The Financial Reporting Council (FRC) has revised and released the 2018 UK Corporate Governance Code which is set to take effect starting January 1, 2019. This revision is shorter and sharper than the current Code, with fewer provisions, and the “Supporting Principals” section of the current Code has been removed.
At a high level, the new Code is focused on supporting long-term sustainable growth in the UK economy by building and increasing confidence and trust in UK businesses. It would do so by providing guidelines by which a compliant enterprise can build a company culture that both promotes integrity and values diversity and exercises tighter alignment with the company’s purpose and overall business strategy.
Additionally, the new Code is also meant to provide guidance to company boards on how they can be more engaged with the workforce and stakeholders, and how they should function and be structured so they increase overall effectiveness and preserve value over the long term.
Promoting transparency and integrity
All the revisions to the new Code are designed to set higher standards of corporate governance to promote transparency and integrity within the business sector. This will ultimately attract greater investment to the UK over the long term, benefiting the economy and the wider society as a whole.
It’s important to note that this Code is not mandatory and does not set out a rigid set of rules. It’s more flexible, in that it is set up within a “comply or explain” framework. This means you should follow the various aspects of the code, but if you choose not to (for whatever reason), you will need to provide an explanation for your noncompliance to the regulatory body. Company boards have the responsibility to use this flexibility wisely and thoughtfully.
The market reaction?
In general, it seems like the market’s response to the new Code is generally positive, extolling the virtues of the new revisions. If there are criticisms, they usually fall into the category of “better, but still not good enough”. Some say that the new Code doesn’t go far enough to cause the real kind of mandatory change needed for poorly run companies, as opposed to the good ones that are already implementing many of what’s encompassed in the new Code.
When asked for his thoughts on the new code, Jason Cropper, Mitratech’s Global Head of Product Marketing – GRC, said,
“The UK Corporate Governance Framework is respected globally and is a large part of why international organizations invest in UK Businesses. The ‘comply or explain’ basis of the code encourages businesses to operate in an ethical and trustworthy manner. Recent political events, and Brexit, have provided a level of uncertainty in the UK economy, and this ‘revamp’ of the code goes some way towards the UK firmly positioning themselves as ‘open for business’ post Brexit.”
Changes that can drive progress
At Mitratech, we promote and find value in solid, ethical, and transparent corporate governance, and believe in the many benefits it provides. So we view the revised UK Corporate Governance Code positively. We believe these changes to the Code should be welcomed as tools for driving standards of governance and more integrated board practices across the market, resulting in long-term economic health, stability, and strength.
Be on the lookout for a follow-up post on this topic. We’re gathering the opinions and insights of various industry leaders and experts, and we’ll share those with you shortly.
In the meantime, for more information about how Mitratech helps to strengthen the tenets of ethical, transparent, and compliant corporate governance, look here.
written by: Scott Bamford