The Financial Reporting Council (the “FRC”) has published its Annual Review of Corporate Governance which found that there was a general improvement in reporting against the UK Corporate Governance Code.
The report highlights areas of high-quality reporting, however, the FRC believes there is still room for further improvement in areas such as substantive disclosures on Board appointments, succession planning and diversity. The report also found that more focus on reporting the effectiveness of internal control and risk management systems would enhance the level of confidence in the company’s control framework.
The FRC state that there continues to be a need for greater clarity as to how a company is applying the Code’s principles as well as clearer explanations where there are departures from the Code so that shareholders and stakeholders have greater confidence of the quality of governance.
The review highlights, now more than ever, the continuing need for high quality governance which is linked to effective decision-making by company’s Boards and management.
To support improved reporting the FRC have reiterated their expectations of last year and, where relevant, introduced new expectations to support findings of this year’s assessments:
- Greater attention to the alignment between reported good governance and company practices and policies, strategy and business models.
- Increased focus on assessing and monitoring culture by using different methods and metrics.
- Better reporting of succession planning, and how this links to assuring the make-up of the board and delivering diverse challenge.
- Improved reporting on outcomes and actions, rather than declarations or statements of intent without detail.
- Increased focus on assessing and ensuring the effectiveness of the risk management and internal control systems.
- Better explanation of how executive remuneration is aligned to a company’s purpose, values and strategy.
The FRC has also asked companies to be clear about:
- Departures from Provisions and provide a detailed explanation.
- Engagement with shareholders and the workforce in relation to remuneration, and the impact on remuneration policy and outcomes.
- The impact of engagement with stakeholders, including any areas where the company failed to meet targets.
- The impact of engagement with stakeholders, including shareholders, on decision-making, strategy and long-term success.
- Explaining diversity policies with objectives and targets and demonstrating their connection to company strategy.
- The relationship and level of oversight between the board and committees.
A link to the full report is available here