Compliance with the UK Corporate Governance Code

In order to continuously sustain performance, companies need corporate governance of the highest quality. Adherence to the UK Corporate Governance Code (formerly the Combined Code) helps ensure that management is effective and facilitates business success. The code was issued in 1992 and has drastically improved boardroom practice in the time since. Indeed, one of the reasons that the UK is such a lucrative investment opportunity is because of the high standards set by the Corporate Governance Code.

Standards of good practice

The basis of the UK Corporate Governance Code is the ‘comply or explain’ principle, whereby companies who differ from the code must publicly state why. The code establishes good business practice, advising on how to compose a board and operate effectively, explaining the role of board committees, and providing assistance with remuneration, risk management, and shareholder relationship. Under the code, all UK companies with a Premium Listing of equity shares must show in annual reports and accounts their application of the code to the business.

New requirements

Boards will now have to include a ‘viability statement’ with their strategic report to investors, which assesses the long-term health of the company and chances of solvency and liquidity. The aim is to give investors improved quality of information about the state of the listed companies they invest in and to strengthen the long-term focus between companies and investors.

In addition, boards also need to demonstrate to shareholders how executive compensation promotes long-term success of the company. Remuneration Committees will be responsible for ensuring all remuneration policies are made with the long-term success of the business in mind.

The FRC has also pointed out the importance of communication with shareholders and has emphasised “that the key to the effective functioning of any board is a dialogue which is both constructive and challenging.”  As a result, the role of the Annual Report in delivering key messages to shareholders is increasing. A well-written annual report will easily convey your organisation’s strategy, identify main risks and mitigating actions and have relevant key performance indicators to demonstrate organisational performance.

For more information about updates to the Corporate Governance Code, see the FRC website.

Contact us for expert guidance

If you would like expert guidance to comply with the provisions of the Corporate Governance Code, or drafting particular sections of your Annual Report to comply with the Code, call Bridgehouse Company Secretaries on 0845 055 8260 or email info@bhcsecretaries.co.uk