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Publicly listed companies should ensure appointments to boards and succession plans are based on merit and objective criteria to avoid group think and promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths, according to the new Corporate Governance Code, published today.
The revised code, published by the Financial Reporting Council and open to consultation until 28 February 2018, calls on public companies to publish details of the gender balance among senior managers – defined as those reporting directly to the board – in their annual reports and also touches on executive pay, saying that public companies will have to consider workforce pay when setting executive salaries. It recommends that companies establish a remuneration committee of at least three independent non-executive directors. But it falls short of previous government pledges to set formal pay ratios between top executives and workers.
The FRC says the revised Code focuses on “the importance of long-term success and sustainability, addresses issues of public trust in business and aims to ensure the attractiveness of the UK capital market to global investors through Brexit and beyond”.
The revised Code sets out good practice so that the boards of companies can:
– Establish a company’s purpose, strategy and values and satisfy themselves that these and their culture are aligned;
– Undertake effective engagement with wider stakeholders, to improve trust and achieve mutual benefit, and to have regard to wider society;
– Gather views of the workforce;
– Ensure appointments to boards and succession plans are based on merit and objective criteria to avoid group think, and promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths;
– Be more specific about actions when they encounter significant shareholder opposition on any resolution, including those on executive pay policies and awards; and
– Give remuneration committees broader responsibility and discretion for overseeing how remuneration and workforce policies align with strategic objectives.
Sir Win Bischoff, Chairman of the FRC, said the new code focused on trust: “Building trust in business has to start in the organisation and forming a healthy corporate culture is integral to the credibility of a company. Engaging with and contributing to wider society must not been seen as a tick-box exercise but imperative to building confidence among stakeholders and in turn the long-term success of a company.”