Revising the UK Corporate Governance Code


Following the 2016 update to the UK Corporate Governance Code, the FRC stated that it would avoid further updates to the Code until at least 2019. However, several months later, the Government published a Green Paper on Corporate Governance Reform (discussed here) and, in August 2017, the government published its response to the Green Paper (discussed here). In light of the reforms recommended in these reports, and the fact that the FRC had undertaken work in a number of related fields (notably succession planning and corporate culture), it has come as no surprise that the FRC has brought forward its plans to update the Code. In December 2017, the FRC published a consultation document in which it proposed to issue a revised Code in the Summer of 2018, which will then apply to accounting periods beginning on of after the 1 January 2019. This blog post looks at the principal proposed revisions contained in the consultation document. The consultation document also looked at revisions to the UK Stewardship Code – these proposed revisions will be covered in a separate blog post.

Length, structure and scope

The consultation document states that, in order for the Code to encourage companies to achieve high standards, it needs to ‘clear and concise’ and so the FRC has looked to ‘shorten and sharpen’ the revised Code. The revised Code is only 13 pages in length, compared to the 2016 Code, which stands at 23 pages (excluding the two schedules and appendix).

The structure of the revised Code (which has hardly changed since the 2010 version) has also been significantly amended, with some parts being removed entirely (some of these deletions have been moved to the accompanying Guidance on Board Effectiveness). The revised Code follows a five-part structure, namely:

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

The scope of the revised Code has also received a notable amendment. Both the 2016 Code and the revised Code apply to companies with a Premium listing, but the 2016 Code provides that ‘smaller companies’ (i.e. those below the FTSE 350) are exempt from certain recommendations in the Code. The revised Code abolishes these exemptions on the ground that ‘even smaller companies should strive for the highest standards of corporate governance.’

Leadership and purpose

Section 1 of the revised Code covers board leadership and purpose. Notable revisions here include:

  • The FRC’s report on Corporate Culture and the Role of Boards stressed the importance of establishing the correct corporate culture, and so the revised Code frequently refers to the culture of the company and how this can be best promoted (see the Introduction, Principle A, Provision 2, and Principle E).
  • The revised Code contains a new Principle C which states that, in order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties. There is no corresponding provision in the 2016 Code.
  • Provision 3 of the revised Code contains notable new provisions regarding workforce engagement. It provides that the board should establish a method for gathering the views of the workforce (not that, given the current litigation concerning the ‘gig economy’, the Code specifically does not refer to ’employees’ but covers the entire workforce). It goes on to provide that this would normally involve appointing a director from the workforce, setting up a formal workforce advisory panel, or by having a designated NED. Provision 4 goes on to state that the annual report should explain how the board has engaged with its workforce and other stakeholders, and how the interests set out in s 172 of the CA 2006 have influenced the board’s decision-making.
  • Provision 6 contains a new provision which provides that, when more than 20% of votes have been cast against a resolution, then the company should explain what actions it intends to take to consult shareholders in order to understand the reasons behind the result. The Investment Association maintains a Public Register of FTSE companies that have encountered such levels of of shareholder opposition.
  • Section E of the 2016 Code covered relations with shareholders. The revised Code contains no such section, but some of Section E’s content has been moved into Section 1.

Division of responsibilities

Section 2 of the revised Code covers the division of responsibilities amongst the board. Notable revisions here include:

  • Code Provision A.3.1 of the 2016 Code provides that the chairman should be independent on appointment. Principle E of the revised Code and Provision 11 now provide that the chairman should be independent at all times.
  • Code Provision B.1.2 of the 2016 Code provides that at least half the board, excluding the Chairman, should comprise independent non-executive directors. Provision 11 of the revised Code now provides that independent non-executive directors, including the chair, should constitute the majority of the board.
  • Code Provision B.1.1 of the 2016 Code establishes a number of relationships or circumstances that could affect the independence of a NED. If any of these apply to a NED that the board has identified as independent, then the board should explain why it regards that NED as independent. Provision 15 of the revised Code amends this by simply stating that if any of the specified relationships or circumstances apply to a NED, then that NED will not be considered independent. Given that one of the circumstances listed is that the NED has served on the board for more than nine years, this effectively limits a NED’s term to nine years.

Composition, succession and evaluation

Section 3 of the revised Code covers board composition, succession and evaluation. Notable revisions here include:

  • The Supporting Principle to B.2 of the 2016 Code states that board appointments should be made with due regard for the benefits of diversity on the board, including gender. Principle J of the revised Code broadens this by providing that both appointments and succession planning should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.
  • Provision 17 expands the role of the nomination committee by providing that it should have an oversight role in relation to the development of a diverse pipeline for succession. The 2016 Code does not provide such a role for the nomination committee. Provision 17 is reinforced by Provision 23 which states, inter alia, that the annual report should describe the nomination committee’s work in relation to building a diverse pipeline
  • Provision 18 provides that, when a director is seeking re-election, the board should set out, in the papers accompanying the resolution, specific reasons why the director’s contribution is and continues to be important for the company’s long-term success. The 2016 Code does not provide for such disclosure.

Audit, risk and internal control

Section 4 of the revised Code covers audit, risk and internal control. This section remains broadly the same as Section C of the 2016 Code.


Section 5 of the revised Code covers board remuneration. Notable revisions here include:

  • A new Principle O which provides that the board should satisfy itself that company remuneration and workforce policies and practices promote its long-term success and are aligned with its strategy and values.
  • Provision 32 is new and provides that a person should not chair the remuneration committee unless he has served on a remuneration committee for at least 12 months.
  • The role of the remuneration committee has been expanded, with Provision 33 stating that the remuneration committee should oversee remuneration and workforce policies and practices, taking these into account when setting the policy for director remuneration.
  • Schedule A of the 2016 Code provides that share-based remuneration should not be payable or exercisable within three years. Provision 36 of the revised Code extends this by providing that share-based remuneration and other long-term incentives should be subject to a vesting and holding period of at least five years.


This is the most significant update to the Code in a long time, with the shortening of the Code being especially noteworthy. The result is a more concise principles-based Code, but also one which provides less guidance than its predecessor. The revised Code contains some noteworthy reforms (notably Provision 15 which relates to the independence of NEDs). However, it should be noted that this is a proposed revised Code only and a the FRC is seeking views on a number of the above amendments. Accordingly, it is possible that some of the above amendments may not make it into the final Code, or may be modified.

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