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FRC: Quality of corporate governance in the UK remains high

THE OVERALL quality of corporate governance in the UK remains high, a report from the FRC has found.

According to the reporting watchdog, strict compliance with its corporate governance code, which operates under a ‘comply or explain’ system, has fallen to 90% of FTSE 350 businesses.

The fall, the FRC said, is the result of new entrants to the market explaining evolving governance, and companies deciding to await the implementation of new EU audit requirements on audit retendering and rotation.

Nevertheless, that has been accompanied by an improvement in the quality of explanations, which the FRC said demonstrates a more thoughtful approach to governance.

The FRC noted that while there has been “very good” progress on reporting of boardroom gender diversity policies, a disappointing number of companies make no reference to the broader concept of diversity including race and experience.

While there have been signs of “improved” engagement and “more purposeful” dialogue between large companies and investment managers, reporting against the stewardship code’s principles is of inconsistent quality.

It is hoped the FRC’s proposal to name and shame investors that fail in their stewardship duties will promote better engagement and ensure that asset owners and managers follow-through on their commitment to the code’s principles.

Senior corporate governance adviser at the IoD Oliver Parry said the FRC should “be applauded” for the high levels of compliance with its governance code, but warned of limitations to what compliance, on its own, can achieve.

“Measuring governance as well as defining it is much more difficult than just ticking boxes,” Parry said.

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