Corporate Governance Reform: Implications for Financial Services companies
As part of a broader Trust and Transparency agenda, the UK Government has introduced new regulations on corporate governance for private companies. Effective for financial years beginning on or after 1 January 2019, eligible UK companies, including subsidiaries of UK and/or overseas listed companies (‘UK Subsidiaries’), will need to report on how they have applied appropriate corporate governance arrangements; how directors have met their duties; and the impact of stakeholder and employee engagement on board decision-making.
In practice, the requirements are more than a simple reporting obligation; the regulations require a fresh look at corporate governance and how policies and processes are applied at UK Subsidiary level to ensure that each eligible company is able to articulate its own governance arrangements.
If you would like to discuss the impact of the Corporate Governance Reforms on your UK Subsidiaries, please contact Kate Graham or Charlotte Thackrah.
The table below broadly summarises each reporting requirement and the relevant qualifying conditions:
Reporting requirement |
Thresholds |
Requirement |
|---|---|---|
Corporate governance statement |
On a global basis exceeds:
|
Explain in the directors’ report and on a website, which governance code is applied, how it is applied and the reasons for any departure. If no code was applied, explain the governance arrangements in place. |
Section 172 statement |
Meets two of the following three:
|
Explain in the strategic report and on a website how directors have considered and applied their statutory duty to promote the success of the company under section 172 of the Companies Act 2006. For FS companies medium companies, as well as large, will need to comply. |
Stakeholder engagement statement |
Meets two of the following three:
|
Explain in the directors’ report how directors have had regard to stakeholders, including suppliers and customers, and the effect of that regard on decision-making during the period. |
Employee engagement statement |
Companies with over 250 UK employees |
Describe any action taken to engage with employee and summarise how directors have had regard to employees in decision-making during the period. |
The table below broadly summarises each reporting requirement and the relevant qualifying conditions:
Reporting requirement |
Consideration points |
|---|---|
Corporate governance statement |
What governance arrangements are applied by the parent; are they applied across the Group? What code is most appropriate to apply at a UK Subsidiary level? |
Section 172 statement |
Which UK Subsidiaries within the group will be caught; are those companies able to make an individual statement? Will existing board processes enable meaningful reporting; how are board decisions recorded by each UK Subsidiary? |
Stakeholder engagement statement |
Can you identify the relevant stakeholders for each UK Subsidiary; can group stakeholder engagement mechanisms be used at UK Subsidiary level? How are decisions influenced by stakeholder engagement; how will you demonstrate that stakeholder interests are considered within the boardroom? |
Employee engagement statement |
How can you create a 2 way dialogue with employees; what engagement is taking place at the UK Subsidiary level? How are employee views taken into account in board decision making and how can you use technology to get unfiltered data to the Board in a way that is relevant and digestible? |
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