November 24, 2023 QCA resets its Corporate Governance Code
One of the principles of risk management is the need to regularly review and reset parameters to ensure that they remain current. When it comes to corporate governance the same applies; and not just for companies but for the regulators as well. They have to ensure that their guidance enables boardrooms to not only operate effectively but also to communicate effectively with investors and other stakeholders.
The Quoted Companies Alliance (QCA) speaks to the needs of the UK’s small and mid-sized companies. Its corporate governance code was originally drawn up with the needs of AIM quoted organisations in mind. But the flexibility embodied within the code means that it can equally apply to other organisations.
In 2018 when the QCA last reviewed its corporate governance code the late Sir Winfried Bischoff, then Chairman of the FRC, commented “The new principles highlight that having an “efficient, effective and dynamic management framework” will allow companies to deliver growth in long-term shareholder value. This is true for companies of all sizes.”
Five years on and the QCA have taken the opportunity to review and refresh their code. Making the point about good corporate governance being fundamentally about culture rather than procedure, the QCA also highlights the importance of having the “right people in the right roles, working together, and doing the right things to deliver value for shareholders as a whole over the medium to long term.”
This latest revision of the code remains broadly in line with the ten principles of good governance as set out in the 2018 code. The main change in headline requirements is that the old principles on governance structures and board skills (6 & 9) have been merged to make way for a new principle on establishing a remuneration policy which is supportive of long-term value creation.
Delve beneath the surface however and more changes emerge. The principle on taking account of wider stakeholder issues has been broadened to include workforce concerns as well as social and environmental responsibilities. These include taking account of climate risk and its likely impacts over the medium to long term. Climate risk also comes into play in the section on risk management and the section which requires boards to ensure that they retain the breadth of skills which they need to meet ongoing challenges.
Given the changing business climate over the last five years, it is perhaps unsurprising that the main revisions in the code apply to the boardroom. These include the need for effective succession and contingency planning, the independence of non-executive directors, a focus on diversity of skills and experience, and the importance of keeping skills and experience up to date.
The new code takes effect for company financial years beginning on or after 1 April 2024 although there is a twelve-month transitional period to enable companies to move towards adopting the new provisions. However, with this strengthened emphasis on boardroom skillsets and enhanced risk appraisals, it cannot be too soon for boards to review their existing systems and constituencies against the changing priorities and to make changes as appropriate.