Commenting on the publication of the draft revised FRC Corporate Governance Code, Tom Gosling, global rewards partner at PwC, said:
“The draft UK Corporate Governance Code goes beyond mere review and is a fundamental rewrite. We welcome the shorter, more principles-based code, with a greater commercial focus and the promotion of strong culture through alignment of purpose, values, and strategy. It will demand a significant change in mindset for some boards that habitually report against the current code provisions as a checklist. While this will be good for insightful reporting in the long-term, there will be significant transition challenges.
“We welcome that the Government’s three options for engaging the workforce have been set within a comply-or-explain framework that recognises that there’s not a ‘one size fits all’ solution and that a combination of approaches could be required to fit with companies’ current engagement activities.
“The job of chairing a remuneration committee just got a lot harder. It’s right that the code emphasises the board’s role in overseeing pay and conditions across the workforce. However, this needs to be implemented in terms of principles and governance oversight rather than an expansion to the committee’s decision-making remit.
“The new code is part of a broader policy agenda to make business work for society as a whole. Companies and boards need to consider their overall response to this challenge in an integrated way, linked to the fulfilment of the directors’ duty to promote the company’s strategic success for the benefit of members, while having regard to stakeholder interests under Section 172 of the Companies Act 2006. This means developing a thorough understanding of the company’s purpose and role in society, and translating that into tangible policies for the board’s agenda, committee remits, and stakeholder engagement, including how stakeholders’ interests are considered, and how the inevitable compromises are made in coming to business decisions.
“The FRC’s questions about stewardship indicate a wide-ranging review of the Stewardship Code, including reviewing the applicability of the Code across the investment chain, a focus on practice as well as reporting, and reflecting the different role stewardship plays depending on the purpose of the investor. This ‘back to first principles’ approach is to be welcomed and is necessary if the Stewardship Code is to support continued improvement in stewardship practices.”
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