The UK’s financial reporting watchdog, the Financial Reporting Council (FRC), is to undertake a fundamental review of Britain’s corporate governance code, a move that comes in the wake of prime minister Theresa May’s desire to see reform.
In a statement, the FRC said the review would take account of its work reviewing corporate culture and succession planning, and will begin later this year once responses to the government’s own green paper consultation on governance have been completed.
Sir Win Bischoff, chairman of the FRC, said: “The prime minister has a vision of an economy that, in her words, ‘works for everyone’. This needs UK businesses to thrive so that all stakeholders including workers, customers, suppliers and society itself benefit through jobs growth and prosperity.
“With all this in mind, we will conduct a review of the current UK Corporate Governance Code. This will consider the appropriate balance between the code’s principles and provisions.
“In pursuing any changes, the current strengths of UK governance: the unitary board, strong shareholder rights, the role of stewardship and the ‘comply or explain’ approach, must be preserved. We must not throw out the baby with the bathwater.”
The FRC said its review would highlight the need for boards to “take account” of wider stakeholder views and to link executive pay to performance. The FRC also wants disciplinary powers against directors “where there have been financial reporting breaches”.
The watchdog’s statement said: “To guide this review, the FRC will seek input from a wide range of stakeholders including its recently established stakeholder advisory panel of high-profile representatives from a wide variety of sectors.”
The UK’s code has come under intense scrutiny since Theresa May became prime minister last year, when she placed it at the heart of her government’s agenda to tackle social equality. Not only has government launched its own consultation in a green paper, but at least two parliamentary committees—the business energy and industrial strategy (BEIS) committee and the work and pensions committee—have also reviewed governance following scandals in the UK.
The green paper raises questions of how to address concerns about excessive executive pay, shareholder engagement on pay and how to strengthen the role of employees and wider stakeholders in governance.