The FRC have published their annual review of the Corporate Governance Code (“the Code”), which considers the quality of reporting against the Code during 2021 together with the Council’s expectations for the coming year.
It is noted that companies have overall improved, particularly in the area of reporting on environmental and social matters.
Also identified within the report was that there has been an increase in declarations of non-compliance and therefore the FRC has reiterated that companies need to be clear as to the reasons for the departure from the Code by providing a full explanation. There has been a clear improvement in reporting on stakeholder engagement, but companies are now being asked to focus on the outcomes of such engagement. The report provides specific guidance to companies on how to improve reporting around suppliers, communities and modern slavery.
The FRC note that it is not sufficient for boards to simply state that they have reviewed the effectiveness of the organisations risk management systems, but that they should set a comprehensive description of the review process and be clear on any actions taken or to be taken as a result. There also continues to be concerns regarding what they see as inadequate disclosures around succession planning, with many disclosures focused on process rather than demonstrating consistency between plans, diversity & inclusion policies and strategy.
We welcome the FRC’s review. However, we think the market would find it helpful if the review were accompanied with some more practical guidance that not only addresses the quality of reporting, but also considers the impact of the ever-increasing quantum of reporting. We must wonder if in the coming months a revision of the Code is not in order to take account of recent recommendations from the Hill Review, the impending changes at the FRC and the new ESG reporting requirements.