Watchdog overhauls corporate governance code to make it safer for investors

Among the changes announced by the Financial Reporting Council (FRC), as part of what it said were its efforts to foster longer-term thinking by companies and investors, are a host of new rules on risk management, remuneration and shareholder engagement.

“The changes to the code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation,” FRC chief executive Stephen Haddrill said in a statement.

The revised code will apply to accounting periods beginning on or after October 1. “The new code will present really big challenges for boards over the next few months,” said Robert Hodgkinson, the executive director at chartered accountant body ICAEW. “It will take a great deal of work for them to ensure they are compliant.”

The changes include requiring companies to “robustly assess” the main risks facing their business and explain how they are being managed or mitigated, the FRC said.

It said companies should state whether they consider it appropriate to adopt the going-concern basis of accounting and identify any material uncertainties about their ability to continue to do so.

In particular, it said companies “should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks”.

On executive pay, the FRC said companies should implement plans to recoup or hold back variable pay.

Companies should put greater emphasis on designing pay plans with the long-term health of the company in mind.