Improving the Quality of 'Comply or Explain' Reporting

The FRC has issued guidance for companies to improve transparency when reporting against the 2018 UK Corporate Governance Code and advise them on how to achieve good quality explanations when departing from the Code. The FRC found that many companies strive to declare strict compliance with the Code. Such a formulaic approach leads to boilerplate language, and ineffective reporting that lacks substance and information about governance outcomes.

The guidance the FRC have issued to improve transparency when reporting against the 2018 UK Corporate Governance Code is focused around 3 main themes:

1) Companies should offer clarity about the Provisions of the Code that they have departed from by making it easy for a reader to find this in their annual reports.

2) Companies should report any departure from any Provision of the Code.

3) Clear and meaningful explanations for departures from the Code.

Companies reporting under the 2019 Association of Investment Companies Code will also find this guidance useful.