The new UK corporate governance Regime, also known as UK SOx, is in the final stages of the consultation period (13th September 2023), with a proposed application of the code starting from 1st January 2025.  

The new code places new reporting requirements on directors and brings more companies into scope. Some companies will need to review their current process to align with the reform, whilst others will need to start from scratch. In this blog, we look at four key components of change, and what it means for your organization.  

Audit, Risk & Controls 

There will be a greater focus on the audit committee as it must follow an Audit and Assurance Policy (AAP) and follow the new minimum standard. 

Companies must establish and maintain effective risk management and internal controls, whilst being able to report on them as required by the new code. Any emerging risks need to be identified and reported to show how they are being managed. 

Directors must conduct a thorough evaluation of the company's risk management framework, policies, and practices to identify any weaknesses or areas for improvement. They must ensure that risks are appropriately identified, analyzed, and mitigated to safeguard the company's assets, reputation, and long-term viability.  And in the case of weakness or vulnerabilities, directors must ensure they take appropriate steps to address issues promptly. 

This means firms must implement a program of continuous monitoring of risk and internal controls, placing a heavier burden on financial, audit and IT teams. A strong internal control system starts bottom up, so this burden will be felt deep into organizations. 


Division of Responsibilities 

The UK Corporate Governance Reform places a strong emphasis on evaluating how companies construct their boards to prevent 'over-boarding' and enhance transparency in director appointments. To address 'over-boarding,' companies must carefully assess the time commitment and workload of directors. This evaluation aims to ensure that directors do not serve on too many boards simultaneously, which could compromise their ability to fulfil their duties effectively. 

Moreover, companies are required to list all significant director appointments, providing stakeholders with clear visibility into the directors' other commitments. This disclosure fosters transparency and allows shareholders to assess potential conflicts of interest and understand how directors allocate their time and expertise across multiple organizations. 

By implementing these measures, the UK Corporate Governance Reform aims to enhance board effectiveness, promote accountability, and ensure that directors have sufficient time and focus to perform their duties diligently and in the best interests of the company and its stakeholders. 

Board Leadership  

The code requires the board to ensure necessary policies and practices are in place for the company to meet objectives. When reporting, the board needs to demonstrate that the company’s risk management and internal controls systems have been effective and report on any material weaknesses. In the event of any weaknesses being identified, the board must report these weaknesses promptly. Transparent reporting of material weaknesses helps build trust and confidence among stakeholders, while also signaling the board's commitment to addressing and rectifying any shortcomings. 

 
Composition, succession and evaluation 

The UK Corporate Governance Reform places a significant emphasis on promoting diversity and inclusion within corporate boards. The board's role extends beyond just meeting quotas and actively involves cultivating an environment of equal opportunity and fostering diversity among board members. 

By embracing diversity and inclusion as integral components of their governance approach, the code aims to create a more inclusive and dynamic environment, providing organizations with diversity of expertise and perspectives, leading to better corporate performance and sustainable long-term success. 


How to prepare 

The new Reform includes proposals to enhance board diversity, promote employee representation, address executive remuneration, strengthens risk management and internal controls, integrate ESG considerations, and emphasizes corporate culture and stakeholder engagement. 

The proposed changes in the aim to provide greater transparency and accountability in financial and non-financial reporting. Having strong internal controls will go a long way towards helping companies achieve compliance, but also promote greater organizational efficiency. 

Companies must review and update current procedures before the accounting period on or after 1st January 2025. By acting now, companies can ensure a smooth transition to the new code and implement the best, most cost-effective internal controls.  

A strong strategy, implementing controls by design and embedding the new procedures into the right company culture will not only significantly reduce your risk, but add value to your business, building investor confidence and demonstrate a firm commitment to ethical and responsible financial management. 

 

For more insight and guidance on how to prepare for the upcoming changes by reading our blog The significance of internal controls in the UK Corporate Reform’ Alternatively, speak to a member of the Fastpath team.