FRC criticises inconsistent corporate governance reporting

Watchdog highlights widespread box-ticking by UK plc

FTSE-listed companies are treating corporate governance as a box-ticking exercise and failing to meet stakeholder expectations in their reporting, according to the Financial Reporting Council (FRC).

The FRC’s Review of Corporate Governance Reporting 2020 revealed a general inconsistency and that companies were not provided high quality and transparent evidence.

It found corporate governance reporting was failing to live up to stakeholder expectations, based on a random sample of 100 companies, drawn from the FTSE 100 and 250, and small caps.

For example, many companies stated the importance of diversity at board level and in the succession pipeline but offered little explanation on what they were doing to deliver it.

The regulator said that while it was pleased to see better reporting on stakeholder engagement, it was concerned that some companies continue to reply on the reporting process rather than substance.

In many cases, it was not clear how issues were raised to the board level and how that then affected decision-making.

The FRC has set out expectations for improvement in a number of areas.

It wants companies to provide clear and meaningful explanations of how they achieve good governance standards in line with the flexibility offered by the revised UK Corporate Governance Code.

Companies should clearly showing the impact of engagement with stakeholders, including shareholders, on decision-making, strategy and long-term success.

They should also improve assessment and monitoring of culture, including consideration of methods and metrics used, as well as demonstrate a commitment to diversity and inclusion through actions, such as improved succession planning and recruitment from diverse talent pools.

Jon Thompson, chief executive of the FRC, said: “Today’s review highlights many examples of excellent reporting but it’s clear that some companies are continuing to take a formulaic approach to corporate governance driven by compliance, rather than focusing on outcomes, supported by high quality and transparent evidence.

“This review sets out clear expectations to address where company reporting falls short, so that it can better meet the interests of not only a company’s shareholders but its wider stakeholders as well.”

Last Updated: 27 November 2020
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