretion when the resulting outcome is not justified.
Full press release
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