In January 2024, the Financial Reporting Council (FRC) introduced the new UK Corporate Governance Code 2024 (the Code), in line with its Policy Statement released on 7th November 2023.
Aiming to enhance boards' accountability in monitoring and reporting on internal controls, while maintaining flexibility and proportionality to support the competitiveness of UK equity markets; these changes are designed to highlight previously under-emphasised areas rather than completely overhaul the Code.
The FRC focusses attention on the importance for boards to demonstrate effective governance through clear explanations and transparency, aiding stakeholders in decision-making.
What's included in the UK Corporate Governance Code 2024 update?
In addition to several minor adjustments throughout the Code, including changes to governance reporting focus, culture assessment, board performance reviews, and the role of audit committees, the following key updates have been introduced.
1. Enhanced Reporting Requirements
Boards are now required to include in the annual report a description of
how they monitored and reviewed the effectiveness of their framework,
a declaration of the effectiveness of material controls as of the balance sheet date,
and details of any material controls that have not operated effectively, along with actions taken to improve them.
2. Clarification and Expansion of Board Responsibilities
The board's responsibility for risk management and internal controls has been revised to clarify that the board is accountable not only for establishing but also for maintaining the risk management and internal control framework, ensuring ongoing accountability for their effectiveness.
3. Broadened Accountability Scope
Reporting quality and accuracy now covers a wider range of areas, including strategy, principal risks, ESG matters, and operational and compliance controls.
4. Executive Remuneration Alignment
Executive remuneration should align with company performance, purpose, values, and long-term strategy, including ESG objectives.
5. Regular Board Performance Reviews
Chairs are required to commission regular, externally facilitated Board Performance Reviews for continuous improvement.
6. Focus on Succession Planning and Diversity
Succession planning details, including diversity considerations, must be included in the Annual Report.
7. Inclusion of Environmental Matters
Annual Reports must cover environmental matters, climate ambitions, and the embedding of desired culture and behaviours.
When do these changes come into effect?
The new Code will apply to accounting periods commencing on or after 1st January 2025, with the internal controls' declaration taking effect for accounting years commencing on or after 1st January 2026.
The new UK Corporate Governance Code 2024 represents a significant step towards strengthening board accountability and transparency, contributing to the overall integrity and efficiency of UK equity markets.
This blog was written by Ruth Odih
Ruth Odih is a key member of Centrica plc’s Secretariat Team, bringing extensive experience in corporate governance practices across a variety of UK and multinational organisations, with a strong background in the energy, oil and gas, catering, private equity, and financial services industries.