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FRC announces changes to UK Corporate Governance Code and urges companies to respond rapidly

The Financial Reporting Council (FRC) yesterday announces its decision to amend the UK Corporate Governance Code to strengthen the principle on boardroom diversity which was first introduced into the Code in June 2010.

The amendments the FRC is announcing yesterday 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. 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, which came into effect in June 2010, included for the first time a principle recognising the value of diversity in the boardroom, which states that, “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”.

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 1 October 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 strongly encourages all companies voluntarily to 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 we are announcing today, which were strongly supported in our consultation, 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”.
 

Notes to Editors
  1. The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
  2. The Feedback Statement: Gender Diversity on Boards is available on the FRC website at: http://www.frc.org.uk/corporate/ukcgcode.cfm.
  3. Media enquiries should be directed to Jonathan Labrey, FRC Head of Communications, on 020 7492 2395 or email at j.labrey@frc.org.uk.

 

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