Following on from the article we published on 14 February 2017, the Financial Reporting Council (“FRC”) has provided its response to the Green Paper on Corporate Governance Reforms.
It appears that the interests of stakeholders, executive remuneration, the accountability of large private companies and effective enforcement are key themes in the FRC’s response.
The FRC has proposed reform in the following four key areas:
- The interests of major stakeholders. The Companies Act 2006 places a duty on directors of all companies to promote the success of the company, and in so doing to have regard to a range of factors, such as long-term consequences, the environment, employees, suppliers and customers. The FRC believes that this duty must be reinvigorated and that companies should be required to report more effectively on how they have discharged such duties.
- Executive remuneration. The FRC believes that the role and remit of the remuneration committee should be extended to cover pay policies throughout the organisation. The FRC goes on to state that remuneration policies and payments should have a much clearer link to the delivery of strategy with the aim to deliver long-term company performance.
- Large private companies. The FRC proposes large private companies should be more accountable to their stakeholders given their significance to the public interest and the privilege and benefits of limited liability status. Apparently the FRC supports the introduction of corporate governance principles for such companies and associated reporting.
- Effective enforcement of the law. The FRC believes that the regulatory framework is fragmented, with gaps in enforcement action. The FRC states that it proposes extending its powers to investigate and prosecute all directors for financial reporting breaches and associated issues of integrity.
For further information please contact Howard White, Associate in our Corporate and Commercial team.
(Source: press release: FRC responds to Green Paper on corporate governance reforms)