As mentioned in previous Technical Briefings, on 24 May, the Financial Reporting Council published its long anticipated consultation on the UK Corporate Governance Code, the intention of which was to focus on the legislative and governance reforms that the Government proposed in its May 2022 white paper “Restoring trust in audit and corporate governance”. These were designed, amongst other things, to “support the FRC’s transition into the Audit, Reporting and Governance Authority (ARGA).”
The Institute has submitted its response to the consultation, which closed on Wednesday (13th September).
We are grateful to all those members who took part in our roundtables and discussion sessions and to those who wrote to us to offer their views on the issues raised in the consultation. All contributions were much appreciated, although I am sure that you will understand that, especially as there were mixed views on some questions, not all could be incorporated into the final response.
I have outlined below some of the key issues, but the full response is available on our website.
The UK is already a strong governance environment in global terms and it is important that the FRC is confident that any changes it makes to the Code add value and that their impact is not overly onerous, particularly through encouraging the micro-management of companies by either regulators or shareholders. Whilst many of our members were generally supportive of the proposed changes, others took the view that some carry a risk of making the UK corporate environment overly-governance focused, increasing box-ticking and boilerplate. The text of the FRC’s guidance will be enormously important in ensuring that this is not the case, and the Institute stands ready to assist with the development of appropriate guidance.
A number of themes have emerged in our response:
As I said in the press release that we issued to accompany our response:
‘Calls to simplify legislation and regulation are regularly made by those suggesting the current regime is off-putting to large corporates. In some areas these may be justified, but not in that of governance, where we believe that a strong reputation for governance practices are an asset to the UK, adding huge value to the market and reassuring shareholders and stakeholders alike. They should not be diluted in response to a perceived trend in corporate behaviour.
But there is an important balance to be struck within the Code. It is right and important that management attention is spent on reporting, but this should not unduly redirect attention away from business matters. The amount of reporting required of companies, and the complexity of regulation to which they are subject, must be proportionate. Our recent Boardroom Bellwether survey highlighted that 81% of respondents believe that, to some or to a large extent, increasing reporting requirements are reducing the time available for strategic discussions at board level. That cannot be the intention. And it is essential that changes to the Code do not add to that burden.’