FRC review of corporate governance reporting in 2023

The FRC has published its annual review of corporate governance reporting for 2023, which discusses the quality of reporting against the UK Corporate Governance Code in 2023 and its expectations for companies reporting in 2024.

It follows the release of its annual review of corporate reporting for 2022/23, which sets out the findings of the FRC’s corporate reporting review team on the 2022/2023 reporting season more generally, in October (read more on our blog here).

The FRC reviewed the corporate governance reports of 100 FTSE 350 and Small Cap companies – the sample companies change each year. Of these, 37 claimed full compliance with the Code, compared with 36 of its sample in 2021 and 27 in 2022.

The FRC looked at reporting on cyber and information technology issues as part of its review for the first time this year. Although the FRC recognises that the Code does not specifically ask for reporting on these areas, it was pleased to see most companies in its 2023 sample outline the risks, opportunities and medium to long-term importance of cyber security to their business and market.

The review also states that:

• the most common areas of non-compliance with the Code from the 2023 sample were pension alignment (provision 38) – although most of those companies expect to be in full compliance in 2023 – and chair tenure (provision 19);

• whilst there have been improvements in how companies report on their application of the Code Principles, the FRC encourages companies to move away from a formulaic Principle by Principle approach (which it says simply adds to the length of the annual report and contains little company specific information), and instead to report clearly and concisely on how application of the Principles has made a difference to actions taken by their boards; and

• investors, and proxy advisors should not favour strict compliance with the Provisions of the Code but focus on individual company circumstances and the explanations companies provide for their non-compliance, recognising that strict adherence with the Code’s detailed provisions may not be the right approach for every company.

Helpfully the review cites specific examples of companies which the FRC say demonstrate particularly good quality reporting in certain areas, such as reporting on risk management procedures and shareholder engagement, meaningful explanations for non-compliance, and culture and purpose reporting.