The Financial Reporting Council (FRC) has published its annual review of the UK Corporate Governance Code. In doing so, it urged firms to enhance their governance practices and reporting in order to demonstrate their positive impact on the economy and wider society.

What have firms been told to do?

The independent regulator said that while the bar had been raised ‘considerably’ by alterations to the 2018 UK Corporate Governance Code leading to some high-quality reporting, there was a need for more emphasis to be placed on longer-term sustainability.

Such a sustainability focus, the body said, needed to encompass such matters as stakeholder engagement, diversity and the importance of corporate culture, and that it expected these changes to ‘take time to bed in’.

The UK Corporate Governance Code was updated to aid in building trust in business by forging strong relationships with key stakeholders. It urged firms to align purpose, strategy and culture in addition to promoting integrity and valuing diversity as part of a focus on long-term sustainability.

The FRC’s annual review looked into reporting against the 2016 Corporate Governance Code and assessed FTSE 100 ‘early adopters’ of the modified 2018 Code. This revised Code came into force in 2019, with all premium listed companies set to report against it in 2020.

Some eye-catching highlights in the FRC’s analysis  

The regulator said it had found some good examples of reporting by firms that were increasingly using incentives relating to non-financial matters and embracing a longer-term strategic perspective.

Many companies, however, were evidently grappling with defining purpose, and what an effective culture means, the body criticising some firms for ‘substituting slogans or marketing lines for a clear purpose’.

The FRC added that the companies it examined were still insufficiently considering the importance of culture and strategy and the views of stakeholders. It said that in the wake of the regulator’s 2016 report on culture, organisations should be commenting on culture, in addition to outlining how they are monitoring and assessing it.

A lack of reporting on diversity also disappointed the regulator, which nonetheless said that “those companies that did report well had clear plans to meet targets – beyond just gender – and understood the long-term value of diversity”.

It was noted, too, that many firms described the use of engagement surveys as an effective means of gaining insight into employee engagement and culture. However, while the FRC said such surveys can be useful, it warned against the use of them in isolation, explaining that “companies must be able to demonstrate that the engagement methods used are effective in identifying issues that can be elevated to the board, and how this affects company decisions.”

Companies urged not to pay mere ‘lip service’ to the Code 

Chief executive of the FRC, Sir Jon Thompson, said of the review’s findings: “While there are examples of high quality governance reporting from ‘early adopters’, looking ahead, we expect to see much greater insight into governance practices and outcomes reporting on a range of key issues from diversity to climate change.”

“Concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting, is paying lip service to the spirit of the Code and does a disservice to the interests of shareholders and wider stakeholders, including the public.”

Are all aspects of your own organisation’s governance and reporting well aligned with the principles of the latest UK Corporate Governance Code, or would you possibly benefit considerably from the know-how in this area of our own experienced professionals here at London Registrars?

Either way, we would be delighted to talk to you about our wealth of company compliance services, to help to ensure that the most specific and demanding aspects of corporate governance are not a cause of headache to you and other stakeholders in your organisation in 2020. Simply email [email protected] or call 020 7608011 for further information.  

 

23 January 2020