On 14 December 2011, the Financial Reporting Council (FRC) published its report on how the two codes under its supervision are being implemented in practice. The report reviews the impact and implementation of the UK Corporate Governance Code (published in May 2010 and applicable to all premium listed companies) and the Stewardship Code (published in July 2010 and setting out good practice for institutional investors on engagement with the companies in which they invest).
In relation to the UK Corporate Governance Code, the report highlights a high degree of compliance with most provisions. Examples cited include:
- 80% of FTSE 350 companies (excluding investment funds) have put all of their directors up for annual re-election
- More companies are bringing in external advisers to assist with evaluation of the board’s effectiveness
- Many company chairmen and committee chairs make personal statements in the annual report
- Where companies deviate from the Code, they do so generally in relation to only one or two of its forty eight provisions and set out their reasons for doing so. The FRC is currently in discussion with companies and investors to identify the type of information that should be provided if explanations are to be useful to shareholders and to ensure consistency in the application of standards. In relation to the Stewardship Code, the report highlights evidence that there are mixed signals as to the quality of engagement between investors and companies, and that companies have as much responsibility as investors to make engagement work. In particular, where companies face a significant minority vote against issues such as the remuneration report, this should be taken seriously and efforts should be made to address shareholder concerns.
The FRC will consult next year on limited changes to both Codes to strengthen the dialogue between companies and their investors and promote further behavioural changes. Subject to consultation, the changes will take effect from 1 October 2012.
For a copy of the report, click here: http://www.frc.org.uk/publications/pub2672.html