The UK Financial Reporting Council (FRC) published its annual Review of Corporate Governance Reporting, which found an improvement in the quality of reporting against the UK Corporate Governance Code. However, the report also found that too few companies are providing meaningful explanations.
A common theme throughout the report is the lack of disclosure in relation to the outcomes and impacts of governance policies and practices. Companies need to demonstrate within their reporting how their governance has been improved, the FRC news release said.
The FRC said it was also disappointed to see minimal disclosure about board engagement with major shareholders, with some companies simply stating that there had been meetings without providing further information on their engagement and its outcome. Such explanations are important to give investors and the public information that is “critical for market confidence and lowering the cost of capital”.
“In uncertain economic times, how companies govern themselves is more important than ever. The UK Corporate Governance Code continues to provide a clear and flexible basis to support better governance and well-run companies,” Sir Jon Thompson, the FRC’s CEO, said.
The FRC’s expectations for future reports include:
- Moving away from declaratory statements and providing specific disclosures.
- Providing clear and meaningful explanations when departing from the code.
- Demonstrating how the company’s culture is aligned to its purpose, values, and strategy.
- Reporting on engagement with shareholders and stakeholders, and how their views have been considered.
- Making clear linkages in the report to policies or disclosures that relate to stakeholder matters.
- Reporting on diversity, including at a senior leadership level beyond recommended external targets.
- Explaining how the board or a board committee has reviewed the effectiveness of risk management and internal control systems.
- Reporting on how executive remuneration arrangements align with the company’s purpose, values, and strategy.
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