In November 2020, the Financial Reporting Council (FRC) published a review of the UK Corporate Governance Code. The Code was intended to provide an opportunity for companies to report to their stakeholders in a way that allows them to communicate high-quality information about the way in which their governance functions to deliver a company’s purpose and strategy. Although some companies have embraced this opportunity the FRC found that this was not consistent across the board. Some companies simply treat the Code as a box-ticking exercise. Where this happens, reporting is formulaic and companies do not seize the opportunity to meaningfully explain why they do not comply with its provisions.
The FRC expressed concern that some companies rely on the reporting process rather than substance.
The review also highlighted the need to demonstrate consideration of feedback to the board and outcomes, such as the influence on decision-making. In many cases, it was not clear how issues were raised to the board level, and how that then affected decision-making.
The FRC expects companies to improve in the following areas:
- Provide clear and meaningful explanations of how they achieve good governance standards in line with the flexibility offered by the Code.
- Clearly showing the impact of engagement with stakeholders, including shareholders, on decision-making, strategy and long-term success
- Provide better assessments of culture, including consideration of methods and metrics used
- Need to demonstrate commitment to diversity and inclusion through actions, such as improved succession planning and recruitment from diverse talent pools.