UK ditches much of corporate governance revamp to focus on being competitive (updated)

Carillion

07/11/2023 13:09

(Adds government, IOD comments in paragraphs 13-16)
    By Huw Jones
       LONDON, Nov 7 (Reuters) - Britain has ditched much of a
planned new code of practice for companies drawn up after a
string of high-profile business failures, amid concerns tougher
rules might hit competitiveness. 
    Three government-backed reviews recommended beefing up
auditing and corporate governance standards after companies such
as builder Carillion, retailer BHS and cafe chain Patisserie
Valerie collapsed, leading to thousands of job losses.
    But the Financial Reporting Council (FRC) watchdog has faced
a backlash in London's financial centre, where critics argue
that toughening up its corporate governance code would knock the
hub's post-Brexit competitiveness as it vies with New York for
listings.
    The FRC held a public consultation on the planned changes to
its Corporate Governance Code, a form of 'soft law' that
companies apply on a 'comply or explain' basis.
    The Capital Markets Industry Taskforce, chaired by LSE CEO
Julia Hoggett, has described the code as "comply or else",
meaning it was a straitjacket.
    The FRC said on Tuesday it intended to publish a revised
code in January 2024, but there would be significant changes to
its 18 original reform proposals, with many ditched.
    In particular, it will avoid introducing internal controls
as rigorous as those faced by U.S. companies for ensuring
accurate financial statements.
    "The main substantive change we will take forward concerns
revisions to our original proposal on internal controls," the
FRC said in a statement. 
    "This includes allowing more time for its implementation and
ensuring the UK approach clearly differentiates from the much
more intrusive approach adopted in the US."
    Britain has already refused to introduce a UK version of the
tough "Sarbanes-Oxley" (SOX) rules in the United States that
require senior U.S. company officials to personally attest to
internal controls aimed at ensuring the accuracy of company
statements.
    Instead, the FRC had sought to introduce a "SOX-lite" regime
via the code, though it did not elaborate on Tuesday how its
original proposal would be rewritten.
    The FRC also said it would not take forward over half of its
original proposals for reforming the code, in particular those
relating to the role of company audit committees on
environmental and social governance, and modifications to
existing code provisions around diversity.
    Britain's financial services minister Andrew Griffith said
he welcomed the FRC's "pragmatic and proportionate changes".
    "The UK rightly enjoys a strong reputation for high
governance standards but it’s important that we don’t burden our
best and brightest companies to the extent that it’s not a level
playing field versus our international competitors," Griffith
said.
    Separately, the government indicated on Tuesday it would not
be bringing forward legislation to replace the FRC with a
stronger watchdog to help improve auditing standards, a core
recommendation from the reviews.
    "It appears that corporate governance is not seen as a vote
winner by politicians - despite the wide-ranging impact of the
collapses of companies like Carillion and BHS," the Institute of
Directors said in a statement.

 (Reporting by Huw Jones
Editing by Kirsten Donovan and Mark Potter)
 ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters
Messaging: huw.jones.thomsonreuters.com@reuters.net))