Financial Reporting Council seeks additional powers to enforce corporate governance rules

Following his recent evidence to the BEIS Select Committee inquiry into corporate governance, FRC Chief Executive Stephen Haddrill has written to the Committee setting out the FRC’s recommendations and how they could be implemented. These are specific proposals which go beyond many of the options set out in the Government’s recent green paper on corporate governance reform and include the following:

  • the extension of the FRC’s powers to secure information to enable it to test the quality of corporate governance information and companies’ explanations for non-compliance with the UK Corporate Governance Code and take action as a result. At present, the FRC only has powers to monitor the strategic report and financial statements.
  • improving the operation of Section 172 Companies Act 2006 (the duty of directors to promote the success of the company). The FRC suggests amending the UK Corporate Governance Code or Strategic Report Guidance to require companies to disclose in their annual report how they have gone about taking account of the interests of stakeholders. The FRC considers that there is also a case for a similar requirement to be placed on private companies but this would require a change to the Government’s regulations on corporate reporting.
  • a government review of the enforcement framework to hold directors and other in senior positions more effectively to account when they fail in their responsibilities.
  • the development by the FRC of a corporate governance code for private companies. Regulatory underpinning would be needed to require adherence to such a code and public reporting on how that had been achieved or an explanation of why it is not appropriate to do so.
  • the development by the FRC of a code of conduct for directors, sitting alongside the codified duties in the Companies Act 2006, covering ethical duties. A statutory provision would need to be put in place to enable oversight by the FRC of directors subject to the code. Alternatively, the directors’ disqualification regime under the Company Directors Disqualification Act 1986 could be extended.