The UK Corporate Governance Code sets rules for how companies should act. In general, it helps build trust, fairness, and a sense of care for the future. More people now expect businesses to do the right thing. This includes investors, workers, and the public. With this in mind, the Code is a must for UK companies. All businesses can use it as a guide. It helps them manage their organisation in a clear and honest way.
In 2024, the UK Corporate Governance Code was updated. It now focuses more on board leadership, internal controls, risk management, pay policies, and clear reporting. Key changes include stronger rules on ESG (Environmental, Social, and Governance), clawback terms, planning for future leaders, and better checks by audit committees. This article will explain the main points of the updated Code, including what changed and how companies can follow the rules.
What Is the UK Corporate Governance Code?
The UK Corporate Governance Code is a set of rules for companies that are on the London Stock Exchange. The Financial Reporting Council (FRC) creates this rule to support clear reporting, openness, and accountability. In brief, the Code gives companies a framework to follow. It also works on a "comply or explain" system. This system means that companies should follow the rules or explain to shareholders why they do not.
In 1992, the UK government introduced this Code as the Combined Code. However, the government updated it in 2018 and again in 2024. The 2024 version brings new changes to improve board leadership, company rules, and risk planning. In other words, these updates show that people expect more from company boards as new challenges appear.
The UK Corporate Governance Code has five main sections. First, there is Board Leadership and Company Purpose. Then, Division of Responsibilities. The third is Composition, Succession, and Evaluation. After that, there is Risk and Internal Control. Finally, the last one is Remuneration. The Code combines high governance standards with flexibility, which allows companies to adapt the rules to fit their specific needs.
The role of the Financial Reporting Council (FRC)
The FRC is the UK’s independent regulator for auditors, accountants, and actuaries. They set and implement standards for corporate governance. Therefore, all companies on the London Stock Exchange must meet these standards. The FRC also helps businesses follow the UK Corporate Governance Code. Their publications provide ongoing guidance on applying regulations.
Most importantly, the FRC also conducts independent reviews of the Code to see if it needs updates to ensure effectiveness. The team incorporated the revisions into the 2024 version of the Code. Alongside this, the companies will implement the revision at the beginning of 2025.
Key revisions and updates of the UK Corporate Governance Code
As explained earlier, the UK Corporate Governance Code works through broad principles and specific rules. However, the regulators updated many of these in 2024. For example, in the area of audit, risk, and internal control, the Code now asks boards to understand the company’s risk management strategy. Boards must also ensure that this scheme works well.
The 2024 changes increased what people expect from company boards when it comes to explaining how they understand and keep track of things through monitoring, management, and reporting. Another important area is remuneration: how a company makes sure its rules and policies match its business goals. The Code also highlights the board’s pay committee and specific rules like reducing or taking back bonuses if needed. To follow all these rules and ideas, boards can get ready by focusing on five main areas:
Board effectiveness and performance
The FRC completely changed the references on the UK Corporate Governance Code from "board evaluation" to "board performance review. On principle C, they note that "Governance reporting should focus on board decisions and their outcomes in the context of the company's strategy and objectives. Where the board reports on departures from the Code’s provisions, it should provide a clear explanation.”
Stakeholder engagement and communication
Reporting and disclosures are central to what's new for 2024. Provision 29 addresses the effectiveness of material internal controls, for example, and a new principle encourages company reporting on outcomes and activities. This means your board must have a firm grasp on its reporting and disclosure activities and the stakeholder and shareholder relationships behind them.
Audit and risk management
Provision 29 requires boards to monitor their company's risk management and internal controls and review their effectiveness at least once a year. This means the right framework becomes more important than ever for identifying and mitigating risks, the audit committee is equipped to oversee it all and seamless board collaboration.
Compliance and enforcement
Even with the FRC offering ongoing guidance, navigating the UK Corporate Governance Code can get complicated. For example, disclosure requirements for corporate governance arrangements overlap with the listing rules of the Financial Conduct Authority (FCA), which has its own handbook.
That must include your annual report's compliance with both the FCA Listing Rules and the UK Corporate Governance Code. Making sure your disclosures include a statement on how your company has applied the UK Corporate Governance Code
The importance of comply or explain
The 'comply or explain' approach embedded in the corporate governance code in the UK sets it apart from many regulatory frameworks. This principle allows organisations to implement the Code in a manner that suits their unique operations while being accountable for their practices. For any deviations, boards must clearly explain their reasons to stakeholders.
For example, smaller companies or those in niche markets may find it challenging to meet certain requirements. Therefore, this approach is used by them to explain to the auditors why they couldn't meet the requirements. The auditors can then give them an exemption. The comply or explain approach provides them with the necessary flexibility without sacrificing governance standards.
Challenges and considerations in implementation
Implementing the UK corporate governance code can be quite hard for smaller companies and firms due to their limited resources and lack of specialised compliance personnel. The amount of detail of the Code that spans composition, risk management, and remuneration can easily overwhelm a company and can lead to late submission.
Ensuring maximum impact, companies need to prioritise core areas such as board leadership, accountability frameworks, and transparent reporting practices. Having an impact on the key part helps allocate more efficiently and saves the hassle of being spread too thin. Involving cross-functional teams early in the implementation process can foster alignment and streamline governance activities across the organisation.
Regular training and development programmes for board members are essential to keep pace with evolving Code updates and emerging best practices. Making sure that the directors and board are educated on the ever-evolving Code is best to ensure risks and a better understanding of the board. Finally, integrating periodic board evaluations helps monitor adherence to governance goals and drive continuous improvement over time.
Conclusion
Ultimately, the UK Corporate Governance Code provides a flexible, principles-based framework that promotes transparency, accountability and sustainable performance. By emphasising board leadership, risk management and stakeholder engagement, and operating on a "comply or explain" basis, it balances rigour with adaptability. Regular review and training ensure boards remain aligned with evolving best practices and investor expectations, fostering corporate resilience and trust.
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