On 9th January 2020, the UK Financial Reporting Council published its Annual Review of the UK Corporate Governance Code. The Review reported against the 2016 UK Corporate Governance Code and assessed FTSE 100 ‘early adopters’ of the revised 2018 Code.
The top areas of non-compliance with the 2016 code were:
• 50% independent non executive directors on the board (B.1.2) – 17 companies in the FTSE 350
• Chair independence (A.3.1). – 17 companies in the FTSE 350
• Remuneration Committee membership (D.2.1) – 13 companies in the FTSE 350
• Chair / CEO split (A.2.1) – 12 companies in the FTSE 350
• Audit committee membership (C.3.1) – 11 companies in the FTSE 350
The Review found:
• Many companies are experiencing difficulties with defining purpose and what an effective culture means.
• There is insufficient consideration of the importance of culture and strategy,
• Limited reporting on diversity. Those companies that did report well had clear plans to meet targets – beyond just gender – and understood the long-term value of diversity.
• There is insufficient consideration of the importance of the views of stakeholders.
The FRC Review concludes that UK companies need to improve their governance practices and reporting. While changes to the 2018 UK Corporate Governance Code have raised the bar considerably and have led to some high-quality reporting, the FRC believes that greater focus is needed on longer term sustainability including stakeholder engagement, diversity and the importance of corporate culture.
The Review also noted that 28 chairs FTSE 100 companies had tenures in excess of 9 years and the FTSE 250 had 73 chairs with tenures in excess of 9 years and expected these percentages to significantly fall in 2010.
The Review can be downloaded click here