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FRC to focus on the quality of explanations given for non-compliance with the UK Corporate Governance Code

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05 May 2015

The Chairman of the Financial Reporting Council (FRC), Sir Win Bischoff has highlighted, at a recent governance event, that the FRC will conduct “further work” to monitor the quality of explanations made by companies that choose not to comply with aspects of the UK Corporate Governance Code.

The UK has a ‘comply or explain’ code-based approach to corporate governance which companies can follow by either complying with the provisions in the UK Corporate Governance Code or explaining why they have not complied in the annual report.

Speaking at a Governance event, Sir Win Bischoff commented:

I would like to remind both companies and investors that simply complying without giving due consideration to what is appropriate and relevant reduces the flexibility that this approach [‘comply or explain'] aims to achieve. To this end, further work will be conducted during the rest of this year to monitor reporting by companies on explanations given when they are not compliant with the Code.

A number of other areas of focus, consistent with the FRC Plan and Budget for 2015/16 were also highlighted including:

  • Culture and tone from the top.  The FRC will focus on assessing how effective companies are at establishing company culture and practices.  A number of roundtable meetings are scheduled to be held over the summer with stakeholders to “discuss and promote good Board practice in determining and ensuring appropriate culture”.
  • Investor Stewardship.  The FRC seeks an improvement in “the quantity and quality of engagement; for asset managers to be more accountable to their clients, who should in turn generate the demand for stewardship; and for proxy advisors to be more accountable for the quality of their advice”.  The FRC will work to influence the new EU Shareholder Rights Directive and work closely with the newly formed Investor Forum to “facilitate and stimulate engagement”. 

The full speech can be downloaded from the FRC website.

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