Financial Reporting Council inches towards balanced boards
The independent regulator for corporate governance, the Financial Reporting Council (FRC) has announced amendments to the UK Corporate Governance Code, which came into effect yesterday. The changes include a focus on the "comply or explain" section, through which companies choose to set their goals for the number of women they expect to have on their boards, and will report their progress against those goals year on year.
Announcing the changes to the code, chairman of the FRC, Baroness Hogg, explained: "The changes to the UK Corporate Governance Code are designed to give investors greater insight into what company boards and audit committees are doing to promote their interests, and to provide them with a better basis for engagement."
One of the provisions of the code set out in 2010 was for a company's annual report to "describe the work of the nomination committee, including the process it has used in relation to board appointments".
In relation to this the code, which was in effect from yesterday (1 October), it has announced an amendment: This section should include a description of the board's policy on diversity, including gender, any measurable objectives that it has set for implementing the policy and progress on achieving the objectives.
Director of the gender quality campaign, Opportunity Now, Helen Wells, welcomed the amendments to the code: "This marks another milestone that has been reached in the implementation of the Lord Davies review on women on boards.
"In the 18 months since Lord Davies' report, Women on Boards, we have seen the pace of change speed up significantly, with around a third of all board appointments being women.
"The challenge is to continue that momentum, and to increase the number of women appointed as executive board members," said Wells.
Wells added: "This is the next big step on our journey to achieve balanced boards."
Partner at employment firm, Ward Hadaway, Harmajinder Hayre, was unconvinced: "If you ask me whether I think this amendment will have an impact on board gender, then I would have to say no. These sort of issues are close to the bottom of the pile for large PLCs."
He added: "There needs to be more internal provision, not just from an external audit.
"Ultimately it will come down to the culture of the company and how much they want to push it."
Other amendments to the code that came into force yesterday include:
- FTSE 350 companies are to put the external audit contract out to tender at least every 10 years with the aim of ensuring a high-quality and effective audit, whether from the incumbent auditor or from a different firm
- Audit committees are to provide to shareholders information on how they have has carried out their responsibilities, including how they have assessed the effectiveness of the external audit process
- Boards are to confirm that the annual report and accounts taken as a whole are fair, balanced and understandable, to ensure that the narrative sections of the report are consistent with the financial statements and accurately reflect the company's performance
- Companies are to provide fuller explanations to shareholders as to why they choose not to follow a provision of the Code
The UK Corporate Governance Code sets out good practice for UK listed companies on issues such as board composition and effectiveness, risk management, audit committees and relations with shareholders. It is normally reviewed every two years.
The FRC will carry out further consultation on whether changes are needed to those parts of the UK Corporate Governance Code dealing with remuneration, once the Government's legislation on remuneration reporting and voting has been finalised.