Last week, we were delighted to host a breakfast roundtable with the Financial Reporting Council at our offices. Maureen Beresford (Head of Corporate Governance), Jessica Dahlstrom (Senior Manager, Corporate Governance) and Emily Duncan (Head of Stakeholder Engagement) from the Financial Reporting Council joined a small number of company secretaries and general counsels from our FTSE 100 and 250 clients to discuss the FRC’s recently launched consultation on proposed amendments to the UK Corporate Governance Code.
This is the first time since the Code’s launch in 2018 that it has been reviewed and whilst the proposals are primarily focused on implementing the UK Government’s response to the White Paper, Restoring Trust in Audit and Corporate Governance, it also takes the opportunity to address some weaker areas of governance reporting, for example, around ‘comply or explain’ and the responsibilities of the Board around ESG and sustainability.
The discussion was lively, but thoughtful and considered, delving into the intricacies of the Code and the challenges that already exist for GCs, CoSecs and Boards, and exploring new ones that might arise from the proposals.
Our key takeaways from the discussion were:
- The proposed requirements are as much about changing behaviour as developing better quality reporting.
Unlike other reporting regulations, the Corporate Governance Code is first and foremost designed to shape the behaviour of the largest UK companies and their boards, pushing them to achieve the highest standards of corporate governance with the view of building trust with key stakeholders. It follows that if companies are behaving in the right way and doing the right things, then the reporting of that information should, arguably, be less challenging. - However, striking the right balance between the costs and benefits of new requirements continues to be a challenge.
Assessing the costs and benefits of any new regulation or code continues to be a challenge. How much will it cost companies, both in terms of time and money, to implement the refreshed principles and provisions of the Code? These costs need to be balanced with an assessment of whether decision-useful information will be used by the ultimate end users (in this case, predominantly the investment community and proxy advisors) or will it simply add more pages of unused information to the annual report? - There is a high risk of information overload - how is that going to affect how companies report?
More and more companies are also producing annual reporting suites, hiving off information to standalone, subject specific reports. Additionally, there is an increasing amount of key governance topics, such as section 172, stakeholder engagement, culture and risks, that crossover with topics covered in the strategic report. Is it time to start rethinking the traditional, accepted structure for the annual report and broader reporting suite? Can the sections of an annual report be reordered so that the governance report comes first? Can the separation between the governance and strategic report be removed, producing one, holistic report encompassing both? Is it time for regulators to embrace digital communication channels and allow companies to provide more information on the website?
The FRC expect to publish the finalised Corporate Governance Code by the end of the year.
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