Brian Cheffins writes:
The Financial Reporting Council has announced a fresh review of the UK Corporate Governance Code, indicating that it will strengthen and expand it. The FRC, likely to be absorbed soon into a new, more powerful regulator — the Audit, Reporting and Governance Authority (ARGA) — should bestow a wholly different parting gift: abolition of the code….
Much of what it says duplicates what is mandated elsewhere, particularly regarding boardroom audit committees and executive pay….In addition, “comply-or-explain”, long a hallmark of the code, does not function as anticipated. Premium listed companies can opt not to adhere to a code provision so long as they disclose the rationale. Expectations of compliance, however, make the benefits largely illusory. For years investor “box-ticking” has pushed listed companies toward blind or grudging adherence….the code is an inherently flawed stakeholder protection mechanism: enforcement depends upon shareholders lobbying for change when they deem deviations to be unsatisfactory. Shareholders may sometimes be stakeholder-friendly but most investors will treat maximising returns as their priority….The Financial Conduct Authority’s Listing Rules could be amended to mandate disclosure of high-priority corporate governance arrangements and allow tailored solutions….Ditching the code in favour of concise, governance-related disclosure requirements for listed companies would align UK corporate governance with modern regulatory trends.[Emphasis added]Don’t strengthen the UK corporate governance code — abolish it | Financial Times