FRC: Companies should focus more on issues important to shareholders and wider stakeholders, says FRC in response to BEIS Inquiry

2 Nov 2016 11:51 AM

International investor confidence in the UK’s corporate governance is strong, however there is public concern that wealth creation is disproportionally favouring a few. The right balance needs to be struck between enterprise, investment and accountability to stakeholders as well as shareholders. The Financial Reporting Council (FRC) considers how this balance, including greater awareness of stakeholder concerns and accountability to them, could be achieved in its response to the Department for Business, Energy and Industrial Strategy (BEIS) Select Committee’s Corporate Governance Inquiry.

Some of the key recommendations the FRC makes are:

• Boards should pay more attention to their responsibilities under Section 172 of the Companies Act 2006 to both shareholders and wider stakeholders and should report on how they have discharged these. For example, by showing how they have allocated funds between pensions, dividends, directors’ remuneration, and capital investment.
• The remuneration committee should have a wider responsibility for scrutinising the pay and conditions of the company’s workforce as a whole and should report on the link between the remuneration structure and strategy.
• The Government should review the enforcement framework in order to establish an effective mechanism for holding directors and others in senior positions to account if they fail in their responsibilities.

Stephen Haddrill, Chief Executive of the FRC, said,

“The Prime Minister has a vision of an economy that works for everyone. In the light of the Committee’s report and the Government’s expected consultation, the FRC will consider changes to the Code. In pursuing changes, the current strengths of UK governance: the unitary board, strong shareholder rights and the “comply or explain” approach, need to be preserved.”

Related Link: FRC response

Notes to editors:

1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
2. All Press enquiries should be directed to:

• Peter Timberlake, Head of Communications, on telephone: 020 7492 2397/ 07768 502332, or email: p.timberlake@frc.org.uk.
• Rita Carolan, Communications Manager, on telephone: 020 7492 2307/ 07428 149096 or email: r.carolan@frc.org.uk.
• Alana Sinnen, Communications Manager, on telephone: 020 7492 2395/ 07949 005526 or email: a.sinnen@frc.org.uk.