New corporate governance code will improve trust in business

Jul 18, 2018



Firms have been advised to engage with staff in order to improve trust, in a new corporate governance code published by the accountancy watchdog.

Changes include banning senior executives from selling shares awards for five years, up from the current three years, and encouraging firms to improve how they engage with staff, in the shakeup which follows high profile failures such as the collapse of construction firm Carillion.

Former finance director at Carillion, Richard Adam was accused by MPs of “dumping” the last of his shares at the earliest possible moment after leaving the firm.

David Styles, director of corporate governance at the Financial Reporting Council (FRC), said: “It’s no secret that public trust in business needs to improve”. He said the latest update to the 26 year old code was “a more fundamental review” than previous updates. This is the first time that the way in which a company engages with its employees is part of the code.

Firms will be expected to either appoint a worker to their boards, nominate a non-executive director responsible for representing staff, or create a separate employee advisory council.

Other changes affect how firms respond to shareholder protests: when a company faces a vote of 20% or more against a proposal it will have to explain how they will consult with shareholders about the protest.

The updated code will apply from the beginning of 2019. Whilst the code isn’t mandatory, listed UK firms will need to explain to investors why they opted out.

The FRC is also working on a separate corporate governance code which will apply to largely privately-held firms.

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