Accountancy watchdog reviewing UK Corporate Governance Code

The accountancy watchdog is to undertake a "fundamental review" of corporate governance as it aims to address concerns raised by Theresa May over the role of big business in British society.

The Financial Reporting Council (FRC) is to scrutinise the UK Corporate Governance Code - which sets out the principles of good company behaviour - as part of its response to a Government green paper.

The watchdog said it will highlight the importance of linking executive pay with performance and extending the FRC's enforcement powers to ensure disciplinary action can be taken against "all directors" where there have been financial reporting breaches.

This would put chief executives in the firing line and extend the FRC's remit of being able to sanction registered accountants and auditors.

FRC chairman Sir Win Bischoff said: "The Prime Minister has a vision of an economy that, in her words, 'works for everyone'. This needs UK businesses to thrive so that all stakeholders, including workers, customers, suppliers and society itself, benefit through jobs growth and prosperity.

"With all this in mind, we will conduct a review of the current UK Corporate Governance Code. This will consider the appropriate balance between the code's principles and provisions."

Responses to the Prime Minister's review of corporate governance are due on Friday, with issues such as excessive executive pay on the agenda.

The Investor Association, whose members own a third of the FTSE 100, is expected to submit proposals to ministers that would make a company automatically face a binding vote on its pay policy during its next annual general meeting if more than a quarter of shareholders vote against the directors' remuneration report.

Sir Win said: "In pursuing any changes, the current strengths of UK governance - the unitary board, strong shareholder rights, the role of stewardship and the 'comply or explain' approach - must be preserved. We must not throw out the baby with the bathwater.

"Any changes to the regulatory frameworks and to the code will be done carefully and through full consultation with a wide range of stakeholders."