Updated guidance from the UK Financial Reporting Council (FRC) on its corporate governance code is designed to help investors, proxy advisers, and other users of corporate reporting understand and appreciate the value of companies that choose to depart from the code.
The FRC said in a news release Monday that a thoughtful, well-reasoned explanation for departing from provisions of its UK Corporate Governance Code does not constitute a governance failure. The updated guidance is intended to help investors and advisers understand what to look for when reading a departure explanation and why a departure can be seen as an indicator of a board taking its governance responsibilities seriously, the release said.
“A well-reasoned explanation for departing from a provision is not a red flag — it is evidence of a board thinking seriously about what good governance means for their company,” FRC CEO Richard Moriarty said in the release. “The UK Corporate Governance Code is a global standard precisely because it offers companies the flexibility to govern in a way that suits their circumstances.”
The FRC’s guidance, according to the release, “acknowledges that a culture has developed across the community including both issuers and investors and their advisers that considers departures from the code suspiciously”.
A thoughtful departure, when explained clearly, is “frequently evidence of a more considered and sophisticated approach to governance than simple box-ticking”, the FRC said.
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