Corporate governance in the UK gets tick of approval

The Financial Reporting Council (FRC) has issued a report that is positive about the state of corporate governance in the UK. Although it notes that strict compliance with the corporate governance code has fallen to 90 per cent of FTSE 350 companies, the Developments in Corporate Governance and Stewardship 2015 report explains that the decline in strict compliance is a result of newly listed companies providing disclosures under the ‘comply or explain’ model as to why they have governance frameworks that differ from the code’s recommendations.

Indicating that this is a proper use of the ‘comply or explain’ model, which accommodates evolving processes in the life cycle of companies, the FRC’s tick of approval is due to these improvements in disclosure. The report notes that improved quality of explanations ‘demonstrates a more thoughtful approach to governance’.

The report also notes that the decline in strict compliance is due to companies explaining that they are waiting for the implementation of new EU audit requirements on audit retendering and rotation before finalising their arrangements in these areas.

While positive about the disclosures that companies are making in relation to gender diversity policies, the FRC notes that it is a disappointing how few companies make disclosures about broader aspects of diversity in the boardroom, such as race and experience.

Highlighting interest in the FRC’s proposal to name and shame investors that fail in their stewardship duties, the report points to investors needing to improve their disclosure. While the report notes some improvements in engagement between asset owners and managers and their investee companies, it notes that reporting against the stewardship code's principles ‘is of inconsistent quality’.

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