FRC publishes report into developments in corporate governance and stewardship

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12 Jan, 2017

The Financial Reporting Council (FRC) has published a report providing an assessment of corporate governance and stewardship in the UK (“the report”). The report highlights the quality of compliance with, and reporting against, the UK Corporate Governance and Stewardship Codes, provides findings on the quality of engagement between companies and shareholders and provides an indication to the market as to where the FRC would like to see changes in corporate governance behaviour and reporting.

The report indicates that compliance with the UK Corporate Governance Code “remains high” but where Boards choose not to follow provisions “too many explanations are of poor quality”.  The report also indicates that the quality of reporting against the Stewardship Code has “improved substantially”.

Key highlights of the report, which is based upon a number of reports and surveys published by the FRC and others, include: 

Corporate Governance

  • 90 per cent of FTSE 350 companies comply with all, or all but one or two, of the UK Corporate Governance Code’s 54 provisions. Full compliance has increased from 57 per-cent to 67 per-cent.
  • Code provision B.1.2 which states that at least half the board (excluding the chairman) should be independent, remains the area of most non-compliance amongst FTSE 350 companies. Non-compliance in this area is, however, decreasing.
  • There was reduced investor support for remuneration resolutions with concern noted about a lack of transparency about the link between executive pay and performance.
  • The majority of FTSE 350 companies now have in place arrangements to enable them to recover or withhold variable pay. 91 per-cent have malus and/or clawback provisions on the annual bonus and 78 per-cent on long-term plans.  It is expected that other companies will introduce similar arrangements when their remuneration policies next go for shareholder approval.
  • The FRC’s initial assessment of viability statements “suggests that there is little variation in disclosures between business sectors” and a number of companies (in a sample taken by the FRC) only provided basic information. The FRC “encourages companies to provide more constructive reporting in line with the spirit of the Code, including a clear rationale for their choice of timeframe, what qualifications and assumptions were made, and how the underlying analysis was performed”.  The report provides some suggestions for viability reporting.
  • Companies are providing basic descriptions of their succession planning policies and companies may not be spending enough time considering board and senior management succession. The FRC indicates the need for nomination committees to play a more active role in aligning board composition with company strategy to ensure that the board has the required skills to ensure long-term success. 


  • The report draws attention to the FRC’s public assessment of signatories’ reporting against the Stewardship Code, published in November 2016, which demonstrated “much improved reporting against the Code and greater transparency in the UK market”.
  • The FRC expects “continuous reporting improvements from signatories” and encourages them to “consider whether their statements are clear and make revisions where necessary”.
  • The FRC will be considering how to encourage further improvements in reporting and possible revisions to the UK Stewardship Code in 2018. 

The full report expands upon these areas and also provides a summary of the FRC’s report into corporate culture that was published in July 2016.  Additionally the full report indicates where the FRC would like to see changes made to corporate governance behaviour and reporting. 

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