As a way of ensuring organisations show that they operate with responsibility, Corporate Governance requirements are updated regularly. Whilst not all businesses are affected by these changes, it’s extremely important to understand what they mean for you and what actions you might be required to take.
The most recent updates in Corporate Governance requires listed companies to report on two specific areas: firstly, CEO/worker pay ratios and the effect of share price on pay; secondly, stakeholder interests (S.172 Companies Act 2006).
There’s a range of criteria that could mean your organisation will need to react to these requirement changes, but in a nutshell this is focused on companies (not LLPs) that are UK-incorporated and considered to be ‘large’ (although different size tests do apply). All listed UK companies must report on the effect of share price on pay, and those that are listed UK companies with 250+ UK group employees should report on CEO/UK employee pay ratios.
When it comes to section 172 and stakeholder reporting, a size test determines whether your organisation is required to report. If you are a large UK company and match two out of three of the following tests, you will be required to report: if you have a turnover of £36m+, a balance sheet of £18m+, and / or have 250+ employees. These organisations will need to complete reports on the following: a statement of how directors, when carrying out their duty to promote the success of the company in Section 172 Companies Act 2006, have had regard to stakeholders; and, give more detail about how the company has engaged with key stakeholders, including suppliers and customers. All companies with 250+ UK group employees will be required to complete a report on engagement with UK employees.
There have also been a series of updates to the UK Corporate Governance code that are worth being aware of. These changes to the code stress the importance of company purpose and values, workforce engagement, stakeholder engagement, director independence, fair pay, and diversity. As before, all London premium-listed companies must apply and report on Code Principles, and comply / explain against Code Provisions, so bear these in mind when reporting.
The new disclosure rules will apply to reporting periods starting January 2019, which means that companies will have to start reporting from 2020 onwards. Listed UK companies must include disclosures in their annual reports. Ahead of this, it will be valuable for your organisation to look at your corporate reporting function and ask whether it’s set up to deal with these changes, and whether you need to train directors and stage so that they are equipped to deal with these new obligations.