Companies accused of substituting slogans for effective culture building

Companies need to improve their governance practices and reporting if they are to demonstrate their positive impact on the economy and wider society, according to a new report from the Financial Reporting Council which highlights limited reporting on diversity and an absence of clear targets and plans.

The report said, while there had been better reporting on governance issues following changes to the Corporate Governance Code, there was a need for more focus on longer term sustainability including employee engagement, diversity and the importance of corporate culture. For instance, it said that most diversity reports focused on gender diversity at the expense of other areas including age, disability and LGBT+ and encouraged employers to develop clear plans to meet targets and show they understand the long-term value of diversity.

The updated UK Corporate Governance Code called for companies to focus on long-term sustainability by aligning purpose, strategy and culture, promoting integrity and valuing diversity.

The FRC reviewed reporting against the 2016 UK Corporate Governance Code and assessed FTSE 100 ‘early adopters’ of the revised 2018 Code, which came into force in 2019.

It found some good examples of reporting by companies who are increasingly using incentives relating to non-financial matters and are grounded in long-term strategy. However, it said many companies are grappling with defining purpose and what an effective culture means “with too many substituting slogans or marketing lines for a clear purpose”.

The report says there is insufficient consideration of the importance of culture and strategy, or the views of stakeholders. It wants to see companies explain how they are monitoring and assessing corporate culture.

It adds that while many companies use engagement surveys to gauge cultural issues, they need to be able to demonstrate that engagement initiatives are effective in identifying issues that can be elevated to the board and how this affects company decisions.

The FRC’s Chief Executive, Sir Jon Thompson said: “While there are examples of high‑quality governance reporting from ‘early adopters’, looking ahead we expect to see much greater insight into governance practices and outcomes reporting on a range of key issues from diversity to climate change.

“Concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting, is paying lip service to the spirit of the Code and does a disservice to the interests of shareholders and wider stakeholders, including the public.”

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