FRC: Developments in Corporate Governance and Stewardship 2015

The Financial Reporting Council (FRC) has published its annual report focusing on Developments in Corporate Governance and Stewardship in which it gives its assessment of corporate governance and stewardship, reports on the quality of compliance with, and reporting against, the UK Corporate Governance Code    (Code) and Stewardship Code, gives its findings on the quality of engagement between companies and shareholders, and indicates where the FRC would like to see improvement in both governance and the reporting of governance. The report also summarises and comments on other relevant changes over the previous 12 months, including in relation to the market and regulatory framework.

Highlights of the report include:

  • Code changes - the report reiterates that the FRC does not intend to make further substantial amendments to the Code until 2019. Minor revisions will be necessary to reflect the implementation of the EU Audit Regulation and Directive (ARD) which will be subject to consultation in Q2 2016. The changes will come into force on 17 June 2016;
  • Code compliance - the quality of explanations in relation to departures from the Code have improved and compliance remains high, with 90% of FTSE 350 companies reporting that they have either complied with all, or all but one or two, provisions. Strict compliance has dropped, however, which appears to be as a result of a combination of new entrants and FTSE 100 companies deciding to await the finalisation of the implementation of the ARD before complying with Code's audit retendering requirements;
  • Succession planning - this remains a key issue. The FRC intends to follow up on its recent discussion paper in 2016;
  • Diversity - while the FRC believes that there has been good progress on reporting of boardroom gender diversity policies, it views as "disappointing" the number of companies that fail to deal with the concept in the broader sense as regards race and experience;
  • Share retention - the FRC notes that there has been an increase in the number of companies having "longer" share retention periods with regards to remuneration; 
  • Reporting and audit - the FRC believes that the requirement for boards to confirm that annual reports are "fair, balanced and understandable" has had a significant and positive impact. 72% of FTSE 350 audit committee reports provide detailed descriptions of the work they do compared with 65% in 2014. 46 FTSE 350 companies also put their audit out to tender (2014: 27); and
  • Stewardship - the FRC believes that the reporting of too many signatories to the Stewardship Code does not demonstrate that they are following through on their commitments. To that end, the FRC reiterates its intention to tier signatories (for more information, please read our CQC update - Issue 92). Notwithstanding this, feedback suggests that the quality of dialogue has improved overall. There was also an increase on shareholder voting activities at company meetings with 73% voter turnout in 2015 and a reduction in the number of resolutions where there was a "significant" (20%) vote against. The FRC strongly encourages investors to notify companies in advance of votes against or abstentions, following a decrease in such notifications during 2015.
  • Proxy advisors - the FRC notes the continued concern over the quality of reporting, engagement and voting outcomes which result from the relationship between some proxy advisors, their clients and UK companies and in particular the tendency for perceived box-ticking.

To access the FRC report, click here.

FRC: Report on developments in clear and concise narrative reporting

The Financial Reporting Council has published a report examining the steps companies have taken towards Clear & Concise Reporting. The report provides an overview of the current reporting landscape, looks at the impact the introduction of the Strategic Report has had and considers its evolution as well as emerging developments in reporting. The headline issues identified in the report include:

  • Engagement - companies are generally engaging with the FRC’s Clear & Concise initiative;
  • Reporting - evidence of better quality corporate reporting exists, but there is scope for further improvement;
  • Longer-term view – there is scope for Strategic Reports to look out over a longer period than the next 12 months;
  • Communication – there are more opportunities to improve communication and reduce boilerplate;
  • Materiality – there are opportunities for concise reporting through the better  application of materiality thresholds;
  • Business model – disclosure of value generation and what makes company different is still evolving; and
  • KPIs – there is scope to improve KPI reporting, explaining their relevance and relationship to GAAP measures where appropriate.

To access the report, click here.

Companies House: Guidance for the Companies House extractives service

A listed extractive company with a financial year beginning on or after 1 January 2015 must prepare a report annually disclosing material payments made to governments in the countries in which it operates on a country-by-country and project-by-project basis. The reporting obligation arises under the Financial Conduct Authority's Disclosure and Transparency Rules and the government's Reports on Payments to Governments Regulations 2014. 

The Registrar of Companies has published brief guidance explaining what entities need to file in order to meet their obligations to deliver reports to the registrar under the Reports on Payments to Governments Regulations. The FCA has previously indicated that it considers a report prepared in accordance with the Regulations will also comply with the DTR requirements. To access the guidance, click here.