EDITORIAL: CORPORATE GOVERNANCE CODE 2024

On 22 January the FRC published the latest version of the Corporate Governance Code. A week later, they issued the updated guidance to the Code, which can be found here.

Overall, the number of changes made has been relatively small. As announced in November, the FRC have dropped their proposed changes related to the role of the audit committee; expanding expectations on diversity, equity and inclusion; provisions on over-boarding; ESG issues and committee Chairs’ engagement with shareholders.

The largest change is around internal controls. Principle O has been amended to make the board responsible not only for establishing but also for maintaining the effectiveness of the risk management and internal control framework. Boards are encouraged to review the effectiveness at least annually and set out in a declaration in their annual reports how they have done this and what their conclusions were.

A new Code provision creates an expectation that governance reporting should focus on board decisions and their outcomes in the context of the company’s strategy and objectives. There is also an expectation that boards should not only assess and monitor culture but also how the desired culture has been embedded within the organisation.

The Code will still operate on a “comply or explain” basis with the new FRC CEO, Richard Moriarty, explaining at a webinar that companies who choose to diverge from the Code are encouraged to explain why this approach achieves effective governance. This can often give more confidence that management has considered the best approach to governance, rather than just ticking the boxes to comply with the Code. “The board must take ownership of the process,” he said.

The new Code comes into effect for accounting periods beginning on or after 1 January 2025 apart from provision 29 on internal controls which will come into effect for accounting periods beginning on or after 1 January 2026.