The Financial Reporting Council (FRC) has launched a consultation on proposed changes to the UK Corporate Governance Code, marking the first revision of the code in five years.

The changes aim to enhance the code’s effectiveness in promoting good corporate governance, and follows the government's response to the white paper, Restoring Trust in Audit and Corporate Governance, which identified areas of reform related to a particular focus on directors' responsibilities for internal control, risk, audit and corporate reporting.

There are five primary areas of focus in the consultation, including revising parts of the code that deal with the need for a framework of prudent and effective controls to provide a stronger basis for reporting on and evidencing their effectiveness, and making necessary revisions to reflect the responsibilities of the board and audit committee for sustainability and environmental, social and governance (ESG) reporting, and appropriate assurance in accordance with a company's audit and assurance policy.

In addition to this, the consultation outlined plans to amend the code to take account of the new Audit Committee Standard, improving the functioning of comply-or-explain where reporting is currently weaker, taking account of recently published FRC research and reports.

It also set out proposals to update the code to ensure that it aligns with changes to legal and regulatory requirements as set out in the government's response to the white paper, including strengthening reporting on malus and clawback arrangements.

FRC CEO, Jon Thompson, stated: "We are pleased to launch this consultation on the proposed revisions to the Corporate Governance Code.

"Good corporate governance contributes to long-term company performance by helping to build an environment of trust, transparency, and accountability necessary for fostering long-term investment, financial stability, and business integrity.

“Enhancing the Corporate Governance Code will meet the needs of all corporate stakeholders, including investors, employees and suppliers, and boost the resilience of the UK economy, ensuring it continues to attract talent and investment. We look forward to receiving feedback from stakeholders and using this feedback to continue restoring trust in audit and corporate governance."

Railpen senior investment manager, Caroline Escott, also welcomed the consultation, stating: “Investors need to be able to trust that the financial accounts represent a true and fair view of a company’s financial health, and that a high-quality audit has taken place.

“As audit committees constitute the fundamental link between a company’s shareholders and this external audit process, we are supportive of proposals to encourage more, and better quality, committee engagement with shareholders.”

“The code plays an important role in supporting the high corporate governance standards that have helped cement the UK’s role as a global financial powerhouse, but it is only one part of the story. Investors need the rights and protections to be able to hold companies to account where they fail to either comply with, or meaningfully explain departures from, the code.

“This consultation, which rightly notes the importance of good corporate governance to creating sustainable value and stable capital markets, has landed at a time when others are calling for vital investor protections – such as equal voting rights – to be rolled back.

“We look forward to working with the long-term investor community to make clear the vital role the code, and broader corporate governance and investor protections, must play in enabling the UK to continue to thrive as a leading global market.”

The consultation, which will be supported by a wide range of stakeholder outreach and information, closes on 13 September 2023.

Share Story: