On 26 November 2024, the FRC published its fifth annual Review of Corporate Governance Reporting, setting out key findings from an analysis of how a sample of FTSE 350 and Small Cap companies have reported during 2024 under the UK Corporate Governance Code 2018 (UKCG Code 2018) (FRC Press Release). The review highlights examples of good reporting and identifies areas for improvement to help companies navigate the transition to the revised UKCG Code 2024, which will largely apply to financial years beginning on or after 1 January 2025 (see FC Feature 22 January 2024). The review is the FRC's penultimate assessment of corporate governance reporting against the UKCG Code 2018, which will continue to apply to annual reports published in 2025.
The review emphasises the UKCG Code's flexibility and the continued importance of its 'comply or explain' approach, which allows companies to depart from provisions where appropriate, provided they offer high quality explanations that demonstrate good governance.
While the overall quality of corporate governance reporting remains strong, the FRC considers there is still a need for more concise, outcomes-focused disclosure (a key area of focus in the UKCG Code 2024) and enhanced reporting on risk management and internal controls. Other significant findings include those set out below.
- Code compliance – although fewer companies disclosed non-compliance with at least one provision of the UKCG Code 2018 this year, the review highlights that there is room for improvement in the quality of explanations for departures from the Code. The FRC supports departures where cogent explanations are given, which can provide additional insight into a company's governance.
- Risk management and internal controls – as in 2023 (see FC Feature 16 November 2023), the review focused on this area of reporting, which the FRC notes remains at an early stage. 25 of the 130 companies reviewed in the sample either failed to report, or did not report clearly, on the effectiveness of their risk management and internal control systems. There were no early adopters of updated Provision 29 in the UKCG Code 2024, which will require strengthened reporting on risk management and internal controls for financial years from 1 January 2026, a year later than the rest of the revised Code (see UKCG Code 2018: introduction and themes, Q&A here). The FRC is encouraged to see that a number of companies referred to the new provision and outlined their ongoing preparations for its implementation.
- Risk reporting – the FRC is pleased that many companies updated their reporting on principal risks, particularly in relation to risk mitigations.
- Shareholder engagement – as in previous years, the review found little improvement in the quality of reporting on shareholder engagement. Most companies offered few details on the nature of the engagement, feedback received from shareholders or examples of outcomes.
- Stakeholder and workforce engagement – reporting on stakeholder engagement continued to be generally of a high quality. The review identifies examples of effective reporting on the outcomes of engagement with stakeholder groups.
- Reporting on 'over-boarding' – although the UKCG Code 2024 did not take forward proposals to modify existing provisions on over-boarding (see Q&A here), the review examines how companies currently address directors' multiple board commitments. The FRC is pleased to note good reporting in this area, with companies generally providing specific information on their directors' external commitments.
- Minimum Standard for audit committees – this year's review extends to reporting by audit committees on the FRC's Minimum Standard: Audit Committees and the External Audit published in May 2023 (see FC Feature 22 May 2023). The FRC found some evidence of early adoption of the Minimum Standard, which is referenced in the UKCG Code 2024.
Alongside the review, the FRC has published a series of Podcasts to support implementation of the UKCG Code 2024.
Our corporate governance content (full fat) will be fully updated for the UKCG Code 2024, FRC guidance and institutional investor guidance for the 2025 AGM season in new Q&A sections that will be published in early 2025.
First published on the Corporate News Service on 26 November 2024.
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