Companies to consider culture in Corporate Governance revisions

The Financial Reporting Council’s proposals would compel UK listed companies to report on people management and culture under the UK Corporate Governance Code.

Board meeting and blank canvas
Building on findings from its 2016 Culture Report, the Financial Reporting Council FRC's proposals for a revised UK Corporate Governance Code seek to ensure the UK's capital market remains attractive to global investors, supports the changing business environment and addresses declining trust in businessSignificantly in the light of calls for better links between good people management and improving productivity, the proposals include a new principle around the intrinsic value of corporate culture, and aim to encourage long-term success and sustainability.

Key changes planned to UK Corporate Governance Code

In practice, these proposals – open for consultation until 28 February 2018 – would see the scope of remuneration committees widen to include all employees’ pay and its alignment with strategic objectives, as well as increase board responsibilities around diversity and inclusion.Revisions to the UK Corporate Governance Code would apply to all companies with a premium listing of equity shares in the UK. Under the Listing Rules, companies are required to acknowledge in their annual report and accounts how they have applied the Code.The updated Code sets out good practice so that the boards of companies can:
  • Establish a company’s purpose, strategy and values and satisfy themselves that these and their culture are aligned
  • Undertake effective engagement with wider stakeholders, to improve trust and achieve mutual benefit, and to have regard to wider society
  • Gather views of the workforce
  • Ensure appointments to boards and succession plans are based on merit and objective criteria to avoid group think, and promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths
  • Be more specific about actions when they encounter significant shareholder opposition on any resolution, including those on executive pay policies and awards
  • Give remuneration committees broader responsibility and discretion for overseeing how remuneration and workforce policies align with strategic objectives.

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Amendments would 'restore trust in business'

Sir Win Bischoff, FRC chairman, said: “The UK is globally renowned for its corporate governance framework, which is underpinned by the UK Corporate Governance Code."At this critical time and as the country approaches Brexit, a revised Code will be essential to restoring trust in business, attracting investment and ensuring the long-term success of companies for members and wider society."We have engaged with many stakeholders and incorporated suggestions from the government’s Green Paper on Corporate Governance Reforms, to produce a Code which is shorter and sharper and fit for purpose.”“A principle promoting the importance of the intrinsic value of corporate culture is a new addition to the Code."Building trust in business has to start in the organisation and forming a healthy corporate culture is integral to the credibility of a company."Engaging with and contributing to wider society must not been seen as a tick-box exercise, but imperative to building confidence among stakeholders and in turn the long-term success of a company.” 

Corporate accountability and the Industrial Strategy

Business Minister Margot James added: “Firms that are alive to the concerns of their workers and shareholders see the benefits on their bottom line and the Financial Reporting Council’s proposals will ensure our largest companies benefit more from the experience of their workforce, suppliers and customers.“This will ultimately help them to achieve long-term success by strengthening corporate accountability and build on our reputation as a world-leading business environment – a key foundation of our Industrial Strategy.”

CIPD reaction to the FRC's proposals for a revised Corporate Governance Code

The CIPD, the professional body for HR and people development, greeted the revised code positively, highlighting how these latest proposals echo many of the recommendations the CIPD has already made in various government reviews, including those directly linked to the UK Corporate Governance Code.The CIPD’s chief executive, Peter Cheese, commented: “The FRC’s proposals are a welcome move to improve corporate governance in the UK. The proposals place a much greater focus on organisational culture and employee voice, meaning that company boards will need to invest more time and thought on strategic workforce issues than ever before. This is a significant step forward in recognising the value of the workforce and the need for its voice to be heard at board level.“The FRC rightly recognises that in order to drive sustainable culture change and build trust in business, boards must focus more on values, behaviours and a wider stakeholder voice beyond that of shareholders, with particular attention to the voice of the workforce.“We support the plans to encourage companies to enhance employee voice by either appointing a director from within the workforce, a formal workforce advisory council, or a designated non-executive director with responsibility for representing and understanding the wider workforce. No single approach can suit all firms’ situations so it’s important that there is flexibility for businesses in choosing an option that is most appropriate for them.

'Important step in improving people data oversight'

Mr Cheese continued: “We also strongly support the proposal to broaden the role of the remuneration committee to oversee pay and incentives across the wider workforce rather than just focusing on executive pay."This is an important step in encouraging businesses to be more active in capturing and acting on their people data and for boards and the remuneration committee to improve their understanding and oversight of people data."Such a move will require fundamentally changing the role and makeup of the remuneration committee to ensure it has the right levels of expertise and necessary time and support to carry out its expanded remit."For related news and features, visit our enterprise section. Look out for the launch of 2018's Relocate Awards, entries open in January. Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory