It could be worse – the UK Corporate Government Code refresh

The recent furore over the ASX Corporate Governance Council’s draft Principles (see HERE) moved us to point out to the Council that the UK’s equivalent Code has recently been refreshed with a reduction in length from 37 pages to a mere 20 (compare that to the Councils voluminous 55 pages).

But we refrained from making any further comparisons because, alas, the UK may not be the model we should emulate, other than in terms of length. It, too, has become more prescriptive.

It makes a specific reference to the workforce, to ensure companies adequately engage it this stakeholder group via a director appointed from the workforce, have a formal workforce advisory panel, or have a designated NED considering workforce matters.

The UK code also suggests a maximum tenure for the chairman of nine years from the date of their first appointment to the board. The only exception to this prescription is  to facilitate effective succession planning, when the chairman’s tenure can be extended for a limited time.

The code descends into the nitty gritty of how executives should be paid by requiring (on an if not why not basis):

  • that rates of executive pension contributions should be the same as those of the workforce.
  • phased equity vesting or holding over a period of five years or more
  • Post-employment executive shareholding requirements for unvested and vested shares

While not part of the new code, supporting guidance intendedto “support directors and their advisors in applying the Code” (like the ASX’s “commentary”) also recommends:

  • Consideration of a limit on what is believed to be a reasonable reward for individual executives
  • provision for clawback (the recovery of incentives already paid) as well as malus (the forfeiture of unvested remuneration)

The UK’s Corporate Governance Code states that remuneration chairman must have served on aremuneration committee for at least a year. Delving, one would think, into management’s domain, the remuneration committee’s remit should also include a review of workforce pay.

So, if company directors of the ASX Corporate Governance Council have a problem with prescription, consider their counterparts in the UK.

The UK Code comes into effect from 1 January 2019. See the UK Code HERE.

© Guerdon Associates 2024
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