FINANCIAL REPORTING COUNCIL releases new UK CORPORATE GOVERNANCE CODE

Business Continuity Forum

The Financial Reporting Council has released its updated corporate governance code which builds and clarifies the responsibility on Listed companies.

The new code applies from 29 June 2010 and applies to those with a Premium Listing regardless of whether they are incorporated in the UK or elsewhere.

Sir David Walker was asked to review the governance of banks as well as other financial institutions following the financial crisis which came to a head  during 2008/9.

The Financial Reporting Council drew two principal conclusions from its review.  The first identifies that there needs to be much more attention paid by companies to following the spirit of the code, and that there needs to be enhanced interaction between boards and their shareholders.

The management of Risk is a central theme throughout the code and is acknowledged as an area that had previously not had sufficient focus. Throughout the New Code there are repeated references to how boards must think deeply and act with integrity on matters relating to Risk Management. It is acknowledged that this is a difficult challenge especially with the demanding nature of the different directors roles, but the Code does not pull its punches and makes the responsibility on the board clear and explicit.

The new UK Corporate Governance Code will doubtless reaffirm in the minds of executives just how important Risk Management is and we feel that there will be a need for a substantial amount of work in order to demonstrate effective compliance. One potential area of complication though will need some interpretation. Whilst the code principally applies to classic RM, the scope does extend considerably  the definition of Risk.   In addition, it appears from our initial reading that a wise board would include reporting on ALL Risk Mitigation and BCM measures in place. Whilst it is still too early to presume that this will be the case, if the intent of the Financial Reporting Council is to ensure better Governance then it is difficult to see how Business Continuity will not feature heavily.

Steve Fowler, Chief Executive of IRM has stated “the Code is highly influential in shaping the approach to governance by organisations, not only amongst its target audience of UK listed companies, but also on a wider basis. There is clearly work to be done now by boards to consider the implications of the new code.”

Russell Price, Chairman of the Continuity Forum comments “it is interesting to note that the New Code places a far greater emphasis  on the spirit of the code, and not just the letter. This will be an important feature for executives to understand, boards must now be seen to be acting reasonably with respect to the range of risks and their organisations face. I would expect as this message gets through especially to Chairman who may well now be facing annual re-election. We will have to see how things develop but this is clearly a major step forward in forcing companies to be far more proactive, engaged and communicative about their approach to Risk and Business Continuity Management.

 You can download the New Code here

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