Revised QCA Corporate Governance Code

Key areas of revision

Key stakeholders – Principle 4 of the revised Code (previously Principle 3) contains a greater focus on workforce engagement together with a need for boards to take into account climate change when considering the company’s ability to deliver shareholder value over the medium to long-term.  Social and environmental issues must be integrated into the company’s strategy, risk management and business model.

Composition of the board – the previous provisions on the composition of the board have moved from the back end of the code into Principle 6, together with a list of factors which may impede the independence of non-executive directors e.g. length of board tenure; size of shareholding; prior and/or current commercial or contractual relationships with the company or with executive directors and significant incentive pay arrangements beyond a director’s fee.

Diversity is also mentioned in Principle 6 requiring boards to reflect on their own levels of diversity to ensure it has the necessary knowledge and skillset but avoiding groupthink. Whilst there is no mention of quota’s for gender or ethnic minority representation on boards, the Code states that consideration should be given to factors such as socio-economic background, nationality, educational attainment, gender, ethnicity and age.

Succession and contingency planning – Principle 8 (previously 7) has been extended to refer to contingency planning for the absence of key staff.

Environmental and social considerations – this is a key theme which permeates throughout the revised Code.  Board needs to provide quantitative and qualitative reporting of a company’s environmental and social matters to meet investor needs and expectations.

Remuneration – this is new to the Code (Principle 9) but echoes the QCA’s guidance on remuneration published in 2000.  Remuneration policies should align with the company’s purpose, strategy and value.

The revised Code is likely to be welcomed and reflects evolving areas of focus and wider investor expectations. Unfortunately, the Code is not freely available on the QCA’s website but can be purchased online.