The revised Code has been welcomed by investor bodies and other interested organisations as a step in the right direction, given its emphasis on the importance of corporate culture and diversity, the need for companies to engage with all their stakeholders, including their workforce, and the requirements for executive remuneration and workforce policies to be aligned with the company’s strategy and value. In its shorter and sharper format, the revised Code will require boards to think more holistically about how they apply its Principles and it should force companies to move further away from undertaking a box-ticking exercise when reviewing their compliance with the Code.
Smaller companies below the FTSE 350 may find removal of the exemptions in the current Code tricky to deal with initially but, given the proposed implementation date of the revised Code, those companies should have time to put in place arrangements to ensure that they can meet the new requirements when they are implemented.
Companies will have to consider in good time how they propose to gather the views of their workforce. The revised Code sets out the three options proposed in the Government’s response to its Green Paper but the revised Guidance makes it clear that these are not the only possible methods and that boards should be open to innovative alternatives if they believe these would be as or more effective. The Guidance comments that provided the method chosen delivers meaningful, regular two-way dialogue and a means of listening to the workforce, then the Code requirement will be met.
The proposals generally require greater disclosure by boards around decisions they are required to take. This includes more information in the annual report about the remuneration committee’s activities and its decision making-process, as well as explanations of how the board has engaged with its workforce and other stakeholders and how their interests and the matters in section 172 have influenced the board’s decision-making. Boards need to start thinking about how they record that engagement and influence throughout the year to enable them to meet the new requirements.