The new UK Corporate Governance Code’s
emphasis on boards’ behaviours, rather than simply processes, will
be the key to constructive change, according to KPMG UK.

The new Corporate Governance Code was released
by the Financial Reporting Council this week to replace the
Combined Code.

KPMG associate partner Tim Copnell said the
code recognises that rules alone won’t change anything.

“The key to corporate governance is how the
board itself behaves and the direction it sets from the top,”
Copnell said.

“The focus on behaviours means that governance
will necessarily become more personal. The introduction of
externally facilitated board evaluations, dedicated support for
non-executive directors and a greater emphasis on training for
non-executives are all sensible enhancements that should help
directors and the board as a whole operate more effectively.”

 

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Negative effect

The one change KPMG is not pleased with is the recommendation
that all FTSE 350 directors be subject to annual election by
shareholders.

“It may augment personal accountability, but
boards and shareholders alike should take care to ensure it doesn’t
have the unintended consequence of driving short-term behaviour,”
Copnell said.

The new Corporate Governance Code will be
effective for financial years beginning on or after 29 June and
apply to all companies with a premium listing of equity shares.

A premium listing means a company is expected
to meet the UK’s highest standards of regulation and corporate
governance in order to attract a lower cost of capital due to
greater investor confidence.