[Last updated: 1 August 2024, unless otherwise noted]

Market expectations

Investors will normally expect a company to maintain a minimum standard of corporate governance after listing. The investment bank(s) advising on the listing will therefore often recommend that the company appoints one or more independent non-executive directors to the board of directors of the company. The process of ensuring that the company's standards of corporate governance are acceptable to investors may also require that the company adopt new constitutive documents and/or establish audit and/or remuneration committees, to the extent not already in place.

Annual corporate governance statement

A company listed in the ESCC category, regardless of where it is incorporated, must state in its annual report and accounts whether or not it has complied with the UK Corporate Governance Code (the Code) and explain and justify any non-compliance. The Code consists of principles of good governance, most of which have their own set of more detailed provisions which amplify the principles. The principles deal with the following areas:

• Board Leadership and Company Purpose.
• Division of Responsibilities.
• Composition, Succession and Evaluation.
• Audit, Risk and Internal Control.
• Remuneration.

The Code includes provisions relating to board or committee structure and the independence of directors.

Whilst there is no separate guidance on how the Code applies to group companies, there is nothing to stop Code compliant companies extending their corporate governance practices throughout the group which can be done through effective communication of the parent company's purpose, values and strategy.

A company with a listing of equity shares on the Main Market, in a category other than the ESCC, must include a corporate governance statement in its directors' report as a specific section of the directors' report. The corporate governance statement must contain a reference to:

• The corporate governance code to which the company is subject.
• The corporate governance code which the company may have voluntarily decided to apply.
• All relevant information about the corporate governance practices applied beyond the requirements under national law.

A company complying with the first or second bullet above must state in its directors' report where the relevant corporate governance code is publicly available and, to the extent that it departs from that corporate governance code, explain which parts of the corporate governance code it departs from and the reasons for doing so.

A company complying with the third bullet above must make its corporate governance practices publicly available and state in its directors' report where they can be found.

If a company has decided not to apply any provisions of a corporate governance code referred to under the first or second bullet above, it must explain its reasons for that decision.

The corporate governance statement must also contain a description of the main features of the company's internal control and risk management systems in relation to the financial reporting process and a description of the composition and operation of the company's administrative, management and supervisory bodies and their committees.

In addition, the corporate governance statement must contain a description of the diversity policy applied to the company's administrative, management and supervisory bodies with regard to aspects such as, for instance, age, gender, or educational and professional backgrounds, and the objectives, implementation and results of the diversity policy. If no diversity policy is applied by the company, the corporate governance statement must contain an explanation as to why this is the case.

On 20 April 2022, the FCA published a policy statement (PS22/3) setting out its final policy decision on proposals set out in a consultation (CP21/24) launched in July 2021 to improve transparency on the diversity of listed company boards and their executive management teams. The measures implemented were broadly similar to the proposals on which the FCA consulted and apply to accounting periods starting on or after 1 April 2022, meaning that the new disclosures should appear in annual financial reports published from around Q2 2023 onwards.

The consequent Listing Rules and Disclosure Guidance and Transparency Rules (Diversity and Inclusion) Instrument 2022 amended:

• the Listing Rules (LRs) to require UK and overseas companies with equity shares, or certificates representing equity shares (such as GDRs), admitted to the FCA's Official List, including closed-ended investment funds and sovereign-controlled companies to publish annually:
  • a 'comply or explain statement' on whether they have achieved the required board diversity targets as at a chosen reference date within their accounting period and, if they have not met a target, their reasons for not doing so. The diversity targets require: (1) at least 40% of the board are women; (2) at least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is held by a woman; and (3) at least one member of the board is from a minority ethnic background (which is defined by reference to categories recommended by the Office for National Statistics (ONS) excluding those listed, by the ONS, as coming from a White ethnic background);
  • -numerical data on the sex or gender identity and ethnicity diversity of their boards, senior board positions and executive management as at the reference date selected for the purposes of the 'comply or explain statement'; and
  • an explanation of their approach to collecting the data used for the purposes of these disclosures; and
• the Disclosure Guidance and Transparency Rules (DTRs) to require UK companies admitted to UK regulated markets and, through the LRs, certain overseas listed companies (subject to existing exemptions for small and medium companies) to require a company's disclosure on its diversity policy (where it has one) includes the company's remuneration, audit and nomination committees and also covers broader aspects of diversity, such as ethnicity, sexual orientation, disability and socio-economic background.

The requirements in this section 5 are substantially the same for domestic and foreign companies.