FRC report assesses quality of corporate governance in the UK

The Financial Reporting Council (FRC) has issued a report into developments in corporate governance and stewardship in 2015.  The report assesses the overall quality of corporate governance in the UK as high.  However, it does highlight some areas where companies could improve governance, reporting and compliance with the two relevant codes of practice.

  • 90% of FTSE 350 companies reported that they complied with the majority of the provisions of the UK Corporate Governance Code
  • there has been a dip in strict compliance with the Code, and reporting against the Code’s principles
  • few chose to adopt the 2014 version of the Code early – this version made significant changes to requirements on risk management
  • ff those who chose to adopt the 2014 Code early, there was “good detail” on the principal risks
  • three significant challenges were risk appetite, the quantification of risk and assessing the effect of internal controls
"The biggest challenge for our respondents lies in the preparation of their viability statement"

It is encouraging that companies are taking what the FRC describes as a more thoughtful approach to governance. Barnett Waddingham's own research has found empirical evidence of a strong correlation between mature risk governance and the low incidence of key risk events.  A clear understanding of risk, and practical risk-based solutions, are essential for companies’ survival and growth.

We are currently undertaking research into the impact of recent changes to the Code as they relate to risk management.  The biggest challenge for our respondents lies in the preparation of their viability statement.  Companies now need to consider risks over the longer term, and take a broader view than previously.  This requires the development of new techniques to meet a rising bar of expectation around the maturity of risk management at Premium Listed companies.

The FRC intends not to make any significant changes to the Code for the next three years, to allow companies to get to grips with the 2014 Code.  It is possible that it may however issue additional guidance in particular areas if needed.