Corporate governance update 2024: In detail
We outline the key changes made to the Corporate Governance Code and what this means for the profession.
The Financial Reporting Council (FRC) has published the 2024 Corporate Governance Code (the Code) following consultation. The supporting Corporate Governance Code guidance has also been published following review by the FRC’s stakeholder insight group.
The FRC have clarified that:
- The “comply or explain” principle offers flexibility and does not force a company to comply. It is preferrable to have a good explanation demonstrating sound governance rather than compliance with a specific Code provision that does not suit the company’s circumstances.
- The supporting guidance is not part of the Code but aims to assist understanding; the digital presentation should support more efficient updates.
Additionally, the role of the board is emphasized throughout the Code. For example, it is for a Board to determine what should comprise its material internal controls to reflect its specific company and business model.
The 2024 Code will apply to financial years beginning on or after 1 January 2025. The first reporting (excluding provision 29 on internal controls) will be from 1 January 2026. An additional transitional year has been offered to help companies implement the changes relating to internal controls.
ICAS responded to the formal Code consultation, and overall, we are pleased to see that the views of our members in business were taken on board.
Bruce Cartwright CA, Chief Executive at ICAS, said in a media statement:
“We support the FRC's approach to streamline changes to the new Corporate Governance Code. We believe this better balances governance needs and proportionate regulation.”
The main changes to the Code include:
1.Board leadership and company purpose (section one of the Code):
- A new Principle C - governance reporting should focus on board decisions and their outcomes in the context of the company’s strategy and objectives. Where the board reports on departures from the Code’s provisions, it should provide a clear explanation.
- Provision two has been amended to include that boards should not only assess and monitor culture, but also how the desired culture has been embedded.
2. Composition, succession and evaluation (section three):
- Principle J has been amended to promote diversity, inclusion and equal opportunity, without referencing specific groups.
- Provision 23 has been amended to reflect the fact that companies may have additional initiatives in place alongside their diversity and inclusion policy.
- References to ‘board evaluation’ have been changed to ‘board performance review’.
3. Audit, risk and internal control (section four):
- Principle O has been amended to make the board responsible for establishing and maintaining the effectiveness of the risk management and internal control framework.
- Provision 25 and Provision 26 have been updated to reflect the Minimum Standard: Audit Committees and the External Audit, and duplicative language has been removed.
- The new Provision 29 states that the board should monitor the company’s risk management and internal control framework and, at least annually, carry out a review of its effectiveness. This should cover all material controls, including financial, operational, reporting and compliance controls. This is effective from 1 January 2026.
- The board should provide in the annual report:
- A description of how the board has monitored and reviewed the effectiveness of the framework.
- A declaration of effectiveness of the material controls as at the balance sheet date.
- A description of any material controls which have not operated effectively as at the balance sheet date, the action taken, or proposed, to improve them and any action taken to address previously reported issues.
Overall, the new provision 29 builds on the existing provision in the 2018 Code. The effective date of this revised provision is from financial years beginning or after 1 January 2026. The main difference is the need for a declaration on the effectiveness of material controls.
4. Section five – Remuneration:
- Provision 37 has been amended to include that directors’ contracts and/or other agreements or documents which cover director remuneration should include malus and clawback.
- The new Provision 38 asks companies to include in the annual report a description of its malus and clawback provisions which includes:
- The circumstances in which malus and clawback provisions could be used.
- A description of the period for malus and clawback and why the selected period best suits the organisation.
- Whether the provisions were used in the last reporting period. If so, a clear explanation of the reason should be provided in the annual report.