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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406


FRC consultation on UK Corporate Governance Code

The Financial Reporting Council (FRC) has published for consultation proposed revisions to the UK Corporate Governance Code (the Code) and Guidance on Board Effectiveness. The paper also includes an initial high-level consultation on the future direction of the UK Stewardship Code. The proposed revised Code follows the FRC’s announcement earlier this year that it would undertake a fundamental review to take account of work done by the FRC on corporate culture and succession planning and the issues raised in the government’s Green Paper and the BEIS Select Committee inquiry, published in November last year.


The Code has been in place since 1992 and the review has built on the Code’s globally recognised strengths developed over the past 25 years, namely the unitary board, strong shareholder rights, the role of stewardship and the "comply or explain" approach, while considering the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.

The Code encourages companies to achieve high standards and in order to do this it needs to be clear and concise. The proposed revised Code is therefore shorter and more concise than the existing version, comprising 17 Principles and 41 Provisions. The existing supporting Principles have been removed and, in some cases, they have been incorporated into the new Principles and Provisions, while others have been moved to the Guidance on Board Effectiveness.

The revised Code focuses on the importance of long-term success and sustainability, addresses issues of public trust in business and aims to ensure the attractiveness of the UK capital market to global investors through Brexit and beyond.

The revised Code

The revised Code has five sections:

  1. Leadership and purpose
  2. Division of responsibilities
  3. Composition, succession and evaluation
  4. Audit, risk and internal control
  5. Remuneration

The majority of changes have been made to the first three sections of the current Code, which broadly correlate to Sections A (Leadership) and B (Effectiveness). Section E (Relations with shareholders) has been integrated within the revised Code, as the FRC regards shareholder engagement as a key aspect of good governance. Section 4, which deals with audit, risk and internal control, remains largely unchanged.

Proposed changes to the Code include:

  1. the insertion of a provision under which the board should establish a method for gathering the views of the workforce, which would normally be a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director;

  2. the insertion of a provision requiring the board to explain in the annual report how it has engaged with the workforce and other stakeholders, and how their interests and the matters set out in section 172 of the Companies Act 2006 influenced the board’s decision-making;

  3. the insertion of a provision providing that, where more than 20% of votes have been cast against a resolution, the company should explain the actions it intends to take to consult shareholders to understand the reasons behind the result. No later than six months after the vote, an update should be published. The final summary should be provided in the annual report, or in the explanatory notes to resolutions at the next meeting, on the impact the feedback has had on the decisions of the board;

  4. the removal of all exemptions from Code requirements for companies below the FTSE 350, including in relation to board composition, board evaluation, annual re-election, and audit and remuneration committee composition;

  5. strengthening the provisions on non-executive independence. In particular, the chair must demonstrate independence and meet the stated independence criteria throughout their tenure (not only on appointment);

  6. broadening the requirements relating to diversity;

  7. the insertion of a requirement that, before appointment as chair of the remuneration committee, the appointee should have served on a remuneration committee for at least 12 months;

  8. an expansion of the remuneration committee's remit to include responsibility for oversight of company remuneration and workforce policies and practices;

  9. an extension of the vesting and holding period for shares granted or other forms of long-term incentives, in normal periods, from at least three years to at least five years; and

  10. the insertion of a provision under which remuneration schemes and policies should provide boards with discretion to override formulaic outcomes.

Next Steps

Responses to the consultation are required by 28 February 2018. The FRC aims to publish a final version of the Code by early summer 2018, to apply to accounting periods beginning on or after 1 January 2019. The FRC expects to publish a detailed consultation on specific changes to the Stewardship Code in mid-2018, once the review of the Code has been finalised. The consultation can be found here

This document is for general guidance only. It does not contain definitive advice.


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Cummings Law
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United Kingdom

25 05 2019

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