Corporate governance:
encouraging dialogue and participation

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How we govern our corporations plays a central role in the strength and health of our global economy.

Corporate Governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders' role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company's strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board's actions are subject to laws, regulations and the shareholders in general meeting.

Today, there is a growing dialogue among the different stakeholders about corporate governance and how it should evolve to cope with the increasingly dynamic and global nature of our capital markets. This dialogue is taking place against a background of legislative and regulatory change; the implementation of International Financial Reporting Standards around much of the world; an increase in the scope of audit and other internal control and risk management activities; and increased public scrutiny.

It is only with dialogue and the active participation of all stakeholders that the appropriate balance can be reached between:

  • strengthened central controls and fast local responsiveness;
  • effective risk management and the enduring need for innovation; and
  • the additional costs of new corporate governance and the value it seeks to protect and enhance.

The aim of this section is to help inform and stimulate that dialogue.

The viability statement: Finding opportunities in the new regulatory challenge
March 2015

A thoughtful response to the 2014 Corporate Governance Code’s new viability statement requirements could bring opportunities, including enhanced business resilience, a lower cost of capital, better understanding of risk appetite, and the potential for improved financial performance.

Our new thought leadership report The viability statement: Finding opportunities in the new regulatory challenge:

  • highlights the opportunities for companies if they develop a thoughtful response to the changes (whilst also meeting compliance obligations)
  • provides our views on some of the  issues boards and management need to consider
  • suggests actions companies should take to ensure they meet the new viability statement requirements in their 2015 ARAs.

Whistleblowing – change is coming
November 2014

The PCBS has published recommendations for enhancing corporate transparency, governance and integrity. Firms should consider their whistleblowing framework’s effectiveness, and whether their culture encourages employees to raise concerns.

News worth knowing: Corporate governance update
October 2014

Read the latest Corporate Governance update (496K, October 2014), including biennial growth in the UK Corporate Governance Code, closure on the going concern debate, and revisions made to the Code on executive remuneration provisions.

Out with the old, in with the new: Final report
September 2014

Provides insights about how companies have addressed regulatory and legal changes, and highlights how companies can build on the foundations of 2013 and do things better in 2014 (and beyond) using practical, actionable guidance.

Early refelctions: Out with the old, in with the new
June 2014

With compliance forcing quoted companies to include new information in their R&As, our preliminary review of December 2013 FTSE 350 annual reports looks at emerging themes, and how reporters implemented changes.

Download our preliminary findings.

Shareholder engagement and corporate reporting at a crossroads
February 2014

Corporate reporting changes which have been in the pipeline for several years have now become a reality. Annual reports and accounts of quoted companies will contain new information to comply with various codes and legislation - all introduced post the financial crisis to enhance corporate governance, stewardship and reporting.

The key question that now remains is whether the new information will be used by shareholders to further fulfil their stewardship role. Or could a lack of engagement lead the UK further down the path of more prescriptive regulation?

This publication examines these issues, looks at future developments which point to boards and investors having to up their game even further on how they effectively engage with each other and also highlights potential questions that investors could ask enabled by new and enhanced ARA disclosures.

Assessing the performance of the audit committee
January 2014

The Financial Reporting Council’s (FRC) Guidance on Audit Committees (revised in September 2012) provides guidance to UK listed companies on the composition, role and responsibilities of the audit committee. The Guidance aims to help boards of companies with a Premium listing of equity shares to implement the relevant provisions of section 3 of the UK Corporate Governance Code. The 2012 Guidance updates the previous Guidance issued in December 2010. The changes to the 2012 Guidance arise primarily as a result of the revisions to the UK Corporate Governance Code in September 2012. The revised Code and Guidance are effective for financial years beginning on or after 1 October 2012.

We have produced this checklist to help audit committees review their current activities against the Guidance and identify practices which could be improved. Company boards may also find this checklist useful as part of their review of the effectiveness of their audit committee.

Strategic Report for private companies
January 2014

Under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, all UK companies other than those that qualify as small companies) have to produce a Strategic Report. What is the impact of these Regulations for a private company? From a practical perspective, will the Strategic Report of a private company be any different from the business review it produced under s417 of the Companies Act 2006? This EY publication examines these issues and provides practical guidance for private companies to help them comply with the Regulations as well as enhance the quality of their Strategic Reports.

Assessing the effectiveness of the external audit process
November 2013

A customisable brochure and work tool to help audit committees assess and report on the external audit process.

Key features include:

  • suggestions of the evidence/indicators that audit committees could collate and review to make the assessment process robust and objective
  • questions audit committees should address to make the assessment process efficient and effective
  • the option to highlight text, add comments and write notes. This allows users to customise the tool to reflect the particular circumstances of the company and its audit, and annotate actions and/or report on progress.
  • the option for users to strikeout questions they consider less relevant, with space to add new ones.

Meeting the fair, balanced and understandable (FBU) challenge - Make your corporate reporting count
September 2013

This is a new requirement of the UK Corporate Governance Code, affecting reporting periods beginning on or after 1 October 2012. It poses a few challenges for listed company reporters: regulators have not defined exactly what they mean by FBU and no further guidance is likely. Management and the boards of listed companies therefore need to apply their own judgment to decide what FBU means to them and their company’s reporting.

In forming this view, we encourage listed companies to refer to existing helpful guidance issued by the Financial Reporting Council (FRC) and others on what makes for good corporate reporting.

Given the challenge facing companies, we reviewed the most recent ARAs of a few listed companies across a range of sectors, assessing key sections for their ease of understanding. We also attempted to assess the ARAs for their fairness and balance, whilst recognising that only company boards and management can truly judge this. We identified FBU indicators, drawing both on FRC publications and our own experience.

Our findings represent our own judgment of what makes for FBU reporting. Though not scientific, they offer insight for companies in terms of what they can do to enhance FBU in their reporting, to comply with the new requirements but also to enhance communication with shareholders.

Changes to communication and reporting for companies and auditors - what do companies and auditors need to start thinking about?
May 2013

This publication provides some practical guidance and considerations to help companies consider the requirements of the revised UK Corporate Governance Code for:

  • boards to confirm that the annual report and accounts is "fair, balanced and understandable
  • audit committees to provide information to shareholders (within a separate section of the annual report and accounts) on the significant matters considered in relation to the financial statements and how they were addressed.

Executive Remuneration

On the 25 April 2013, the Enterprise and Regulatory Reform Bill containing the Large and Medium-sized Company and Groups (Accounts and Reports) (Amendment) Regulations received Royal Assent. This includes the requirement for a binding vote on remuneration policy. However, details on policy implementation and reporting will be covered in secondary legislation, which is not expected to be finalised until June 201

Audit Committee reporting: enhancing trust and confidence in corporate governance

The Financial Reporting Lab (Lab) is an initiative launched just over a year ago by the Financial Reporting Council (FRC). Its aim is to help improve the effectiveness of financial reporting in the UK by facilitating a dialogue between companies and the investment community, and providing practical observations on reporting approaches that are considered to be helpful. It recently initiated a project to identify and help develop best practice audit committee reporting, in light of both new and existing provisions in the 2012 versions of the UK Corporate Governance Code (Code) and Guidance on Audit Committees (Guidance).

Briefing paper: Implementing the Sharman Panel recommendations

The Financial Reporting Council has published proposals for implementing the Sharman Panel's recommendations, including draft guidance on going concern 2013 (‘the Guidance’). The Guidance covers: Going Concern Assessment Process, Going Concern Assurance and Reporting on Going Concern.

Audit exemptions

A new UK statutory instrument exempts qualifying subsidiaries from a statutory audit if their parent companies meet certain legal requirements. Find out about the implications for your business.