Despite its shorter length companies may find adapting to the UK’s revised corporate governance code challenging, business leaders and advisers suggested. However, there was broad support for the approach taken by the Financial Reporting Council (FRC) after it launched its consultation last week.

“The proposed revisions to the code including stronger emphasis on independence, setting pay in the context of company-wide pay, and putting more importance on how companies engage with all their stakeholders are all positive steps.  Some companies may find these changes challenging at first, but ultimately they are the right thing to do.”

Tom Gosling, the global rewards partner at PricewaterhouseCoopers, said: “The draft UK Corporate Governance Code goes beyond mere review and is a fundamental rewrite. We welcome the shorter, more principles-based code, with a greater commercial focus and the promotion of strong culture through alignment of purpose, values, and strategy. It will demand a significant change in mindset for some boards that habitually report against the current code provisions as a checklist. While this will be good for insightful reporting in the long-term, there will be significant transition challenges.”

Gosling singled out the job of chairing of the remuneration committee as one that would get harder under the new code’s regime. He said that it was right that the code emphasised the board’s role in overseeing pay and conditions across the workforce. However, Gosling said that this needed to be implemented in terms of principles and governance oversight rather than an expansion to the committee’s decision-making remit.

He added: “The new code is part of a broader policy agenda to make business work for society as a whole. Companies and boards need to consider their overall response to this challenge in an integrated way, linked to the fulfilment of the directors’ duty to promote the company’s strategic success for the benefit of members while having regard to stakeholder interests under Section 172 of the Companies Act 2006. This means developing a thorough understanding of the company’s purpose and role in society, and translating that into tangible policies for the board’s agenda, committee remits, and stakeholder engagement, including how stakeholders’ interests are considered, and how the inevitable compromises are made in coming to business decisions.”

Luke Hildyard, Policy Lead for Stewardship and Corporate Governance, at the Pensions and Lifetime Savings Association said:  “The proposed reduction in the code from around 11,000 words to under 5,000 will be welcomed by both businesses and investors alike, and should enable better oversight of more focused governance standards.

“Despite the reduced length, the proposed code contains many positive new measures, particularly the recognition of the importance of corporate culture and employee voice.  However, monitoring and enforcement of these provisions will be critical. PLSA research found that most companies already pay lip service to these issues in annual reports, but provide little concrete data demonstrating the strength of their relations with the workforce. For example, just 7% of the FTSE 100 report on their use of agency workers, 8% provide detail of their workers’ pay and benefits and only 21% provide figures on their investment in training and development.”

Hildyard added that while the proposed requirements for incentive plans to be at least five years in length was welcome the changes were unlikely to reduce levels of executive pay or address societal concern about gaps between executives and the wider workforce. He also said the while the code was rightly focused on principles rather than prescriptive requirements, there was no mention of pension fund deficits or climate change. Hildyard said these were two long-term strategic issues with a profound impact on many companies that perhaps could be cited in relation to stakeholder relations, risk management or leadership.

The trades union body, the TUC, while welcoming the emphasis on workforce engagement, called for a specific mention of the role of trades union in the code. TUC General Secretary Frances O’Grady said: “It’s good that the code recognises the key role workers’ voices play within businesses.

“The best way that firms can get workers’ views is through trade unions. Unions can identify common views, and help staff speak anonymously on sensitive issues. The next step is for the corporate governance code to recognise the important role that unions play in the long-term success of companies.”

In the TUC’s blog, senior policy officer Janet Williamson said that none of the present proposals around workforce engagement – which could be through ‘a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director’ were currently satisfactory. She said that the TUC would be encouraging all companies to implement this provision by including at least two worker directors, elected by the workforce, on their boards.

She added: “For some companies, implementing the revised Code properly will be a challenge. This is exactly as it should be, because the real test of the revised Code will be whether it changes corporate practice towards workers and other stakeholders – for the better.”

Dr Ian Peters, chief executive of the Chartered Institute of Internal Auditors, said: “I am especially pleased to see the new version of the Code is shorter and sharper and provides greater clarity for organisations on how they should promote good corporate governance.

“The Institute has long recognised the importance of the ‘tone at the top’, and the fact that internal auditors are critical to providing assurance about corporate culture, and so the inclusion of culture as a priority throughout the proposed Code is also welcomed.

“That internal audit has been given greater prominence throughout the document is testament to the growing recognition of the need for internal audit in all major companies.”

Simon Osborne, chief executive of ICSA: The Governance Institute commented: “While there will no doubt be much debate on the detail, we strongly support the FRC’s aim of trimming back the Code.

“Companies must never make the mistake of overlooking the essentials, such as the need for the board to have the information and support necessary to operate effectively. However, it makes sense for the Code itself to be focused on the principles of good governance and the issues on which there is the most pressing need for attention, such as integrity, corporate culture and listening to stakeholders. ICSA’s recent guidance on how to get the stakeholder voice into the boardroom, produced jointly with the Investment Association, complements this new approach.

Andrew Ninian, director of corporate governance at the Investment Association said: “The launch of the revised UK Corporate Governance Code is a welcomed step in the evolution of our corporate governance system. The Government’s Green Paper set out important challenges to the UK corporate governance system particularly on stakeholder voice and executive pay. It is important that the Governance Code responds to these challenges so that the UK remains globally competitive and that investor stewardship continues as a key tenet.

‘We particularly welcome the revision to the Code which requires companies, within six months of having received a high vote against a resolution, to publish a response explaining how they are responding to their shareholders. This revision is timely considering the forthcoming launch of the Public Register, hosted by the IA, which will incorporate the responses from such companies.”

William Touche, vice chairman and leader of the UK Centre for Corporate Governance at Deloitte, said: “The whole area of a company’s purpose and stakeholder engagement takes a central role in the Code – and companies will need to ensure they address these areas with integrity, as they will be quickly exposed if their statements do not ring true to their workforce.”

Commenting on the remuneration aspects of the consultation paper Stephen Cahill, vice Chairman and leader of Deloitte’s executive remuneration consulting practice, said: “The proposed Code includes a focus on encouraging remuneration committees to determine executive remuneration in the context of and taking account of, wider workforce remuneration policies and practices and it will be interesting to see how this develops.”