December 11, 2015 Measuring up to the governance code
What’s your approach to the UK Corporate Governance Code? Designed to deliver growth in long-term shareholder value and to maintain a flexible, efficient and effective management framework within an entrepreneurial environment, the UK code is widely acknowledged to be one of the most sophisticated and flexible in the world.
One of the strengths of the code is that it has been designed to be flexible in order to accommodate corporations of differing sizes working in diverse sectors. This means that whilst FTSE 100 companies are expected to embrace the code virtually in its entirety, smaller entities may adopt a more pick and mix approach depending on their needs.
However, it appears that when it comes to FTSE 350 companies, the proportion which are fully adopting the code has fallen from 61% last year to 57% in the year to June 2015. The results came from a Grant Thornton survey which also revealed that the most prevalent reason for non-compliance was board composition, in particular the requirement to have at least 50% of the board as non-executive directors.
On the plus side, businesses are obviously becoming more aware of the need to either comply or explain, with the percentage of those making relevant explanations having risen from 59% to 69%. With regulatory bodies including the FRC placing increasing emphasis on compliance with the corporate governance code as well as on culture and values, it will be interesting to see how these statistics develop over the next few years. Some sectors may struggle more than others, with a recent survey revealing that 80% of UK senior finance professionals felt they would struggle next year to recruit suitably qualified risk, compliance and governance specialists.
Interestingly, in pursuit of its new emphasis on governance and culture, the FRC has recently announced a revision of its internal structure. In the future it will be divided into five arms comprising corporate reporting & governance, audit, enforcement, government & legal, and strategy & business support. The new structure will come into force on 1 April 2016. Commenting on the changes FRC Chief Executive Stephen Haddrill said “The FRC’s goal is to ensure reporting and audit in the UK are world leading and provide assurance to global investors. Our new executive structure will ensure we can meet the objectives of our 2016/19 strategy effectively and efficiently to maintain the UK’s dominant position in global capital markets.”