Four things you need to know about the UK Corporate Governance Code 2024

On Thursday 21 May 2024, CGIUKI presented a breakfast session − kindly hosted at the EY offices − at which the governance community could come together to hear Maureen Beresford, Acting Director of Corporate Governance and Stewardship at the Financial Reporting Council and Michelle Lewis, Principal Implementation Advisor at Companies House highlight some key changes being introduced through the updates to the UK Corporate Governance Code and the Economic Crime and Corporate Transparency Act .

After a warm welcome from Marco Murray, Director of Entity Compliance and Governance at EY, Marueen was fist up to run through four key changes in the UK Corporate Governance Code.

1. Good explanations demonstrate good governance.

Company secretaries will be well aware that the UK Corporate Governance Code operates on a comply or explain basis. The intention is that the principles can be applied, and companies can decide − based on their unique circumstances − whether they wish to comply, or explain their reasons for non-compliance with the individual provisions.

Maureen shared some findings from the FRC’s annual review of company reporting. Each year they look at 100 randomly selected annual reports. Through this work they have discovered that, since 2020, explanations (as opposed to compliance) have increased from 42 out of 100 in 2020, to 63 out of 100 in 2023.

The FRC welcomes explanations, but Maureen reiterated the importance of these explanations being meaningful. A good explanation which tells the company’s story will also provide the information that investors and stakeholder need and will avoid bland, boilerplate statements.

Companies have been known to cite proxy advisors as being unfriendly to non-compliance, which Maureen acknowledged. She encouraged companies to engage with investors early as they may have bespoke policies meaning that they don’t always follow the proxy advisers’ recommendations. Make sure to do this early to avoid the rush around AGM season.

2. Report on the impact.

Reporting should be outcomes based, making sure it answers the question ‘so what?’ Marueen asked that companies describe what a policy has achieved and any of the challenges faced along the way, without listing every policy that the company has in place.

3. Report on material controls.

The updated code asks for strengthened but proportionate reporting on risk and controls. This change doesn’t come into effect until 1 January 2026 (one year after the other changes), but boards will need to start preparing now so that they are ready when the time comes.

Delving into Provision 29 in particular, the change that Maureen highlighted was the requirement to report on the effectiveness of the material controls as at the balance sheet date. She emphasised that this is not about reporting risks, nor is it about reporting on any issues of effectiveness that have been encountered during the year but subsequently resolved.

Maureen was also clear that this is not SOX by any other name. Key differences between the FRC and SEC’s requirements include that the UK approach:

  • is flexible
  • assigns responsibility of the whole board
  • does not require auditor involvement
  • is not enforceable by the FRC
  • relates to material controls including those that are non-financial.

4. New guidance supports the Code, it doesn’t add to it.

To support companies with the transition to the new Code, the FRC has updated and consolidated relevant guidance. This is all available online and the Code includes links straight through to the relevant section of the guidance. While the FRC does not envisage that it will make material changes to the guidance, any updates will be published on the first Wednesday the month.

If you would like to know more about the changes to the UK Corporate Code, this will be discussed by a panel of company secretaries at Governance 2024, our Annual Conference taking place on 3−4 July 2024.

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