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Enhanced Corporate Governance for UK companies – enough to regain public trust?

  • June 20, 2017
  • By Hunters Law

Following proposals from a number of business organisations, the Government issued its November 2016 Green Paper on Corporate Governance Reform in order to understand the strengths and weaknesses of business practices in the UK.

In its response to the Government’s consultation, the Financial Reporting Council (FRC) recommend that director’s duties, governed by the Companies Act 2006, should be more efficiently reported, that remuneration policy should be more clearly linked to performance and that companies should be more accountable to stakeholders. The FRC highlights that the regulatory framework governing corporate governance is fragmented and proposes an extension to its investigatory and prosecuting powers over directors for financial reporting breaches and concerns over integrity.

On the 16 February 2017, the FRC announced its plans for a fundamental review of its Corporate Governance Code, developed over the last twenty-five years. The Corporate Governance Code, which applies to all companies listed on a stock exchange for public trading, has been viewed as incorporating standards of good practice whilst also allowing a degree of flexibility for companies to carry out their normal business. However, the FRC “believes that more needs to be done to win back public trust” and consequently, increased reporting and accountability standards may in fact curtail that flexibility currently enjoyed by UK companies.  The FRC will seek input from stakeholders from a variety of sectors and, subsequent to the Government’s response to its Green Paper, open a consultation on its proposals during the course of 2017.

Unfortunately, no matter how stringent the Corporate Governance Code, there will be those directors and board members who breach the duties they hold to their companies and who undermine good corporate practice. However, by increasing investigatory and enforcement powers, regulators are trying to instil further public confidence in good governance of UK listed companies. It is therefore conceivable that this reform will influence private companies and impact the way their directors carry out their fiduciary duties.

If you have any questions regarding this article, please contact the partner at Hunters having responsibility for your affairs or any partner in the Business Services Department.

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