EDITORIAL: CHANGING CORPORATE GOVERNANCE?

Following the consultation on restoring trust in audit and corporate governance, last year, the government invited the FRC to strengthen the UK corporate governance code in specific areas. In May 2023 the FRC issued a consultation document setting out proposed changes.

Some of them were intended to be implemented by legislation. Others, such as the internal control requirements, would need further consultation by the FRC and would be applied through the code, last updated in 2018.

In October, the government announced that it had withdrawn that legislation after companies and industry bodies raised concerns about onerous reporting requirements. After the King’s speech on November 7, the FRC issued a policy statement in which CEO Richard Moriarty said, ‘… the FRC considers the right balance at the current time is to take forward only a small number of the original 18 proposals we set out in the consultation and to stop development of the remainder’.

The main substantive change concerns revisions to the FRC’s original proposal on internal controls. The FRC said that the decision would result in a more targeted and proportionate change to the Code and would allow more time for its implementation. 

Over half of the FRC’s original proposals, including those relating to the role of audit committees on ESG and modifications to existing code provisions on diversity, over-boarding and committee Chairs engaging with shareholders will not be progressed.

A new code is expected in January 2024.

In the meantime, Grant Thornton has issued a useful and practical guide on what the announcement means to companies. The guide suggests that ‘For now, the most pragmatic response for companies to take is to focus on “no regret” activities until the FRC publishes the final changes to the Code. The two key areas we're seeing organisations continue to prioritise relate to internal controls and fraud risk frameworks.’

You can find the Grant Thornton guidance here.