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Corporate governance and reporting: changes ahead for traded companies

  • United Kingdom
  • Corporate


June and July have seen a number of developments that will affect the corporate reporting and governance obligations of traded companies from 1 January 2019.

New disclosures required in annual reports

The final Companies (Miscellaneous Reporting) Regulations 2018 (“Regulations”) were published on 19 July, and will come into effect on 1 January 2019, applying to financial years commencing on or after that date.

A number of the changes will, depending on the size of company, apply to both public and private companies, including:

• the inclusion by ‘large’ companies1 of a ‘section 172 statement’ in the strategic report

• companies with over 250 UK employees will need to include an employee engagement statement in the directors’ report

• ‘large’ companies will also need to include in the directors’ report a wider engagement statement, summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others, and the effect this has had, including on principal decisions taken by the company

New corporate governance arrangements statement

In addition, large private and public companies which are not already required to make a corporate governance statement under the Disclosure and Transparency Rules, must include a corporate governance statement confirming which formal corporate governance code, if any, has been applied and how.

Companies on the premium or standard segment of the main market are required by the DTRs to provide a corporate governance statement, but this does not include companies on AIM, which will therefore be caught by the new requirement. In addition, subsidiaries of listed companies that meet the qualifying criteria will need to comply with the requirement to disclose their corporate governance arrangements. Further guidance can be found in the BEIS Q&A.

These changes are discussed in more detail in our briefing here.

Additional reporting requirements for quoted companies

- Pay ratio report

Quoted companies with more than 250 UK employees will be required to report on the 50th (median), 25th and 75th quartile pay remuneration of their UK employees. There is some flexibility in the options for identifying relevant employees and calculating the pay ratios. The information will have to be set out in the form of a table in the directors’ remuneration report.

- Executive pay share price reporting

Quoted companies will need to disclose in the remuneration report an illustration of the effect of future share price increases on executive pay, and how much of directors remuneration is attributable to share price growth.

For the purposes of the above, a quoted company is a UK incorporated company quoted on the UK Official List, New York Stock Exchange, NASDAQ or a recognised stock exchange in the EEA. It does not include companies on AIM.

There is some complexity in the new reporting requirements, and further guidance can be found in the BEIS Q&A.

New UK Corporate Governance Code

Following feedback on its consultation, the Financial Reporting Council (FRC) has published the 2018 UK Corporate Governance Code (the Code) which will replace the 2016 UK Corporate Governance Code. The new Code is shorter and adopts a principles based approach. It will apply to all companies whose shares are listed on the main market of London Stock Exchange for accounting periods beginning on or after 1 January 2019, so we will see the first reporting in 2020. Much of the new Code is the same as the version that the FRC consulted on in December 2017 (see our briefing here).

The FRC has also published revised “Guidance on Board Effectiveness” and a short ‘highlights’ document setting out key changes to accompany the new Code.

You can read some of the key details of the new Code in our HR briefing here.

One point to note is that the new Code has reinstated some of the exemptions for companies outside the FTSE 350 which the FRC had removed in the consultation draft, which could have led to smaller companies feeling obliged to meet criteria which they found unduly onerous.

In the new Code, the FRC has:

• limited the requirement for an externally facilitated board evaluation every 3 years to the FTSE 350, but all chairs should consider externally facilitated board evaluation (provision 21)

• retained the current position, of a minimum board membership of two independent NEDS for ‘smaller’ companies and 3 for the FTSE 350 for the audit and remuneration committees (provisions 24 and 32)

However, the ‘smaller’ companies exemptions for the annual re-election of directors (provision 18) and the requirement for at least half the board, excluding the chair, to be independent, have not been carried forward to the new Code. Companies will therefore need to prepare for these new requirements.

The FRC has stated that it will be appropriate for companies to report on provision 4 of the new Code, which relates to reporting on significant votes at shareholder meetings, during 2019. Provision 4 states that when 20% or more of votes have been case against the board recommendation for a resolution, the company should explain, when announcing results, what actions it intends to take to consult shareholders to understand the reasons behind the vote. An update should be published within six months, and a final summary included in the annual report of the impact the feedback has had on board decisions.

What about AIM Companies?

From 28 September 2018, new corporate governance requirements in AIM Rule 26 mean that AIM Companies must maintain on their website details of the corporate governance code that they have decided to apply, how they comply with their chosen code and an explanation of why where they depart from the chosen code (see AIM Notice 50).

It is expected that many AIM companies will adopt the QCA Corporate Governance Code for this purpose. An updated version of the QCA Code was published at the end of April 2018.

What else is on the horizon?

The FRC has said it will publish updated guidance on the strategic report by the end of July 2018 intended to assist companies with the new requirement to include a section 172 statement.

Whilst not specific to traded companies, feedback is also awaited on the Government’s consultation on improvement of the corporate governance of firms that are in or approaching insolvency, which closed on 11 June.

Finally, the FRC will be consulting on a revised UK Stewardship Code later in 2018.

Useful links

Companies (Miscellaneous Reporting) Regulations 2018

The Companies (Miscellaneous Reporting) Regulations 2018 - Frequently Asked Questions

New UK Corporate Governance Code

Revised UK Corporate Governance Code 2018 highlights

Guidance on Board Effectiveness


  1.  Broadly, this means companies which satisfy 2 of the following 3 criteria: turnover of more than £36m; balance sheet total of more than £18m; and more than 250 employees.