Company directors will be prevented from selling shares for up to five years under a new code of conduct for listed companies drawn up following Carillion’s collapse.
The Financial Reporting Council’s new code includes rules forcing directors to hold onto shares awarded through incentive plans for longer, and calls for companies to draw up stricter rules around executives selling shares after leaving the business.
The FRC’s code was composed in the wake of Carillion’s liquidation, following which it was revealed that former financial director Richard Adam had sold £800,000 in shares soon after leaving the company, and just months before its first profit warning.
The new code calls for executives who receive long-term share awards to be forced to hold them for at least five years, up from the current limit of three years.
It also advises that remuneration committees of all listed companies develop formal policies for post-employment shareholding, including when directors can sell shares after leaving a company.
The new code will apply from the beginning of next year and marks its first major overhaul since 2014.
Provisions in the code will not be mandatory but those firms that opt out will be required to explain to investors the reasons for their decision.
The remuneration changes were part of long list of other changes tabled by the FRC, including rules to improve engagement between boards and staff.
It recommends that firms appoint at least one worker to their board, create formal workforce advisory panels or task non-executive directors with overseeing workforce welfare.
If a board does not implement one or more of these methods, the FRC code instructs it to tell investors what alternative arrangements are in place and why the board considers these to be effective in ensuring worker welfare.
The code also proposes aligning pension payments of top executives with those of the workforce, and more stringent reporting by boards on the reasons behind executive bonus decisions.
In addition to the FRC’s update for listed companies, it is also drawing up another corporate governance code for large, privately owned firms.
The consultation for the new private code is being overseen by Wates chairman James Wates.
FRC chairman Sir Win Bischoff: “Corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital.
“To make sure the UK moves with the times, the new code considers economic and social issues and will help to guide the long-term success of UK businesses.
“This new code, in its new shorter and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.”