Improving the quality of ‘comply or explain’ reporting

The Financial Reporting Council (FRC) has issued advice for companies on how to report transparently and effectively when departing from certain provisions of the UK Corporate Governance Code. ‘Tick-box compliance’ continues to be preferred over high quality reporting of good governance practice. Analysis, of a random sample of 100 companies, found that too 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. For companies to offer an honest appraisal of their governance, they should offer transparency in terms of both their application of the principles and reporting against the Provisions. This can only be effective if the report avoids boilerplate language and individual companies apply the code to their individual circumstances, which will require companies to offer a full and honest explanation, which should be welcomed by investors, service providers, regulators and wider stakeholders.

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