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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | februari 2024
On 29 January 2024, the Financial Reporting Council (FRC) published guidance to accompany the updated UK Corporate Governance Code (2024 Code) which it published on 22 January 2024. The purpose of the Corporate Governance Code Guidance (Guidance) is to provide advice, further details and best practice examples to assist those using the 2024 Code, which includes links to relevant sections in the Guidance. For a link to our briefing on the 2024 Code and the Guidance, see here.
All changes in the 2024 Code, apart from those relating to Provision 29 concerning the risk management and internal controls framework, will come into effect for accounting periods beginning on or after 1 January 2025. In light of the new arrangements companies will have to put in place to be able to report against revised Provision 29, the effective date for reporting against that Provision is accounting periods beginning on or after 1 January 2026. Until then, Provision 29 of the 2018 UK Corporate Governance Code will continue to apply.
Format of the Guidance
The Guidance, which is not prescriptive or mandatory and does not form part of the 2024 Code, brings together and adds to relevant content from previous publications such as the FRC’s 2014 Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, its 2016 Guidance on Audit Committees and its 2018 Guidance on Board Effectiveness. It also includes links to other useful FRC guidance, reports or other publications on particular topics.
As a result, the guidance around the 2024 Code is now in one place, in a digitally accessible document which includes links to relevant sections of the 2024 Code. It is split into sections which are aligned with the 2024 Code, but also includes an Executive Summary and a new section covering good practice for the successful management of board committees.
Points to note in relation to the different sections include the following:
Executive Summary
This explains that the main purpose of the Guidance is to stimulate boards’ thinking on how they can carry out their role in governing their company effectively, but it is not to be used as a tick-box list of actions to be followed in all situations. Boards are reminded that they must determine the governance arrangements that are most appropriate to their company’s circumstances and where they cannot or choose not to comply with a 2024 Code Provision, then a cogent explanation should be provided.
Board Leadership and Company Purpose - Section 1 of the 2024 Code
Covering board decision-making, culture and engagement with shareholders and stakeholders, this section of the Guidance is broken down into a number of sub-headings, including Purpose, Strategy and Culture, with questions for board to consider included in many of those sub-sections.
Since new Principle C in the 2024 Code sets out the expectation that governance reporting should focus on board decisions and their outcomes to demonstrate the impact of the company’s governance practices, this section of the Guidance includes an “Outcomes” sub-section. This sets out questions for boards to consider in relation to company objectives, decisions taken to achieve those objectives, actions (taken and to be taken) in relation to the objectives and the impact of those actions on stakeholders and the company.
The theme of outcomes-based reporting is also picked up in other areas, including in relation to engagement with stakeholders where companies are urged to consider how they have addressed different stages in the engagement cycle, including engagement with suppliers.
Division of responsibilities – Section 2 of the 2024 Code
This section covers different board roles as well as board papers and the role of the company secretary in bringing information together. In addition, it includes a new section, Good Practice Guidance for the successful management of board committees”. This looks at the role of board committees generally and then at the role of each of the nomination, audit and remuneration committees. It also considers the role of both a risk committee and a sustainability committee (and includes questions for each of those committees to consider), noting that while the 2024 Code does not require these to be established, other regulations/rules may require particular companies to have such committees in place.
Composition, Succession and Evaluation – Section 3 of the 2024 Code
This section of the Guidance covers matters such as succession planning, board performance reviews, outcomes of board performance reviews and external board performance reviews.
The first part of the section focuses on the need for the right skillsets and breadth of perspectives on the board, as well as the importance of diversity and inclusion on both the board and in the executive pipeline. It includes links to examples of diversity initiatives for companies to consider.
Audit, Risk and Internal Control – Section 4 of the 2024 Code
This is the longest section of the Guidance, and it is split into a number of sub-sections covering these principal areas:
As a result, while the Guidance does not set out a framework companies should follow or define a material control, as this will depend on the nature of the principal risks a company faces, it does provide guidance on monitoring risk management and internal controls (at company and board level), on determining “material controls”, and at assurance via internal audit and external service providers to help the board satisfy itself that the framework is operating effectively. It also considers how boards should deal with improvements identified and board reporting in the annual report (on the effectiveness of the risk management and internal control framework, on the company’s principal risks and on the procedures in place to identify and manage emerging risks). The Guidance also looks at the declaration the board needs to make on the effectiveness of the framework and on the viability statement companies continue to be required to include in the annual report. In the context of risk management, there is also some guidance on cyber security for boards.
Remuneration – Section 5 of the 2024 Code
This section of the Guidance focuses on the role of the remuneration committee, and it looks at workforce remuneration, non-executive directors’ remuneration and the remuneration policy in particular, including the use of discretion and malus and clawback provisions.
(FRC, Corporate Governance Code Guidance, 29.01.2024)
(FRC, FRC publishes guidance for UK Corporate Governance Code 2024, 29.0`1.2024)
On 1 February 2024, the Financial Reporting Council published the results of a thematic review into the annual report and accounts of 20 UK private companies with revenues ranging from £1.5 billion up to £24 billion, employing between 1,000 and 145,000 people. The companies reviewed come from different sectors and comprised parent companies of privately owned groups which prepare consolidated accounts, subsidiary companies of overseas entities (being a mix of those that prepare an intermediate level consolidation and those that present only individual accounts) and subsidiaries of UK-listed companies which prepare individual accounts under FRS 101.
The particular areas of the annual reports reviewed were the strategic report, the presentation of primary statements including cash flow statement and supporting notes, revenue, judgements and estimates, provisions and contingencies, and financial instruments.
The FRC comments that the quality of reporting was mixed, particularly in terms of how clearly companies explained material matters that were complex or judgemental. Its key findings were as follows:
The FRC comments that many of the issues identified could have been avoided if a sufficiently critical review of the annual report and accounts had been conducted prior to finalisation. This includes taking a step back to consider whether the report as a whole is clear, concise and understandable, omits immaterial information and whether additional information is necessary to understand particular transactions, events or circumstances. It also includes a review for internal consistency and more detailed presentation and disclosure matters.
The report sets out areas of better practice and opportunities for improvement, as well as examples of good practice. Key expectations of companies are set out at the end of the report.
(FRC, Reporting by the UK’s largest companies – Thematic Review, 01.02.2024)
On 31 January 2024, the Public Offers and Admissions to Trading Regulations 2024 (Regulations) were published on legislation.gov.uk, along with an Explanatory Memorandum. The Regulations were made on 29 January 2024.
The Regulations, which are part of HM Treasury’s programme to deliver a Smarter Regulatory Framework for financial services, replace the Prospectus Regulation and create a new framework for the offering of securities to the public and the admission of securities to trading in the UK.
An illustrative version of the draft Regulations was published in December 2022 as part of the Edinburgh Reforms, to show how the powers introduced in the Financial Services and Markets Act 2023 would be used to deliver reforms to the UK’s prospectus regime. A near-final version was subsequently published in July 2023 for technical comments, alongside an explanatory policy note – see our Regulation Tomorrow blog.
The Regulations set out the framework for the new UK prospectus regime, including:
• Creating a general prohibition on public offers of securities, followed by a series of exceptions from this prohibition.
• Establishing a new regime for securities ‘admitted to trading’ on a regulated market or multilateral trading facility.
• Creating a new regulated activity of operating an electronic system for public offers of certain securities.
While Regulation 2 provides that Part 1 (introductory) and Part 2 (designated activities) of the Regulations come into force on 30 January 2024, the remaining provisions of the Regulations will come fully into force alongside the commencement of the repeal of retained EU law relating to prospectuses.
(Parliament, Public Offers and Admissions to Trading Regulations 2024 and Explanatory Memorandum, 29.01.2024)
On 31 January 2024, the Chartered Governance Institute published a guidance note which includes model terms of reference for a Sustainability or ESG committee that boards may decide to establish. Such a board committee is not a requirement of the UK Corporate Governance Code but, as the CGI notes, more such committees are being established.
The aim of the guidance note is to help ensure that a Sustainability or ESG Committee adopts good practice in accordance with other committee recommendations under the UK Corporate Governance Code. Companies can adapt the model terms of reference (and select the name of their committee depending on its remit) to suit their business needs and circumstances.
In particular, companies (and Sustainability and ESG Committees) are advised to consider the topics set out under ‘Remit’ in the model terms and the list of ‘Duties’ (section 8). These may need to be modified to reflect the specific issues most closely associated with, or material to, their individual business. Companies are advised to avoid overlap if these topics are covered by an alternative committee.
The guidance note with the model terms can be accessed via the CGI website
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