The Financial Reporting Council (the FRC) is the gatekeeper for the standards of corporate governance for the largest listed companies on the London market.   The FRC regularly reviews and refreshes the UK Corporate Governance Code (the UK Code) and has done so again recently.   The September 2014 revision of the UK Code came into effect of 1 October 2014 and it is against this document that the largest listed companies are now obliged to report on a mandatory comply or explain basis.[1]

The new UK Code retains the same structure as before, but reflects some important evolutions of corporate governance thought, including:

  1. the effectiveness of the board and its evaluation being in greater focus;
  2. changes to corporate narrative reporting and risk reporting (in particular, in relation to business strategy) starting to distil down into the governance of organisations; and
  3. issues of remuneration for executives continuing to be in focus.


The effectiveness of the board, and its evaluation is a growing theme.   Companies are becoming more open to examination of their behaviours in this way and are now seeking to use evaluation processes to drive change and the value proposition for shareholders.


The FRC has focussed the revision of the UK Code on the provision by companies of information about risks which affect longer term viability.  The FRC is keen to see more effective reporting on matters of strategic significance to a business which is, most importantly, clear and understandable to shareholders, addressing matters such as solvency, liquidity, risk management and viability.


The provisions in the UK Code which consider performance-related remuneration have been clarified and, indeed, expressed more clearly.  At the same time as legislative measures being put in place as to claw back, the FRC has clearly expressed that performance-related elements of remuneration must be both rigorous and structured on a long-term basis.  It will be interesting to see if vesting period move beyond the “standard” of three years: hold period should be significantly longer.

Good explanations

Another area where the FRC has worked hard in recent years in order to influence market behaviour is to encourage meaningful explanations.

“Tone from the top”

The “tone from the top” needs to clearly set by a chairman.  The FRC emphasises that the chairman should deliver this is a clear message to shareholders, which is, most significantly, in his own voice.   The importance of a personal statement cannot be underestimated and allows a reader to really understand the dynamics of the boardroom and the challenges it faces.

Whilst there is a recognition that the “tone from the top” must be clear and understandable, we hope to see further initiatives to emphasise the importance of corporate values and ethics as a fundamental foundation stone of good governance.

By Edward Craft

[1] The September 2014 revision of the UK Corporate Governance Code is available at