Companies face new reporting and governance targets

Companies have been urged to improve their corporate reporting and governance practices in a new report from the Financial Reporting Council.

The FRC published its Annual Review of the UK Corporate
Governance Code on Thursday (9 January) with a list of recommendations for
businesses. It said that a greater focus on longer term sustainability,
stakeholder engagement, diversity and corporate culture was needed to improve
business standards, in a statement accompanying the report.

According to the watchdog, the code has been updated to “build
trust by forging strong relationships with key stakeholders”. Specifically, it
called on companies to enhance long-term sustainability by aligning purpose,
strategy and culture and by promoting integrity and valuing diversity.

“While there are examples of high quality governance
reporting from ‘early adopters’, looking ahead we expect to see much greater
insight into governance practices and outcomes reporting on a range of key
issues from diversity to climate change,” said Sir Jon Thompson, chief
executive of the FRC.

“Concentrating on achieving box-ticking compliance, at the
expense of effective governance and reporting, is paying lip service to the
spirit of the code and does a disservice to the interests of shareholders and
wider stakeholders, including the public.”

Thompson said that in instances where companies do not
comply with the code, they will need to give more “compelling explanations” and
outline why their chosen approach is more suitable to their company.

This is the toughest guidance yet issued from the FRC on governance.
The watchdog hopes that the new requirements will ensure that investors benefit
from greater transparency, while companies will have a better understanding of
risks and the need for any mitigating actions.

To date, the FRC warned that “a small number of companies” have continued to make insufficient explanations of why they have not met the governance code’s requirements on board composition.

The new guidance requires that companies more easily allow shareholders
to evaluate board effectiveness. In particular, it seeks to improve scrutiny of
boardroom decisions and how these decisions have led to sustainable benefits
for investors, employees and stakeholders more broadly.

Those interested in reading the full report, can do so at
the FRC’s dedicated webpage, here.