The Financial Reporting Council has published its latest Annual Review of Corporate Governance Reporting which finds ongoing improvements in the quality of reporting against the UK Corporate Governance Code, but also identifies areas where many companies are still falling short.
The review showcased high-quality and insightful reporting by some companies, with the FRC continuing to see more transparent reporting of departures from the Code, rather than simply stating compliance. However, explanations were often found to lack sufficient clarity and few companies reported to a consistently high standard.
The report also found many examples of boilerplate reporting using generic language that fail to meet stakeholder needs for meaningful explanations which demonstrate how alternative governance arrangements benefit the company and shareholders.
While risk assessment and internal controls have been a focus over the past year, little improvement was seen in the quality of reporting in these critical areas. More work is needed by most companies to demonstrate robust systems, governance and oversight.
However, the FRC was encouraged by the increased focus on workforce engagement and stakeholder reporting. It would now like companies to show how engagement has lead to high-quality outcomes by better reflecting on the feedback received and its impact on board decisions.
FRC executive director of regulatory standards, Mark Babington, concluded: “We are pleased to see clear progress made by some companies in providing transparent and insightful disclosures. However, more work is needed across the board to meet stakeholder expectations through clear reporting that provides genuine insights into governance outcomes and actions.
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By GlobalData“This is essential to properly apply the Code’s principles and the spirit of ‘comply or explain’. Good corporate governance disclosures builds trust and understanding, and is not just a compliance exercise.”
