In January 2024, the Financial Reporting Council (FRC
) published the much-awaited 2024 revision of the UK Corporate Governance Code
The Code is the key source of corporate governance recommendations for all companies with a UK premium listing, whether incorporated in the UK or elsewhere.
The 2024 revision of the Code introduces several critical enhancements, focusing on increased transparency, strengthened board responsibilities and the integration of environmental, social, and governance (
ESG) considerations into corporate strategy. The Code emphasises the importance of diversity and inclusion within boardrooms, advocating for a broader range of backgrounds, experiences, and perspectives.
What is new?
The key revision to the Code focuses on internal controls. The FRC has introduced additional disclosure requirements for annual report and accounts and the need for a declaration by the board as to the effectiveness of those controls.
The revised Code will:
- require governance reporting to focus on board decisions and their outcomes in the context of a company's strategy and objectives;
- expand reporting on corporate culture to include how it has been embedded;
- promote diversity, inclusion and equal opportunity in the context of board appointments and succession plans for the board and senior management;
- make boards responsible not only for establishing, but also for maintaining the effectiveness of, the risk management and internal control framework;
- remove a number of provisions related to Audit Committees and replace them with a requirement to follow and report against the Audit Committees and the External Audit: Minimum Standard;
- include more prescriptive requirements as to how boards should report on their review of a company’s risk management and internal control framework; and
- specify that directors’ contracts and/or other agreements which cover director remuneration should include malus and clawback provisions (that would enable the company to recover and/or withhold sums or share awards and specify the circumstances in which it would be appropriate to do so).
‘Comply or explain’
The Code does not set out a rigid set of rules. Instead, it offers flexibility through ‘comply or explain’ reporting against the provisions of the Code. A company can either comply with the Code or provide an explanation of sufficient quality as to why it can still follow the Code in principle whilst departing from a specific provision.
In taking a view on the quality of the explanation, boards should consider whether it is cogent, well justified in the circumstances of the company and sufficiently transparent. This should be considered when reporting against the Code and using the guidance.
On 29 January 2024 the FRC also published Corporate Governance Code Guidance
to support the Code, albeit it is not intended to be prescriptive.
Implications for Businesses
For businesses, the revisions to the Code necessitate a comprehensive review of governance structures, policies and practices. Among other things, companies must assess their current board composition, to align it with the new diversity and inclusion standards. Additionally, mechanisms for stakeholder engagement must be evaluated and strengthened where necessary to meet the heightened requirements for inclusivity and transparency.
The revised Code represents a significant step forward in the evolution of corporate governance standards within the UK, reflecting the growing emphasis on sustainable business practices, stakeholder engagement and corporate accountability. As businesses navigate these changes, understanding the nuances and implications of the revised Code is essential for ensuring compliance and harnessing strategic advantages.
When does the revised Code come into force?
The 2024 revisions to the Code apply to financial years beginning on or after 1 January 2025 (with the exception of Provision 29 of the 2024 Code, which will ask boards to make a declaration in relation to the effectiveness of their material internal controls, which applies to financial years beginning on or after 1 January 2026).
DMH Stallard LLP is a highly regarded UK law firm and our Corporate Team
is a key element of the firm. The companies and businesses coming to the London markets often have an international presence and we are experienced in the jurisdictional issues that have to be addressed whilst working with lawyers from outside the UK.
For further advice and information, or if we can be of assistance regarding any other corporate matter, please contact Giedre Doig
or Nick Williams