UK: FRC report - developments in corporate governance and stewardship [and what next for the FRC?]

The Financial Reporting Council - the organisation responsible for the UK's Corporate Governance and Stewardship Codes (amongst many other things) - has published its annual report on developments in corporate governance and stewardship: see here (pdf).

It is reported that compliance with the UK Corporate Governance Code is high: 90% of FTSE 350 companies report that they comply with all, or all but one of the Code's 54 provisions. Full compliance has risen from 57% to 62% this year. The provision most frequently not complied with is B.1.2, which states that at least half the board, excluding the chairman, should comprise non-executive directors determined by the board to be independent.

The report is published in the year in which the twenty-fifth anniversary of the publication of the Cadbury Committee Code and Report will be marked; it was the Cadbury Committee that gave us 'comply or explain' that has since been a central pillar - indeed, foundation - of the UK's governance framework for large, listed companies since the early 1990s. A great deal has happened since the publication of the Cadbury Report and much has changed in the past year: a new prime minister in the UK who placed governance reform as part of her personal manifesto; a vote to leave the European Union; and two governance reviews are underway (see here and here), instigated for reasons that challenge the effectiveness of aspects of the UK's governance framework and, indeed, the role and effectiveness of the FRC in this regard. It is not, therefore, surprising to see today's FRC development report adopt a tone quite different from the developments report published last year.

Consolidation was the message last year - it was stated that no substantial changes were proposed to the UK Governance Code for the next three years - and no hint was given that the FRC sought wider powers. But from today's report we learn that the FRC "stands ready" to revise the Code; that it has established a Stakeholder Panel to "bring a broader range of perspectives into [its] ... policy-making and work" (the FRC's website does not, however, provide any information about the Panel, its members and the selection/recruitment process); and that the market model's "checks and balances" require reassessment and revitalisation. This is very welcome, against the background of debate about how best to achieve appropriate standards of governance and the extent to which the ethos of encouragement and reflection that 'comply or explain' seeks to promote can (and/or should) coexist with a stronger and wider enforcement role for the FRC.