FRC to review corporate succession planning guidance next year

Out-Law News | 28 Oct 2014 | 3:36 pm | 1 min. read

The Financial Reporting Council (FRC) is planning to review its guidelines on corporate succession planning next year in response to investor concerns over the way some companies have been dealing with new appointments, according to press reports.

David Styles, corporate governance director at the body which oversees the UK Corporate Governance and Stewardship Codes, told the Financial Times that it planned to publish a discussion document next spring (registration required). He said that the idea was for companies to have a "clear and consistent policy" in place for appointments to the board and into senior management roles.

"Board succession planning and the quality of management are very important, and it is not just at chief executive level but throughout companies too," he said.

The idea behind succession planning is that it enables companies to identify and develop potential future board members or senior managers either in the short-term or in the longer term from amongst their existing staff. The FRC's existing guidance on board effectiveness states that the process should be "continuous and proactive"; resulting in a board that possesses "the appropriate range and balance of skills, experience, knowledge and independence".

In a document published this week, the UK government's Department of Business, Innovation and Skills (BIS) said that the FRC would begin a "research project" on board succession planning before the end of 2014. This project will consider a number of themes including board evaluation, investor engagement, strategic planning for future board appointments, talent management and diversity, BIS said.

"The FRC's stated aim for the project is to identify and spread good practice in succession planning and on the effectiveness of board nomination committees," said BIS. "We expect that this will include consideration, as part of the investor engagement theme, of how companies can effectively consult shareholders on board appointments."

"At this stage there can of course be no presumption that this work will necessarily lead to further amendments to the UK Corporate Governance Code, although we expect the FRC will consider this and other possible options, including the need for separate guidance in this area," it said.

The FRC is currently reviewing the 2014/15 interim accounts of UK retailer Tesco in order to "determine whether it should take regulatory action" after the company overstated its profits for the first half of the financial year. Criticisms of the retailer in the press have included the fact that it had no finance director in place between the departure of Laurie McIlwee in April and Alan Stewart taking up the role in September.