A sample of 100 companies drawn from the whole premium listed market was reviewed. The comprehensive report presents the findings from the review and sets out the FRC’s expectations for the future application of the UK Corporate Governance Code ("the Code") and reporting.

The report highlights areas of high-quality reporting, but also draws attention to improvement needed in areas such as disclosures on board appointments, succession planning and diversity. The report also found that more focus on reporting the effectiveness of internal control and risk management systems would enhance the level of confidence in the company’s control framework.

In last year’s review of corporate governance reporting, the FRC expressed its disappointment in the way that companies had met the new 2018 Corporate Governance Code. This year it identifies a general improvement in reporting. The review highlights the continuing need for high quality governance which is linked to effective decision-making by Boards and management and for greater clarity as to how a company is applying the Code’s principles and clearer explanations where there are departures from the Code provisions so that shareholders and stakeholders have greater confidence in the quality of governance.

The review starts by making clear that the FRC believe that good reporting is characterised by clear and consistent explanations, supported by real-life examples of application and cross-referencing between related initiatives and sections.

The report reiterates expectations set out in last year’s review and, where relevant, introduces new expectations to support the findings from this year’s assessments of governance reporting. There should be:

• Greater attention on the alignment between reported good governance and company practices and policies, strategy and business models.
• Increased focus on assessing and monitoring culture by using different methods and metrics and providing clear evidence of a feedback loop.
• Better reporting of succession planning, and how this links to assuring the make-up of the board and delivering diverse challenge.
• Improved reporting on outcomes and actions, rather than declarations or statements of intent without detail, e.g. reporting on the performance of particular decisions, which may come in the form of key metrics supported by narrative or case studies. Statements in relation to climate commitments are an example of where detail is required.
• Specific disclosure of the governance structure (who and what) and processes (how and when) in place to manage risk that clearly demonstrates the way that the company identifies, monitors and mitigates risks.
• Better explanation of how executive remuneration is aligned to a company’s purpose, values and strategy.

In addition, the FRC draws attention in particular to ensuring clarity in the disclosures of:

• departures from any Code provision and supporting explanation;
• engagement with shareholders and the workforce in relation to remuneration, and the impact on remuneration policy and outcomes;
• the impact of engagement with stakeholders, including shareholders, on decision-making, strategy and long-term success;
• where suppliers are identified as a key stakeholder group, the methods utilised for engagement with suppliers to reduce risks and ensure continuity of supply;
• how the board has assessed the level of climate-related risk and, as a result of that assessment, oversees climate-related risks, as well as other committees and initiatives involved in the decision-making process;
• diversity policies together with objectives and targets and demonstrating their connection to company strategy;
• the process for how the board has determined the company’s risk appetite and the risk appetite for each of the company’s principal risks; and
• the outcome of the review of the risk management and internal control systems.

A press release and the full report are available on the FRC website. An FRC podcast is available here.