Governance in brief
Governance in brief is a summary of the latest corporate governance developments, incorporating details of the source, relevant dates and links to further information
2015 – A focus on culture and enhanced explanations
The FRC’s latest corporate governance and stewardship monitoring report observes that there has been an increase in compliance with the UK Corporate Governance Code. In addition, the FRC believes that reporting has become more transparent and informative. On stewardship the report notes that 2014 has seen an increase in signatories to the Stewardship Code with signs of better engagement by investment managers at least with the very largest companies. However, more needs to be done to ensure asset owners and managers follow through on their commitment to the principles set out in the Code.
The FRC has set out a number of key issues for consideration by companies and investors in 2015. These include:
The FRC paper confirms the importance of good corporate culture and embedding sound governance behaviours throughout the company. During 2015 the FRC will review how best to assess culture and practices and embed good corporate behaviour throughout companies and will consider whether there is a need for promoting best practice.
Board composition and succession planning
The FRCfs project on succession planning is aimed at identifying and promulgating good practice and, more specifically, at how the nomination committee can play its role effectively. In this report the FRC states that unless boards are planning over the medium to long.term, for both executive and non.executive positions, they will struggle to ensure that there is the right mix of skills and experience needed as the company evolves.
Active engagement between boards and investors
Whilst there has been evidence of more engagement on a wider range of issues taking place between larger companies and major investors, the FRC is not confident that this is taking place across the listed sector with sufficient quality. The FRC is concerned that too many signatories to the Stewardship Code do not do what they have committed to do.
Early consideration of the new viability statement
The 2014 UK Corporate Governance Code introduces a new provision which calls for boards to state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks; boards have to specify the period covered by this statement and why they consider it appropriate.
Maintaining effective risk management and internal control systems
The 2014 Code also introduces a provision which states that boards should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and to report on that review in the annual report. The FRC is emphasising that this new provision may require new activity during the year to maintain, and monitor, effective risk management and internal control systems.
Focussing on the quality of explanations
The FRC notes that companies often seem to find it easier to explain what their actual governance arrangements are and, where relevant, the actions intended to make the company compliant with the Code, rather than to explain why they consider current arrangements to be the most appropriate for the company.
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