FRC targets governance code improvements

December 3, 2021

The UK’s accounting watchdog has reported general improvements in reporting against the UK Corporate Governance Code, but has called for improvements in several areas.

The Financial Reporting Council (FRC) said in its annual review of corporate governance that UK companies needed to raise the bar on disclosures such as board appointments, succession planning, and diversity.

The FRC found that increasing companies’ focus on reporting the effectiveness of their internal control and risk management systems would boost the level of confidence in control frameworks.

The regulator said greater clarity was needed on how companies apply the principles of the Corporate Governance Code, as well as better explanations when companies choose alternative options to the Code. The FRC said this would give stakeholders and investors “greater confidence in the quality of governance”.

Sir Jon Thompson, CEO of the FRC, said: “The best governance reporting offers transparency that goes beyond broad-brush declarations and sets out clearly and concisely how the Principles of the Code were applied and the nature of compliance with the provisions of the Code. This supports public confidence in business.

“As we emerge from the pandemic, companies should use this report’s examples of good corporate governance policies and reporting to deliver long term benefits for the company for all its stakeholders, the economy and society as a whole.”

High-quality governance was a top priority for all stakeholders, the FRC said in a statement announcing the review. It highlighted the government’s audit and corporate governance reform proposals – Restoring Trusting in Audit and Corporate Governance – as “an important next step” in improving governance standards.

In 2017, MPs called for a toughening up of UK governance rules. The House of Commons’ Business, Energy and Industrial Strategy committee said that directors should be required to take their corporate and governance and legal duties more seriously.