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Impact of proposed changes to UK Corporate Governance Code: insights from Apex Group

12 October 2023

Apex Group Ltd, a global financial services provider, responds to the UK Corporate Governance Code.

Apex Group in response to the proposed changes to the UK Corporate Governance Code (the “Code”), submitted to the Financial Reporting Council (“FRC”), has largely extended its support to the various changes. Apex is of the opinion that some of the proposed changes will provide additional support to the existing Code provisions, help strengthen the basis for reporting, and lead to effective reporting. 

In response, we have specifically suggested that it would be useful to see outcome-based reporting from the companies who choose not to comply with the Code, in order to understand the governance structure which has been effective for them and to gain greater insight into the reason why they have departed from the Code. 

We have also requested the FRC to provide clear guidance on various aspects of governance expectations. This is in reference to reporting on Environmental, Social, and Governance (“ESG”), risk management, internal control, succession planning etc. 

Some of the key highlights of Apex's response paper are listed below: 

  • While we agree that with the growing awareness of ESG, it will be ideal for the Boards to integrate ESG reporting in the context of their strategy to showcase the sustainability of their business, it would be useful to obtain guidance on how climate ambitions and transition planning could be depicted in terms of measurable reporting. 
  • It is a welcome move to put some checks on increasing commitments by directors. This enables the directors to discuss, consider, and approve of each other’s commitments and question where necessary. Also, this will encourage companies to look at diverse pools of talent and bring on board more people, rather than the same type of people being appointed to companies within a specific industry 
  • The changes around reporting on succession planning are likely to improve the explanations on diversity policies. Additionally, they can demonstrate their link to disclosures on board appointments, board composition, and succession planning, where there is often a lack of cohesion.  
  • Preparing a triennial Audit and Assurance Policy (“AAP”) for all Code companies describing the directors’ approach to seeking internal and external assurance of the information reported to shareholders will boost investor confidence and maintain the integrity of the market. It will also enable shareholders to compare performance.  
  • We strongly feel that as the Code is the gold standard in the listed funds segment, it would be more appropriate to mention the minimum standards for the audit committees in detail, rather than simply making a reference to it in the Code. This will ensure clarity and brevity. It would also be helpful if there are any changes and improvements to the minimum standards, that the same would automatically align the Code to the minimum standard. However, this might lead to complications as any change will affect the Code. In addition, as the standard applies to FTSE 350 companies and the Code to premium listed entities, if such a reference is made in the Code, it might bring into purview some companies outside the FTSE 350. It is further noted that as compliance with the Code is on a “comply or explain” basis, it would be beneficial if the standards were spelled out in the Code for clarity. 
  • We are concerned that the responsibility of the audit committee is becoming too prescriptive and that by adding various aspects of reporting to the audit committee the focus might get diluted thereby lead to  window dressed reporting. It is suggested that there must be some guidance around how far and deep the audit committee need to go and ensure that the front-end and back-end of the Annual Report are aligned. 
  • Less involvement of directors in deciding their own remuneration, lesser dependence on market benchmarking methods and external consultants, and focusing on the company’s performance along with benchmarking against the workforce of a company will likely strengthen the links between remuneration policy and corporate performance. Also, we feel that proposed amendments around malus (withholding of directors’ remuneration) and claw back (recovery of directors’ remuneration) provisions in the Code will provide greater transparency by providing visibility of the mechanism available, how and if companies are using it and what triggers such use. 

Apex supports governance and adheres to best practices, ensuring the boards run efficiently and deliver the long-term objectives for all its stakeholders. Apex looks forward to the guidance being issued which will help companies and organisations to report more efficiently. 

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