The 2024 edition of the UK Corporate Governance Code (the Code) came into force on 1 January 2025. The Code is split into five sections: Board Leadership and Company Purpose; Division of Responsibilities; Composition, Succession and Evaluation; Audit, Risk and Internal Control and Remuneration. The Code operates on a 'comply or explain' basis. The Code is applicable to all UK premium listed companies.
Many of the elements the FRC originally consulted on (eg, relating to ESG) were not included in the final iteration of the Code (although some of these considerations do feature in the newly updated guidance). The most prominent changes are in relation to Section 4, Provision 29 on risk management and internal controls which will come into force on 1 January 2026. However, there are changes that you will need to action now.
- Internal controls and risk management
Whilst the main change to the Code (Section 4, Provision 29) does not come into force until 1 January 2026, you should use the time to prepare. The board is already tasked with establishing the risk management and internal controls framework. However, from 2026, the board will also be tasked with monitoring and maintaining effectiveness and including a declaration of effectiveness in the company’s annual report. This is a significant shift in the board’s duties and companies should use this extra year to take stock of current frameworks and consider future opportunities (including potential for automation). The FRC has expressed that it is for boards to decide what constitutes a material control for their company. - Outcomes-focused reporting
New Section 1, Principle C of the Code will require governance reporting to focus on ‘board decisions and their outcomes in the context of the company’s strategy and objectives’. This is in-keeping with the Code’s wider principle of comply or explain. Boards will not only have to assess and monitor company culture, but also describe how it has been embedded in the business. - Composition, succession and evaluation
- Section 3 has been revised to remove references to specific groups and characteristics when promoting diversity, equity and inclusion, allowing companies more flexibility in this space.
- ‘Board evaluation’ is now termed ‘board performance review’
- Remuneration
Section 5 requires malus and clawback provisions to be included in director contracts and other agreements covering director remuneration along with explanations of malus and clawback provisions in the annual report. - Guidance to the Code
The Code’s guidance is now consolidated into a single digital document that will be updated as and when required.
