The Financial Reporting Council (FRC) in the UK have issued a report on implementation of the UK Corporate Governance and Stewardship Codes 2014.

According to the FRC, there has been an increase in compliance with the UK Corporate Governance Code. In addition, the UK is on course to meet Lord Davies’ target of 25 per cent of women directors in the FTSE 100 in 2015 and the percentage of female executive directors has started to rise. There have also been improvements in the quality of disclosures by Audit Committees and more companies are now retendering their external audit contracts.

Whilst it too early to evaluate the changes introduced in 2014, companies are continuing to respond in a positive manner to the provisions introduced in September 2012. Compliance with the Code remains high, with over 90 per cent of FTSE 350 companies reporting that they were either complying with all, or all but one or two, of its provisions.

The FRC points out in its report that it set out criteria for clear explanations in 2012, and the results of this initiative remain mixed, with some companies "seemingly unwilling to address the spirit and practice of good quality explanations". The FRC states that it has no desire for the Code to be viewed as a rulebook, and in 2015 the FRC will re-emphasise the value of ‘comply or explain’ in achieving good governance.

The FRC also states in the report that it intends to publish a discussion document in the coming months on succession planning.

The FRC regards the following as key issues for consideration by companies and investors in 2015:

  • The importance of good corporate culture and embedding sound governance behaviours throughout companies;
  • Board composition and ensuring suitable succession planning is in place;
  • Effective board evaluation and reporting;
  • Active engagement between boards and investors and improved reporting in this area;
  • Early consideration of the new viability statement;
  • Maintaining effective risk management and internal controls;
  • Focussing on the quality of explanations under both Codes; and
  • Committing to clear and concise reporting

The FRC’s corporate governance team will concentrate on five main areas of work in 2015:

  • Company culture: how best to assess culture and practices and embed good corporate behaviour throughout companies;
  • ‘Comply or explain’: pursuing better explanations by re-stating the benefits of this approach and encouraging better explanations;
  • Succession planning: publishing a discussion document in early 2015;
  • Stewardship Code: promoting the benefits of stewardship and increasing our scrutiny of adherence to the Code in order to improve the quality of practice and reporting; and
  • Proxy advisors: considering what role the FRC might play in overcoming communication problems in this area.