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FRC review of Corporate Governance Reporting

The Financial Reporting Council (FRC) has published its findings on the application of the 2018 UK Corporate Governance Code (the Code) together with advice on how to report transparently and effectively when departing from certain provisions.

The FRC’s monitoring suggests companies are more focused on process rather than reporting meaningfully on their application of the Code and explaining any departures from it. The FRC’s review highlights a need to improve how companies report on their purpose and culture, stakeholder engagement, diversity policies and succession planning.

The most insightful reporting not only described the initiatives that were being introduced and the processes that were followed, but also discussed their outcomes and what impact they had on the business and board decisions.

Reporting expectations for the year ahead

The FRC expects companies to:

Companies should also:

Next year the FRC will evaluate how well companies responded to the coronavirus pandemic.

Key findings

Code compliance

Culture, purpose and values

Tenure, Succession planning and Board evaluation

Diversity & Directors’ remuneration

Stakeholder (including shareholder) engagement

Companies should identify key stakeholders and explain their relevance in the context of their strategy. Companies should also identify key issues relating to each stakeholder group.

Companies should report on how the company has engaged with its key stakeholders and also the steps it has taken to understand the views and needs of its stakeholders, in line with Provision 5 of the Code.

The outcomes of stakeholder engagement should be reported, including why key decisions were taken, how stakeholder feedback helped inform decisions, future implications, and planned actions arising from feedback.

Companies should report a coherent narrative on the approach to measuring the performance of its stakeholder engagement strategies. When reporting on the performance of decisions, evidence should be given to support the statements made, which may be quantified (eg the decision generated x new jobs).

Companies should report on how the board oversees stakeholder engagement including how, and on what basis, stakeholder information is passed to the board, as well as how often the board reviews stakeholder engagement methods.

There should be meaningful engagement with suppliers and reporting on such engagements. The FRC encourages boards to regularly review prompt payment policies and address the supply chain dimension of the Modern Slavery Act.

Employee engagement

Environmental, Society and Community matters

Reporting non-compliance with the Code

For further information please speak to Lee Marshall.

authors:lee-marshall