The UK Corporate Governance Code 2014 Update

The Financial Reporting Council (FRC) has issued an updated version of the UK Corporate Governance Code (the Code)

UK Corporate Governance Code

The latest update of the UK Corporate Governance Code has been issued by the Financial reporting Council and is available for download here.

The main focus for the 2014 update has been to significantly improve the quality of information available to investors about the risk management processes, the long-term health and strategic intentions of listed companies.

The FRC has continued the trend, which began with the 2006 Companies Act, of asking listed company directors to consider the long-term viability of the business, including solvency and liquidity looking forward for a period significantly longer than 12 months.

In an attempt to tackle the growing unrest amongst shareholders and particularly shareholder activists, over executive pay, boards of listed companies will also now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders – thus aligning executive reward with the sustained creation of value.

The key changes to the Code include:

Going concern, risk management and internal control

  • Companies should state whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so;
  • Companies should robustly assess their principal risks and explain how they are being managed or mitigated;
  • Companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months; and
  • Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.
  • Companies can choose where to put the risk and viability disclosures. If placed in the Strategic Report, directors will be covered by the “safe harbour” provisions in the Companies Act 2006.*

Remuneration

  • Greater emphasis to be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee; and
  • Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.

Shareholder engagement

  • Companies should explain when publishing general meeting results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.

Other issues

The FRC has also highlighted the importance of the board’s role in establishing the ‘tone from the top’ of the company in terms of its culture and values. The directors should lead by example in order to encourage good behaviours throughout the organisation.

In addition the FRC has emphasised that key to the effective functioning of any board is a dialogue which is both constructive and challenging. One of the ways in which such debate can be encouraged is through having sufficient diversity on the board, including gender and race. Nevertheless, diverse board composition in these respects is not on its own a guarantee. Diversity can be just as much about difference of approach and experience. The FRC is considering this as part of a review of board succession planning and will consider the need to consult on these issues for the next update to the Code in 2016.

Conclusion

The great value of the UK Corporate Code, with its ‘comply or explain’ regime, as opposed to legislation, is that it can be quickly and easily modified to reflect current Corporate Governance thinking and address shareholder concerns in a relatively short time-scale.

The fact that Bankers bonuses are still making the headlines six years after the Banking crisis which plunged the world into recession, illustrates the need for this timely reinforcement by the FRC of the basic requirements for company directors to consider the long-term implications of their actions on the sustainability of the business and to always act in the best interests of the business – as set out in the 2006 Companies Act.

The UK Corporate Governance Code 2014 Update

The Financial Reporting Council (FRC) has issued an updated version of the UK Corporate Governance Code (the Code)

Corporate Governance

The latest update of the UK Corporate Governance Code has been issued by the Financial reporting Council and is available for download here.

The main focus for the 2014 update has been to significantly improve the quality of information available to investors about the risk management processes, the long-term health and strategic intentions of listed companies.

The FRC has continued the trend, which began with the 2006 Companies Act, of asking listed company directors to consider the long-term viability of the business, including solvency and liquidity looking forward for a period significantly longer than 12 months.

In an attempt to tackle the growing unrest amongst shareholders and particularly shareholder activists, over executive pay, boards of listed companies will also now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders – thus aligning executive reward with the sustained creation of value.

The key changes to the Code include:

Going concern, risk management and internal control

  • Companies should state whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so;
  • Companies should robustly assess their principal risks and explain how they are being managed or mitigated;
  • Companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months; and
  • Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.
  • Companies can choose where to put the risk and viability disclosures. If placed in the Strategic Report, directors will be covered by the “safe harbour” provisions in the Companies Act 2006.*

Remuneration

  • Greater emphasis to be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee; and
  • Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.

Shareholder engagement

  • Companies should explain when publishing general meeting results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.

Other issues

The FRC has also highlighted the importance of the board’s role in establishing the ‘tone from the top’ of the company in terms of its culture and values. The directors should lead by example in order to encourage good behaviours throughout the organisation.

In addition the FRC has emphasised that key to the effective functioning of any board is a dialogue which is both constructive and challenging. One of the ways in which such debate can be encouraged is through having sufficient diversity on the board, including gender and race. Nevertheless, diverse board composition in these respects is not on its own a guarantee. Diversity can be just as much about difference of approach and experience. The FRC is considering this as part of a review of board succession planning and will consider the need to consult on these issues for the next update to the Code in 2016.

Conclusion

The great value of the UK Corporate Code, with its ‘comply or explain’ regime, as opposed to legislation, is that it can be quickly and easily modified to reflect current Corporate Governance thinking and address shareholder concerns in a relatively short time-scale.

The fact that Bankers bonuses are still making the headlines six years after the Banking crisis which plunged the world into recession, illustrates the need for this timely reinforcement by the FRC of the basic requirements for company directors to consider the long-term implications of their actions on the sustainability of the business and to always act in the best interests of the business – as set out in the 2006 Companies Act.

About the Author

David Doughty Corporate GovernanceDavid Doughty is a Corporate Governance Expert who works with company directors and their boards to help them to be more effective. He is a Chartered Director, Business Mentor and Executive Coach.

 

How to become a Non-Executive Director – Manchester 24 September 2014

Find out how you can obtain a Non-Executive Director position by booking a place on this interactive 1-day course.

non-executive director“A well structured and presented introduction to the responsibilities, challenges and attributes required of being a NED. It was thought-provoking. I have referred back to my copious comments in the comprehensive slide hand outs many times already”

Simon C Jones, Interim Transformation Leader and Hidden Value Discoverer

The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge.

This one-day interactive course is aimed at aspiring NEDs and covers essential knowledge about roles, responsibilities, strategy and corporate governance that are key foundations for a Non-Executive board role. It also considers up to date thinking on corporate governance and the responsibilities of owners, the board and employees.

This is followed by practical sessions on identifying NED opportunities, the process of obtaining a first appointment and performing due diligence before any position is accepted. There is emphasis on the importance of presenting your experiences with clarity and relevance.

This course identifies the various ways and circumstances in which non-executive directors can make an effective contribution to a board’s work. It also examines methods for their selection and reviews their motivation, induction and reward.

Who should attend?
Individuals who are currently a non-executive director; those seeking appointment as a non-executive director and those looking to appoint a non-executive director.

What to expect?

  • Clarifies how and why non-executive directors can strengthen a board
  • Provides practical guidance on how best to secure an appointment as a non-executive director

Course objectives
Participation on this course will provide you with the knowledge to:

  • Clarify the board’s role, purpose and key tasks
  • Appreciate the contributions that non-executive directors can make to the board in different types of company and situations
  • Recognise the qualities and experience needed to fulfil a non-executive director appointment
  • Appreciate appropriate methods for finding, selecting, appointing and rewarding non-executive directors
  • Understand the preparation required to interview for or be interviewed for the post of non-executive director

Course Leader: David Doughty CDir FIoD

David Doughty - Chartered DirectorThe course is delivered by David Doughty, a Chartered Director and highly experienced Non-Executive, Chief Executive, Chair, Entrepreneur and Business Mentor. David has extensive executive and non-executive experience in small and medium enterprises in private and public sectors. He is also a board level consultant to multi-national organisations and a Chartered Director Ambassador for the Institute of Directors. See his LinkedIn profile here: (http://uk.linkedin.com/in/daviddoughty)

Key Details
Duration: 1 day
Location:

Manchester One
53 Portland Street
Manchester
M1 3LF 

Price
£330.00 (ex VAT)

Payment with Booking Price

£300.00 (ex VAT)

Tier1 Member Price
£280.00 (ex VAT)

Book Now
To see course dates and to book your place now follow this link:

Course Registration
The fee includes lunch, refreshments and a copy of the course handbook

Attendance counts as 6 CPD hours of structured learning


How to become a Non-Executive Director – Bristol 16 September 2014

Are you thinking of becoming a Non-Executive Director as part of a Portfolio Career or to develop your boardroom skills prior to taking up an executive director role?

How to become a Non-Executive Director

Join us on Tuesday, September 16 2014 to find out how you can become a Non-Executive Director

“Unlike many courses I have attended in the past, How to become a Non-Executive Director went beyond just the technical aspects of being a ‘Non-Exec’, and reflected on the differences in the approach required compared to being an Exec Director.
It allows you to make a fully informed decision on whether a Non Exec role is right for you, and if it is, how to go about finding opportunities.
An invaluable day of learning!”

Alastair Lewis Director at Smaointe Ltd

The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge.

This one-day interactive course is aimed at aspiring NEDs and covers essential knowledge about roles, responsibilities, strategy and corporate governance that are key foundations for a Non-Executive board role. It also considers up to date thinking on corporate governance and the responsibilities of owners, the board and employees.

This is followed by practical sessions on identifying NED opportunities, the process of obtaining a first appointment and performing due diligence before any position is accepted. There is emphasis on the importance of presenting your experiences with clarity and relevance.

This course identifies the various ways and circumstances in which non-executive directors can make an effective contribution to a board’s work. It also examines methods for their selection and reviews their motivation, induction and reward.

Who should attend?
Individuals who are currently a non-executive director; those seeking appointment as a non-executive director and those looking to appoint a non-executive director.

What to expect?

  • Clarifies how and why non-executive directors can strengthen a board
  • Provides practical guidance on how best to secure an appointment as a non-executive director

Course objectives
Participation on this course will provide you with the knowledge to:

  • Clarify the board’s role, purpose and key tasks
  • Appreciate the contributions that non-executive directors can make to the board in different types of company and situations
  • Recognise the qualities and experience needed to fulfil a non-executive director appointment
  • Appreciate appropriate methods for finding, selecting, appointing and rewarding non-executive directors
  • Understand the preparation required to interview for or be interviewed for the post of non-executive director

Course Leader: David Doughty CDir FIoD

David Doughty - Chartered DirectorThe course is delivered by David Doughty, a Chartered Director and highly experienced Non-Executive, Chief Executive, Chair, Entrepreneur and Business Mentor. David has extensive executive and non-executive experience in small and medium enterprises in private and public sectors. He is also a board level consultant to multi-national organisations and a Chartered Director Ambassador for the Institute of Directors. See his LinkedIn profile here: (http://uk.linkedin.com/in/daviddoughty)

Key Details
Duration: 1 day
Location:

Orchard Street Business Centre
14 Orchard Street
Bristol BS1 5EH

Price

£330.00 (ex VAT)
Payment with Booking Price
£300.00 (ex VAT)
Tier1 Member Price
£280.00 (ex VAT)

Book Now

To see course dates and to book your place now follow this link:
Course Registration
The fee includes lunch, refreshments and a copy of the course handbook

Attendance counts as 6 CPD hours of structured learning


Alibaba talks corporate governance to potential IPO investors

You are here: EU Home > News > Alibaba talks corporate governance to potential IPO … VIDEO: Police reopen historic abuse inquiry (bbci.co.uk).

From:: <a href=https://www.google.com/url?rct=j&sa=t&url=http://ibnmoney.com/eu/2014/09/09/alibaba-talks-corporate-governance-to-potential-ipo-investors/&ct=ga&cd=CAIyHDUyYzg5YzY4NWJmNjI1ZWY6Y28udWs6ZW46R0I&usg=AFQjCNGdsCUBULBApyeUf7fwMV5oksxe_w target="_blank" title="Alibaba talks corporate governance to potential IPO investors” >Alibaba talks corporate governance to potential IPO investors

    

Is your board dysfunctional?

board

Does your board have directors who trust each other, are committed, are comfortable with conflict, hold each other to account and are focused on results?

Corporate GovernanceIf not, your board is likely to have some degree of dysfunctionality and is possibly in need of an intervention.

I have been working with boards of organisations of all sizes in all sectors for a number of years and most of them exhibit some degree of dysfunctionality,

I use a board evaluation and diagnostic tool based on the book by Patrick Lencioni, The Five Dysfunctions of a Team, to discover the level of dysfunctionality within a board.

The foremost dysfunctionality is; Lack of Trust – if there is no trust on the board, directors will:

  • Conceal their weaknesses and mistakes from one another.
  • Hesitate to ask for help or provide constructive feedback.
  • Hesitate to offer help outside their own areas of responsibilities.
  • Jump to conclusions about the intentions and aptitudes of others without attempting to clarify them.
  • Fail to recognise and tap into one another’s skills and experiences.
  • Waste time and energy managing their behaviours for effect.
  • Hold grudges.
  • Focus time and energy on politics, not important issues.
  • Dread meetings and find reasons to avoid spending time together.

The next dysfunctionality is; Fear of Conflict, The symptoms of this dysfunctionality in boards is that they will have boring meetings, create environments where back-channel politics and personal attacks thrive and ignore controversial topics that are critical to board success. They will also fail to tap into all the opinions and perspectives of board members and waste time and energy on posturing and interpersonal risk management.

The third dysfunctionality is where a board Fails to Commit to being a Team – this results in:

  • Ambiguity among the board about direction and priorities.
  • Missed opportunities due to excessive analysis and unnecessary delay.
  • A lack of confidence and fear of failure.
  • Revisiting discussions and decisions again and again.
  • Second-guessing among directors.

Dysfunctional boards are unable to create clarity around their direction and priorities and cannot align directors around common objectives. They move forward with hesitation and are unable to learn from mistakes.

Fourth, a board that Avoids Accountability:

  • Creates resentment among directors who have different standards of performance.
  • Encourages mediocrity.
  • Misses deadlines and key deliverables.
  • Places an undue burden on the Chair as the sole source of discipline.
  • Does not ensure poor performers feel the pressure to improve.
  • Does not identify potential problems quickly by questioning each other’s approaches without hesitation.

Finally, if a board is not Focused on Results, the organisation will stagnate or fail to grow, rarely defeat competitors, lose achievement-oriented employees, be easily distracted and encourage individualistic behaviour where board members focus on their own careers and individual goals.

So what should boards be doing?

Directors who can agree with most of the following are likely to be sitting on more effective boards:

  • Board members are clear on what is expected of them.
  • Board meeting agendas are well planned so that the board is able to get through all necessary board business.
  • Most board members come to meetings prepared.
  • Written reports to the board are received well in advance of meetings.
  • All directors participate in important board discussions.
  • Different points of view are encouraged and discussed.
  • All directors support the decisions reached.
  • The board has a plan for the further development of directors.
  • Board meetings are always interesting and frequently fun.

How many of the above statements are you able to agree with?

If you disagree with a number of them, the likelihood is that you are a member of a dysfunctional board … and If your business has a dysfunctional board, it is also likely to be a dysfunctional business.

Exactly what should company directors do?

company directors

For the first time in law, the 2006 UK Companies Act sets out what a company directors duties are

Companies Act 2014The 2006 Companies Act, which set out to streamline and simplify UK Company law, ended up being one of the largest pieces of legislation ever written!

However, it did, for the first time, specify exactly what a Company Director’s duties are (which apply equally to both Executive and Non-Executive Directors), as follows:

  1. To act within powers
  2. To promote the success of the company
  3. To exercise independent judgement
  4. To exercise reasonable care, skill and diligence
  5. To avoid conflicts of interest
  6. Not to accept benefits from third parties
  7. To declare interest in proposed transaction or arrangement with the company

To take them one by one – To act within powers – how does a director know what powers he or she is required to act within?

A good place to start is the Articles of Association (previously known as the Memorandum and Articles or ‘Mem and Arts’) – when was the last time you looked at these? When did your board last review them to make sure that they are still appropriate? These, together with any shareholder agreements, contracts, covenants and other items form the company’s constitutional documents which define your powers as a director.

If you haven’t looked at these for a while, or worse still, have never looked at them, then ask your Company Secretary for copies as soon as possible.

Next – To promote the success of the company – prior to the 2006 Act it used to be the case that company directors were responsible to shareholders and providing they endeavoured to ensure a decent return on the shareholders investment then they were complying with their duties.

Following the ‘unacceptable face of capitalism’ scandals of Lonrho and Slater Walker in the 1970s and the corporate failures of the ’80s leading to the Cadbury Report and the UK Corporate Governance Code it became clear that company directors had much wider duties which are now enshrined in the 2006 Companies Act, especially in respect of promoting the success of the company.

To promote the success of the company – having regard (amongst other matters) to:

  • The likely consequences of any decision in the long term;
  • The interests of the company’s employees;
  • The need to foster the company’s business relationships with suppliers, customers and others;
  • The impact of the company’s operations on the community and the environment;
  • The desirability of the company maintaining a reputation for high standards of business conduct; and
  • The need to act fairly as between the members of the company

Clearly, the new act, which applies equally to Executive and Non-Executive company directors in the UK, establishes a legal duty for directors to avoid short-termism in their strategic decision making and take into account the legitimate interests of their staff, suppliers, customers, the community and the environment as well as their shareholders.

With regard to the need To exercise independent judgement – it is important that, regardless of job title or board role or independence, all directors come to the boardroom table as equals, with joint and several liability for the decisions that they make and that they are not unduly swayed or influenced in making those decisions.

All directors are expected To exercise reasonable care, skill and diligence – which means that they should devote sufficient time to their role (which limits the number of directorships any individual may hold) and come to every board meeting well prepared, having read all the board papers and where possible, having had off-line conversations with fellow directors about key strategic matters.

Turning up to board meetings late and trying to read the papers during the meeting for the first time is unlikely to lead to an effective contribution to decision making or a satisfactory discharge of your duties as a company director.

Holding more than one board position or running your own business whilst serving on the board of another company are likely to compromise your legal duty To avoid conflicts of interest – whilst it is not always possible to avoid conflicts of interest, you should be aware of the possibility and alert the board when conflicts are likely to occur.

A well run board will have a Register of Interests, which will be reviewed annually, containing a list of all directors’ outside interests. The standing agenda for each board meeting should include an item for Declarations of Interests, at which point directors should declare if they have an interest in an agenda item. Often, if this is the case, the director will formally leave the meeting whilst the matter is being discussed and will only re-join once a decision has been made.

All directors should be aware of the requirement Not to accept benefits from third parties – compliance with this aspect of the act can be demonstrated by maintaining a Gifts and Hospitality register and ensuring that there is a company-wide policy on entertainment paid for by third parties.

Finally, directors need to comply with the requirement To declare interest in proposed transaction or arrangement with the company – most commonly this covers property transactions or contracts with businesses that a director has an interest in. The sphere of interests that need to be declared also usually includes the director’s spouse, children and immediate family.

If you are a company director and you have been aware of your duties under the 2006 Companies Act and you have been complying with them then you can be satisfied that you are acting within the law – if not, then you should review how you and your board operates to make sure that you are discharging your director’s duties correctly.

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