Insurance Regulatory eBulletin - Corporate governance reform

Revised UK Corporate Governance Code
On 16 July, the Financial Reporting Council (FRC) published the revised UK Corporate Governance Code which contains an updated set of principles that emphasise the value of good corporate governance to long-term sustainable success. It also published its revised Guidance on Board Effectiveness which is not mandatory and is not prescriptive. It contains suggestions of good practice to support directors and their advisors in applying the Code.

The revised Code is both shorter and sharper in its approach and retains its ‘comply or explain’ approach, which enables it to be applied to the diverse range of listed businesses in the UK while allowing a company’s specific circumstances to be taken into account. However, there is a renewed emphasis on the Principles of the Code and how they have been applied (‘apply and explain’) which is aimed at encouraging more meaningful board engagement and shifting the trend away from a tick box approach to corporate governance.

This renewed focus on the principles in a manner that can be evaluated is aimed at demonstrating how the governance of the company contributes to its long-term sustainable success and achieves its wider objectives in the context of the particular circumstances of the company. It requires the board to explain how it has set the company’s purpose and strategy, met its objectives and achieved its outcomes through its decisions.

The effective application of the principles is supported by high-quality reporting on the provisions of the revised Code. The provisions establish good practice on a ‘comply or explain’ basis. However, there is an emphasis on avoiding a ‘tick-box approach’.

The main changes to the Code include:

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.


Boards are asked to create a culture which aligns company values with strategy and to assess how they preserve value over the long-term.

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.


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.

The revised Code is applicable to all companies with a premium listing, whether incorporated in the UK or elsewhere, and applies to accounting periods beginning on or after 1 January 2019. This timing should give Boards time to engage with the letter and the spirit of the revised Code.

The PRA recognises the importance of following a recognised Corporate Governance Code in its Supervisory Statement on Corporate governance: Board responsibilities SS5/16.

The Companies (Miscillaneous Reporting) Regulations 2018
The Regulations were published in June and impose different obligations on different types and sizes of company.

The regulations require:





A new, separately identifiable Section 172(1) statement to be included in the  Strategic Report and on a website covering:
·        the issues, factors and stakeholders relevant in  complying with s172 and why;
·        engagement methods;
·        impact on decisions and  strategies during the year.
Additional requirements for the Directors’ Report on employee engagement and business  relationships where not covered in the Strategic Report.

All companies qualifying as large  under the Companies Act, which  means meeting at least two of the following:
·        turnover of more than £36m;
·        balance sheet total of more than £18m;
·        more than 250 employees.
Subsidiaries of listed groups are  captured by these requirements if  they meet the size criteria.
The Directors’ Report employee  engagement requirement applies to all UK registered companies with more than 250 employees.

Governance in large privately-held  businesses

·        Confirmation of which corporate  governance code, if any, has been  applied and how.
·        If the company has departed from any aspect of the code, it must explain  which aspects and the reasons.
·        If no code is followed the company must explain why and what corporate  governance arrangements were applied.
·        The statement will need to be included in  the company’s Directors’ Report and published on a website maintained by or on behalf of the company

All UK registered companies with  either:
·        2,000 or more global employees; or
·        turnover over £200 million  globally and a balance sheet total  of more than £2bn.
Companies already required to report on their corporate governance are not within scope.