The UK’s Financial Reporting Council (FRC) will review the Corporate Governance Code to prevent another collapse like the department store chain British Home Stores (BHS).
MPs called for reforms to protect pension fund members after the BHS collapse in April last year, that affected 11,000 jobs and 22,000 pensions. Frank Field, the chairman of a parliamentary investigative committee said the collapse was triggered by “gross failures of corporate governance”.
The FRC said it will start consulting on any changes to the code later this year based on the outcome of its review and the government’s forthcoming response to a green paper on the review of the code.
The code first came into being in 1992 and operates on a ‘comply or explain’ model, setting out good practice across issues such as remuneration and shareholder relations.
Speaking at the launch of the Institute of Chartered Secretaries & Administrators’ work on The Future of Governance, FRC chairman Sir Win Bischoff said: “The review of the code will consider the appropriate balance between the code’s principles and provisions.”
“In pursuing any changes, the current strengths of UK governance: the unitary board, strong shareholder rights, the role of stewardship and the ‘comply or explain’ approach, must be preserved.”
“Any changes to the regulatory frameworks and to the code will be done carefully and through full consultation with a wide range of stakeholders.”
The FRC’s response to the government’s green paper will highlight the importance of helping boards to take better account of stakeholder views, and linking executive remuneration with performance.
It comes after the Work and Pensions Committee urged the government to force private companies with large defined benefit (DB) pension schemes to comply with the Corporate Governance Code, which only applies to public listed firms.
It wants company directors to have a new requirement to report on the exercise of their duties to trustees to reduce the risk of members being neglected in corporate decision-making.