21 February 2017

FRC responds to Green paper on Corporate Governance reforms

The interests of stakeholders, executive remuneration, the accountability of large private companies and effective enforcement are key themes in the FRC’s response to the Government’s Green paper on Corporate Governance reforms.

The UK corporate governance framework is respected worldwide and any changes need to build on its current strengths including the unitary board and the ‘comply or explain’ approach. Demands on the framework are growing and the FRC believes more needs to be done to win back public trust.
The FRC proposes reform in four areas.

• The interests of major stakeholders. The Companies Act places a duty on directors of all companies to promote the success of the company, and in so doing have regard to a range of other factors, such as long-term consequences, the environment, employees, suppliers and customers. This duty must be reinvigorated. Companies should be required to report more effectively on how they have discharged it.
• Executive remuneration. The role and remit of the remuneration committee should be extended to cover pay policies throughout the organisation. Remuneration policy and payments should have a much clearer link to delivery of strategy, focusing strategy and outcomes which deliver long-term company performance.
• Large private companies.They must be more accountable to their stakeholders given their significance to the public interest and the privilege and benefits of limited liability status. The FRC supports the introduction of corporate governance principles for such companies and associated reporting. The FRC is well placed to develop this.
• Effective enforcement of the law. The regulatory framework is fragmented, with gaps in enforcement action. The FRC also proposes extending its powers to investigate and prosecute all directors for financial reporting breaches and associated issues of integrity, rather than only accountants and actuaries.

Full press release

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