UK Government u-turn on planned corporate governance reform likely to result in uncertainty and delay the reform process

Bowing to pressure from the business lobby, on 16 October the UK Government announced it is shelving proposed legislation seen, hitherto, as a major plank in its plans for UK corporate governance reform.

Apart from opening the door for critics to point to another government u-turn, this development is likely to affect, and may delay, the FRC’s planned reform of the UK Corporate Governance Code. That said this announcement has been warmly welcomed by business and the London Stock Exchange, among others, who had been concerned that the proposals would be costly to implement and would further diminish the attractiveness of London compared to other capital markets.

Specifically, The Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023, subjecting large companies with at least 750 employees and annual turnover of at least £750m to make significantly greater levels of detailed disclosure, will be shelved. Whilst the proposed legislation was aimed at larger companies, it might have had a wider reach. FRC proposals to reform the UK Corporate Governance Code, if adopted, would have extended the ambit of some proposed new legislation and regulation to all Code companies, regardless of their size (please see our September Newsletter for more details).

In our response to the FRC consultation on its proposed Code changes we put forward our view that such an extension was inappropriate, was contrary to the principle of proportionality and was likely to increase the burden of compliance for many companies ill-equipped to bear it.

The Government has promised ‘a wider package of reform from the Government to streamline and simplify regulation for businesses’ but this latest announcement from the UK Government is likely to create uncertainty and more delay to the process of governance reform. We support a simpler and proportionate approach to regulation and governance and will be watching developments carefully.

Please contact Paul Norris for more information or to discuss anything arising from your reading of this note.

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