[Feb 2016]

 

 

 

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中文版

Developments in Corporate Governance and Stewardship 2015 issued by the UK Financial Reporting Council

Written by: Mr. Donovan Cheung - Risk Consultant

In January 2016, the Financial Reporting Council (“FRC”) published the Developments in Corporate Governance and Stewardship 2015 (“the Report”). The Report is to give an assessment of the UK Corporate Governance Code and Stewardship Code (collectively named as “the Codes”); to report on the quality of compliance with, and reporting against the Codes; to give the findings on the quality of engagement between the listed companies in UK and their shareholders; and to indicate to the market where FRC would like to see changes in governance behavior or reporting. In this newsletter, we are going to discuss the implementation of the UK Corporate Governance Code in 2015.

According to the Report, compliance with code provisions remained high in 2015, with 90% of FTSE 350 companies reporting that they were either complying with all, or all but one or two, of its 54 provisions. FRC has listed out the top 10 areas of non-compliance as follows:

  • Board composition
  • Audit Committee composition
  • Remuneration Committee composition
  • Nomination Committee composition
  • Independence of Chairman
  • Audit retendering
  • External board evaluation
  • Shareholder dialogue
  • Separation of Chairman and Chief Executive Officer
  • Independence of Non-executive Directors


Of which the Report drew attention to one factor that gives rise to two non-compliance areas. Poor succession planning may lead to temporary non-compliance regarding board composition and separation of chairman and Chief Executive Officer.

Similar to the Hong Kong’s Corporate Governance Code, “comply or explain” principal is applied to the UK Corporate Governance Code. The guidance on the principal provides a benchmark for listed companies when providing explanations on the deviation of code provision and for shareholders when assessing the performance of the listed companies. FRC suggested that the explanations should include background, rationale and mitigating activities taken for the deviation. Timeframe for the company to comply with the provision should also be provided if it is limited in time.

The Report has given some examples in detailed explanation. The Report and the Codes are of high referential value to the listed companies in Hong Kong as the Corporate Governance Code in UK and Hong Kong share some similarities and they could enhance awareness and importance of corporate governance in Hong Kong.

Reference: Developments in Corporate Governance and Stewardship 2015 issued by FRC in January 2016

 

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gloria.so@shinewing.hk (Tel. 3583 8517)

 

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