A new report from the Financial Reporting Council says too many companies pay lip service to requirements on diversity and don’t focus on outcomes or impact.
Some financial services employers are treating the UK Corporate Governance Code including stipulations on boardroom diversity as a box ticking exercise, according to a new report by the Financial Reporting Council, which calls for greater focus on outcomes and impact.
Its Review of Corporate Governance Reporting, which is made up of a random sample of 100 companies, finds some employers “continue to treat the Code as a box-ticking exercise”, with formulaic reporting to stakeholders and a failure to explain when they do not comply with its provisions.
The Code was recently revised to emphasise the wider benefits of good governance for the economy and society. It calls on companies to establish a purpose which is aligned with its culture and strategy and forge strong relationships with key stakeholders. The FRC’s review found that corporate governance reporting “failed to live up to stakeholder expectations”. It cites as an example the fact that many companies state the importance of diversity at board level and in the succession pipeline, but do not set out what they are doing to deliver that.
The FRC says it is concerned that some companies continue to reply on the reporting process “rather than substance”. It would like to see more focus on outcomes and how those outcomes have affected decision-making. It would like to see more engagement with stakeholders when it comes to decision-making and long-term strategy, better assessment and monitoring of culture, a clearer commitment to diversity and inclusion through actions, such as improved succession planning and recruitment from diverse talent pools and clear and meaningful explanations of how companies achieve good governance standards.
Sir Jon Thompson CEO of the FRC said: “Today’s review highlights many examples of excellent reporting, but it’s clear that some companies are continuing to take a formulaic approach to corporate governance driven by compliance, rather than focusing on outcomes, supported by high quality and transparent evidence. This reviews sets out clear expectations to address where company reporting falls short, so that it can better meet the interests of not only a company’s shareholders but its wider stakeholders as well.”