Search

Corporate governance – recent reforms

The government has recently enacted legislation requiring larger companies to adopt stronger corporate governance arrangements and improve their engagement with employees, customers, suppliers and other stakeholders. The impact of the reforms varies according to the size of the company concerned.

All companies with more than 250 employees will have to include in their directors’ report a summary of how the directors have engaged with employees and had regard to employee interests, including the effect of that regard on the company’s principal decisions.

Large companies (having two or more of a turnover of more than £36 million, a balance sheet total of more than £18 million, and more than 250 employees) will have to include in their strategic report a statement describing how the directors have had regard to their various duties. The directors’ report  should include a statement summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others. For suggestions on improving stakeholder engagement, see the guidance note on the stakeholder voice in board decision-making published by the Institute of Chartered Secretaries and Administrators and the Investment Association. The strategic report requirement also applies to all public companies.

Very large unlisted companies (having more than 2,000 employees and/or a turnover of more than £200 million and a balance sheet total of more than £2 billion) must include in their directors’ report a statement of the company’s corporate governance arrangements. For an example, see the Financial Reporting Council’s new draft corporate governance principles for large private companies.

Quoted companies (listed on the main market of the London Stock Exchange or certain other exchanges) will have to include in their directors’ remuneration report information about the exercise of discretion and the effect of share price appreciation. Quoted companies with more than 250 employees will have to include pay ratio information. A revised version of the corporate governance code applicable to premium listed companies has recently been published.

The Companies (Miscellaneous Reporting) Regulations 2018 will apply to reporting periods starting on or after 1 January 2019. If any of these requirements apply to your company, it would be worth starting to consider now how the directors will engage with stakeholders in 2019, so that they will be able to report on these matters adequately in 2020.

For further information, see our more detailed article, and government guidance.

Send us a message