The UK’s financial reporting regulator has said there is little appetite for
enforceable corporate governance rules based on a first glance at submissions
received in its review of guidelines.
The Financial Reporting
Council (FRC) said its initial feedback has shown little support for a
compulsory combined corporate governance code, with submissions favouring the
‘flexibility’ in the current system.
The news is likely to bring a sigh of relief to some who feared a
heavy-handed response in the wake of the global financial crisis.
The FRC said it has received more than 100 submissions, which is on par with
previous reviews, with few showing great interest in making a new code or
parts of it mandatory.
The council’s head of corporate governance, Chris Hodge, said he has seen
little support for making the code mandatory but added that he was still
assessing the submissions.
‘The feedback we are getting is saying the flexibility provided by the
[present] code is desirable and there is nothing we are picking up to say that
it be changed,’ he said.
‘We are open to making more substantial changes but whether we will need to
make them, we
have to come to some conclusion about that.’
He added that any attempt to make the code mandatory would need to be backed
by the government.
The comments will disappoint some groups who suggested the current code be
tightened. ACCA had called for an investigation about whether parts of the code
should be mandatory. In its submission, it said UK corporate governance
regulation was so light touch ‘as to have very little impact at all’.
‘A project should be instigated … to identify which of the discretionary
provisions of the code, some possibly after amendment, should be made
mandatory,’ it said.
In contrast, the CIMA chief executive, Charles Tilley, said he was happy with
the code in its current form, describing it as ‘highly respected’.
He believes, however, that the FRC should focus not on its review of the
code, but on educating businesses about real-world corporate governance
failures. ‘There is a danger of a tick-box environment arising,’ he said.
‘If you are promoting examples of where things have been done really well and
where things have been done really badly, you are at least getting companies to
think about things they may not have thought about.’
At present the FRC enforces the ‘comply or explain’ rule where boards either
adopt the corporate governance code in full or provide an explanation of their
actions to shareholders. The rule was adopted in 1992 and has been included in
all subsequent revisions of the code to the present day.
The FRC’s review will feed into the Treasury’s Walker review into corporate
governance. The new code is expected to come into effect next year.
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