The Financial Reporting Council (FRC) published the 2018 Corporate Governance Code (the “new Code”) on 16 July 2018 with the aim of improving the standard of reporting by companies and strengthen the integrity of UK business – a necessity after the recent collapse of Carillion and the BHS pension scandal.

The new Code encourages more meaningful reporting and focuses on board effectiveness, stakeholder engagement, purpose and culture. It applies only to those UK companies with a premium listing on the London Stock Exchange and these companies are expected to begin complying with the new Code on or after 1 January 2019. The new Code calls on boards to analyse their company’s culture from within and requires them to respond to any matters relating to corporate governance using the ‘comply or explain’ principle.

Under the new Code, a company’s board are required to engage more with their workforce to ensure that they share the same values and that practices are in line with the company’s long-term aims. The workforce should also be able raise any concerns they may have. No guidance is provided on how companies should go about this but a company could, for example, appoint a non-executive director from the workforce as a representative who could communicate any issues.

Another area of the Code to have been amended concerns the division of responsibility. The new Code now includes the requirement that the board receive accurate and timely information. Non-executive directors must also be given sufficient time to meet their board responsibilities.

An additional key feature of the new Code is that it now requires the board to annually evaluate its composition, diversity and how they all co-operate with one another. For example boards will be required to explain in cases where the chairperson’s tenure exceeds nine years.

Reporting on and structuring of remuneration policies has also changed. Policies should now be designed to support strategy and promote the long term success of the company, be more transparent and less performance focused.

The FRC does not currently have the power to penalise companies or board members who violate the Code. A government review of the FRC’s effectiveness will be published at the end of the year so watch this space. Hopefully these changes will motivate boards to engage more with their employees and shareholders, improve diversity and ultimately boost public confidence in UK businesses.