UK Firms Urged to Respond to Corporate Governance Code Revamp
The Financial Reporting Council (FRC) has decided to amend the UK Corporate Governance Code to strengthen the principle on boardroom diversity, forcing all companies to respond favorably to the changes.
The amendments will require listed companies to report annually on their boardroom diversity policy, including gender, and on any measurable objectives that the board has set for implementing the policy and the progress it had made in achieving the objectives.
These principles were first introduced into the Code in June 2010.
The FRC will also update the Code to include the diversity of the board, including gender, as one of the factors to be considered when evaluating its effectiveness.
The current revised Code included for the first time a principle that recognizes the value of diversity in the boardroom.
“The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and will due regard for the benefits of diversity on the board, including gender,” the amendments stated.
In May 2011, the FRC issued a consultation document seeking views on whether the Code should be revised as recommended by Lord Davies of Abersoch in his review of the gender diversity of the boards of UK-listed companies published in February 2011.
The vast majority of respondents supported the amendments proposed, which the FRC is now in the process of implementing.
The new provisions on diversity will apply to financial years beginning on or after October 1, 2012. This will provide the FRC with an opportunity to consult on other changes to reflect the current discussions around narrative reporting and effective company stewardship. However, the FRC urges all companies to voluntarily apply and report on the diversity additions to the Code with immediate effect.
Baroness Hogg, Chairman of the Financial Reporting Council, said: “The changes we made to the Code last year reflected the FRC’s view that gender diversity strengthens board effectiveness by reducing the risk of ‘groupthink’, making fuller use of the talent pool and keeping companies in touch with their customers.
The changes, according to Hogg, will reinforce the Code’s principles by requiring companies to report on measurable objectives and progress in this important area.
“We believe this gives a further opportunity to show that Britain’s ‘comply or explain’, Code-based approach can deliver a flexible and rapid response and is therefore preferable to detailed legal regulation, and we urge companies to demonstrate this as quickly as possible”.