Navigating the UK corporate governance code: Crucial insights for compliance


In a recent post by Diligent, the company outlined the essential guidance to help companies comply with the UK corporate governance code. 

Introduced in 2018 by the Financial Reporting Council (FRC), the UK Corporate Governance Code was designed as a tool to help businesses align their culture and values with their overarching strategies. It aims to provide key guidance in areas such as board leadership, roles and responsibilities, compensation, and composition, among others.

The code, albeit crucial, adds to the already substantial responsibilities of board directors. This article will break down what the code entails, its applicability, the ongoing guidance by the FRC, potential amendments, and how entity management tools can facilitate compliance.

The UK Corporate Governance Code, a regulation that lays down corporate governance requirements, is not mandatory but operates on a ‘comply or explain’ basis. The five primary principles outlined by the code include board leadership and company purpose, division of responsibilities, composition, succession and evaluation, audit, risk and internal control, and remuneration.

The code encourages businesses to enhance transparency around their governance practices. Prior to its introduction, governance approaches varied among boards, complicating investor comparisons and evaluations. By standardising good governance, the code enables more fruitful engagement between businesses and investors.

The UK Corporate Governance Code is applicable to companies with a premium listing on the London Stock Exchange, irrespective of their place of incorporation. To comply with the Listing Rules, these organisations must either conform to the code or provide an explanation for their chosen approach to governance. The code is implemented immediately when a business obtains a premium listing.

The FRC offers ongoing advice through regular publications to assist businesses in applying the code to their specific circumstances. This guidance aids audit committees, boards, and risk management teams in effectively operating within the code’s requirements.

Following three independent reviews, the FRC is expected to revise the code. The reviews assess the advantages and disadvantages of the code concerning audit products, audit services market, and the regulation of that market. The potential revisions would not only include current board directors but would also encompass internal controls, corporate reporting, and more.

Despite potential downsides, the UK Corporate Governance Code serves as an important framework for transparent corporate governance practices. With the UK government likely to introduce more stringent laws and regulations around corporate governance, audit, and internal controls, the code offers a crucial starting point for businesses to achieve compliance.

For companies with entities or subsidiaries in the UK, entity management software provides an efficient means of adhering to the code, thereby prioritising financial integrity, investor confidence, and sustainable performance — the core principles of the UK Governance Code.

Read the full post here.

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