Last year the Government issued a revamped version of the UK Corporate Governance Code. The timing of its publication was fortunate – although the review into the Code started in 2017, scandals involving major businesses including Carillion and BHS had more recently put pressure on the regulators to look into boardroom culture and improve public confidence in how top companies are managed.
The new Code is effective for financial years commencing in 2019. The main changes in the Code involve placing more emphasis on engagement with the workforce and the responsibility of the board to create a corporate culture which aligns with company purpose and business strategy in order to create sustainable value. In terms of the board itself, the new Code emphasises the need to refresh boards on a regular basis and to undertake succession planning.
According to Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Committee, excessive executive pay is the biggest cause of distrust in business. The headlines surrounding the collapse of Carillion in 2018 stoked up the heat of controversy surrounding this issue – 'Carillion faces enquiry into bosses £4 million bonuses' was front page headline of the Independent at the time of the scandal.
To attempt to resolve the 'fat cat' uproar, the new Code emphasises that remuneration committees should take into account workforce remuneration and related policies when setting director remuneration.
The Code is aimed at listed companies. For large, private companies, defined as having more than 2,000 employees or a turnover of more than £200 million, and a balance sheet of more than £2 billion, new regulations also come into force in 2019. They are now required to make statement of corporate governance arrangements. Guidance on how to meet this requirement is given in the Wates Principles. Launching the principles James Wates, Chairman of the Coalition Group, described the principles as 'a tool to help large private companies look themselves in the mirror, to see where they have done well and where they can raise their corporate governance standards to a higher level'.
Similar to the new Code for listed companies, the Wates Principles offer a framework for better governance and encourage transparent disclosure with regard to governance arrangements. Well-run companies whether listed or private, will already embrace many of their aspects.
The success of the new Code and Wates Principles will be seen over the first few years of their implementation. Companies need to go beyond the 'box-ticking' approach along with generic 'boiler-plate' disclosure which unfortunately is all too common. Simon Lowe, partner and chair of the Governance Institute at Grant Thornton UK LLP comments that 'when new reporting requirements are introduced, it typically takes three to four years for all companies to take them on board and move beyond basic disclosure'. So it may be some time before we can conclude as to whether the revision of the Code and introduction of requirements for large private companies has led to significant change in the attitude and behaviours around the boardrooms of UK businesses.