UK: The new chair of the Financial Reporting Council (ARGA)

The Department for Business, Energy and Industrial Strategy has today announced that Simon Dingemans is to become the new chair of the Financial Reporting Council and its successor organisation (the Audit, Reporting and Governance Authority): see here. Mr Dingemans will replace Sir Winfried Bischoff.

Mr Dingemans' appointment was subject to a pre-appointment hearing before the BEIS Committee in Parliament several days ago: see here. The Committee's report was published yesterday: see here. The Committee endorsed Mr Dingemans' appointment but noted its concern that he had "not fully appreciated the scale of the challenge ahead, and the degree of commitment required for an organisation in need of root-and-branch reform". The Committee also recommended that he should not take on any additional roles that could be perceived to compromise his independence.

NB: The Secretary of State at the BEIS Department announced, in a speech several days ago, that the new chief executive of the FRC/ARGA will be Sir Jonathan Thompson: see here.

UK: Government responds to BEIS Committee report on executive rewards

Earlier this year the House of Commons Business, Energy and Industrial Strategy Committee published its report Executive rewards - paying for success: see here (pdf). The Committee made various recommendations, including that there should be an employee representative on remuneration committees. The Government's response was received by the Committee earlier this month and published yesterday: see here. The response has been described as a "missed opportunity" by the Committee's Chair, Rachel Reeves MP: see here.

UK: BEIS Committee proposes wide-ranging audit reforms

The Parliamentary Business, Energy and Industrial Strategy Committee has published its 'future of audit' report and recommendations: see here or here (pdf). A summary of the report's conclusions and wide-ranging recommendations can be found here. These were also outlined this morning in a speech by the Committee's chair, Rachel Reeves MP: see here.

The recommendations include: requiring auditors to present at company annual general meetings; encouraging the Competition and Markets Authority (CMA), as part of its statutory audit market study, to aim for the full legal separation of audit and non-audit services; if other remedies and reforms fail, the independent appointment of auditors should be considered; and the frequency of audit rotation should be increased by introducing a seven year, non-renewable, period of engagement.

The Committee also made recommendations concerning the creation of the proposed new regulator - the Audit, Reporting and Governance Authority (ARGA) - to replace the Financial Reporting Council (FRC). Current FRC board members, the Committee stated, should have no meaningful role in the reform process or management of ARGA. The Committee also stated its expectation that the new chair of the FRC (and subsequently ARGA), currently being recruited, would not be appointed until they had appeared before the Committee and the Committee had given its opinion.

UK: BEIS Committee report - 'Executive Rewards: paying for success'

The Business, Energy and Industrial Strategy Committee published its report 'Executive Rewards: paying for success' today: see here or here (pdf). The report is critical of the role played by institutional investors, remuneration committees and the Financial Reporting Council (FRC). The Committee calls for the simplifcation of pay, advocating a structure based on fixed salary plus deferred shares that would vest over a long period (and subject to provisions designed to prevent 'rewards for failure'). It also calls for remuneration committees to have at least one employee representative. 

The Committee is strongly supportive of the creation of the new Audit, Reporting and Governance Authority (ARGA), to replace the FRC, and states that the ARGA should be "a more empowered, aggressive and proactive regulator that has the ability to take decisive action, where necessary, on executive pay and its reporting" (para. 11). Many of the Committee's recommendations are directed at the ARGA, particularly with regard to the revised Stewardship Code and its enforcement, as well as the expectations placed on asset owners. The Committee also recommends that the ARGA should become responsible for monitoring the impact of the new Wates Principles of Corporate Governance for Large Private Companies.

UK: BEIS Committee launches future of audit inquiry

The House of Commons Business, Energy and Industrial Strategy Committee has begun a new inquiry on the future of audit: see here. The inquiry will, to quote directly from the information provided about it, "focus on the likely impact of the CMA market study and the review of the FRC (by Sir John Kingman) in improving quality and competition in the audit market and reducing conflicts of interest". Written submissions are invited and should be received by 11 January 2019: see here.

UK: BEIS/WP Committees publish joint second Carillion report

The second, joint report concerning the collapse of Carillion plc has been published by the Work and Pensions and Business, Energy and Industrial Strategy committees: see here or here (pdf). Various recommendations are made, including referring the statutory audit market to the Competition and Markets Authority; a focus on a more active and interventionist approach in the next edition of the UK Stewardship Code; and a more prominent role for regulators, including the Financial Reporting Council which, it is argued, should become more proactive and aggressive.

UK: BEIS Committee publishes its corporate governance inquiry report

The Business, Energy and Industrial Strategy Committee published its corporate governance inquiry report this morning: see here or here (pdf). A summary of the report's conclusions and recommendations is available here.

Some of the recommendations are addressed to the Financial Reporting Council (FRC) and include, for example, suggested amendments to the UK Corporate Governance Code to require companies to report on how they ensure they meet section 172 of the Companies Act 2006; extending the FRC's enforcement powers; and reviewing the UK Stewardship Code to provide more explicit guidance on what constitutes high quality engagement.

Amongst the recommendations addressed to the Government is one advocating the creation of a target that from May 2020 at least half of all new appointments to senior and executive management level positions in listed companies should be women.

UK: FRC report - developments in corporate governance and stewardship [and what next for the FRC?]

The Financial Reporting Council - the organisation responsible for the UK's Corporate Governance and Stewardship Codes (amongst many other things) - has published its annual report on developments in corporate governance and stewardship: see here (pdf).

It is reported that compliance with the UK Corporate Governance Code is high: 90% of FTSE 350 companies report that they comply with all, or all but one of the Code's 54 provisions. Full compliance has risen from 57% to 62% this year. The provision most frequently not complied with is B.1.2, which states that at least half the board, excluding the chairman, should comprise non-executive directors determined by the board to be independent.

The report is published in the year in which the twenty-fifth anniversary of the publication of the Cadbury Committee Code and Report will be marked; it was the Cadbury Committee that gave us 'comply or explain' that has since been a central pillar - indeed, foundation - of the UK's governance framework for large, listed companies since the early 1990s. A great deal has happened since the publication of the Cadbury Report and much has changed in the past year: a new prime minister in the UK who placed governance reform as part of her personal manifesto; a vote to leave the European Union; and two governance reviews are underway (see here and here), instigated for reasons that challenge the effectiveness of aspects of the UK's governance framework and, indeed, the role and effectiveness of the FRC in this regard. It is not, therefore, surprising to see today's FRC development report adopt a tone quite different from the developments report published last year.

Consolidation was the message last year - it was stated that no substantial changes were proposed to the UK Governance Code for the next three years - and no hint was given that the FRC sought wider powers. But from today's report we learn that the FRC "stands ready" to revise the Code; that it has established a Stakeholder Panel to "bring a broader range of perspectives into [its] ... policy-making and work" (the FRC's website does not, however, provide any information about the Panel, its members and the selection/recruitment process); and that the market model's "checks and balances" require reassessment and revitalisation. This is very welcome, against the background of debate about how best to achieve appropriate standards of governance and the extent to which the ethos of encouragement and reflection that 'comply or explain' seeks to promote can (and/or should) coexist with a stronger and wider enforcement role for the FRC.

UK: FRC draft plan and budget 2017/18

The Financial Reporting Council yesterday published for public comment its draft plan and budget for 2017/18: see here (pdf). The document states that improvements are needed in the operation and enforcement of the UK Corporate Governance Code (for which the FRC is responsible). The same is said about relevant law and regulation. Potentially significant changes to the Code may be required. The FRC also says that it will seek to involve a wider group of stakeholder in its work next year.  In this regard I have a suggestion: is it time for the FRC to review its own governance arrangements including the composition of its board?

UK: FRC seeks statutory oversight over directors through new code of conduct

The Financial Reporting Council today published a letter from its chief executive to the Parliamentary Business, Energy and Industrial Strategy Committee, explaining how its recommendations on governance reform - expressed to the Committee as part of its corporate governance inquiry - could be implemented: see here (pdf). In the letter the FRC states its view that a code of conduct for directors, sitting alongside the codified duties in the Companies Act 2006, should be developed and that this code should cover ethical standards. The FRC should have, it is argued in the letter, responsibility for this code and statutory oversight over directors subject to the code. Enforcement might, it is suggested, take place through existing legislation on the disqualification of directors.

If implemented these proposals would represent a major expansion of the remit and work of the FRC. Moreover, enforcement by legal process is very different from the underpinning ethos of the UK Corporate Governance Code which relies on market enforcement (i.e., shareholders) through the concept of comply or explain.

UK: BEIS committee corporate governance inquiry - publication of written submissions

The House of Commons Business, Energy and Industrial Strategy Committee (formerly the Business, Innovation and Skills Committee) launched a wide ranging corporate governance inquiry in September. Written submissions were invited, the deadline for which closed last month. The Committee has started to publish the responses on the inquiry website, noting that a lot of interest has been generated and a much larger number of submissions than usual were received: see here.