The Financial Reporting Council has recommended a series of changes that are needed to improve the UK’s governance regime. In a letter to the Business, Energy and Industrial Strategy (BEIS) select committee the FRC has said that Section 172 of the Companies Act should be made more effective to ensure that directors take account of the views of a wider range of stakeholders. In respect of listed companies this could be done using existing powers and amending the corporate governance code or through strategic reporting guidance. However, as the Act applies to all company directors the government would need to change company law.
Responding to the government’s suggestion in its recent green paper that a corporate governance code should be developed for private companies the FRC said it could do so but to ensure that companies report publicly against a code it would need some regulatory underpinning.
The FRC also suggest areas it needs additional powers. Currently its remit in relation to reporting on governance issues only relates to certain parts of the annual report and accounts and it believes this should be extended. Additionally the FRC believes that its powers to make directors accountable for breaching regulations are weak because they only apply to directors who are actuaries, accountants or auditors.
Stephen Haddrill, FRC wrote in the letter: “We believe this should be rectified both in relation to questions of integrity and a failure to report properly to shareholders.”
In order to improve the conduct of directors, the FRC has suggested the development of an enforceable code that would include ethical standards. The FRC would need a statutory duty to enforce the code or proposes that the existing directors disqualification scheme operated by the Insolvency Service could be extended to allow the FRC to enforce the code through this scheme.
Separately the FRC is consulting on its corporate reporting research activities. The consultation paper asks what issues its research should focus on and whether it should extend or decrease its research. Other questions include asking views on projects that could be undertaken with the aim of influencing the International Accounting Standards Board (IASB). The deadline for comments is the 30th March 2017.
Last Updated: 11 December 2016