FRC confirms no plans to amend UK Corporate Governance Code until 2019

The FRC has confirmed that, with the exception of relatively minor changes to reflect the EU Audit Regulation, it does not plan to amend the UK Corporate Governance Code for another three years. Its annual review, “Developments in Corporate Governance and Stewardship 2015”, also considers the quality of compliance and explanations in relation to the UK Corporate Governance Code and UK Stewardship Code and indicates the FRC’s priorities in the coming year.

Points of interest in relation to the UK Corporate Governance Code:

  • The FRC notes that the quality of explanations has improved and compliance with the UK Corporate Governance Code remains high, with 90% of FTSE 350 companies reporting that they either comply with all, or all but one or two, of its provisions.
  • However, compliance with all Code provisions has dropped slightly from 61% to 57%, partly because of the number of newly listed companies needing to explain their governance arrangements and partly because some companies are waiting for implementation into UK law of EU rules on audit rotation and retendering.
  • The FRC would like to see more companies reporting on diversity in the broad sense mentioned in the preface to the UK Corporate Governance Code (covering race and experience). Although it notes an improvement in the quality of reporting on gender diversity it considers the number of companies that refer to diversity in this broader sense to be disappointing.
  • The FRC plans to focus in the coming year on market-led and collaborative initiatives on succession planning and corporate culture. This follows its discussion paper on succession planning and its call to participate in a review of corporate culture in October 2015.

Points of interest in relation to the UK Stewardship Code

  • Feedback on engagement between companies and investors was generally positive in 2015 with many investors feeling that the quality of dialogue had improved and that companies were more responsive.

  • 2015 saw an increase in shareholder voting activities at companies’ meetings with 73 per cent voter turnout in the UK.

  • That said, the FRC has concerns about the quality of the statements of some signatories to the Stewardship Code. As announced in December 2015, the FRC plans to grade signatories publicly. It will be contacting signatories individually to outline where their statements need to improve and will announce the results of this work in summer 2016. Tier 1 signatories will be those that meet FRC reporting expectations and provide evidence of the implementation of their approach to stewardship. Tier 2 signatories will be those where improvements are needed.