The 2018 UK Corporate Governance Code, published by the Financial Reporting Council, is shorter and sharper than its predecessor and emphasises the importance of the way in which boards and companies apply the spirit of the Code Principles. Whilst reasserting the importance of risk management and risk reporting, it puts the relationships between companies, shareholders and stakeholders at the heart of long-term sustainable growth in the UK economy.
The new Code clearly sets out the Principles for good corporate governance but is not prescriptive about how they are to be achieved and specifically rejects any ‘box ticking’ method of compliance. It emphasises the importance of four key areas of governance for Boards to address:
- building a positive relationship between companies, their shareholders and stakeholders, particularly its workforce;
- aligning the company’s purpose and strategy with a healthy corporate culture;
- ensuring board membership is of a high quality and focussed on diversity, and
- remuneration that is proportionate and supports long-term success.
It also places renewed emphasis on succession planning and diversity, the relevance of board skills and sets direction on longevity in office. To quote the FRC’s chief executive Stephen Haddrill: “The ongoing success of the company and its culture are also rooted in diversity and succession planning. Boards should therefore take time to consider and understand how diversity and effective succession plans will achieve the strategy and promote success and value. In the new Code, succession planning and the promotion of diversity are key elements.”
Risk management and risk reporting
The Code stipulates that the board should carry out a robust and transparent assessment of the company’s emerging and principal risks and should set out the results in the annual report – a key document that Haddrill has repeatedly said should not be seen as principally a marketing tool. The annual report, should confirm that the company has completed this assessment, and what procedures are in place to identify emerging risks, and an explanation of how these are being managed or mitigated.
“The board should monitor the company’s risk management and internal control systems and, at least annually, carry out a review of their effectiveness and report on that review in the annual report,” says the Code.
“The emphasis on emerging risks alongside principal risks and the need for procedures and triggers to elevate risks to the board quickly are welcomed by Airmic. These were points made in the submission from Airmic during the consultation stage of the Code revision earlier this year. Airmic believes that the enhancements to the Code Principles and associated Provisions and guidance are fundamental to managing risk in the Digital Age, in which risks will increasingly be driven by technological transformation and new forms of working”, says Julia Graham, Deputy CEO of Airmic.
