"Effective governance is essential for raising capital and building investor confidence, and the UK Corporate Governance Code provides a framework based on principles, not prescriptions. This “comply or explain” approach allows companies the flexibility to outline how they meet the Code’s standards in a way that reflects their unique needs."
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The Financial Reporting Council (FRC) introduced updates to the UK Corporate Governance Code for 2024. These changes are designed to improve accountability, transparency, and effectiveness in governance across companies.
Following the FRC’s recent webinar which discussed the Code, here’s a reminder of the key changes and what they mean for businesses as well as advice on how to report against these updates.
One of the most notable shifts is the move towards outcomes-based reporting. This aims to improve the quality of reporting, moving away from box-ticking and boilerplate disclosures. The FRC encourages organisations to communicate through a “so what” lens to build a more meaningful narrative for investors.
How this can be reported:
- Demonstrating impact: If a company participates in certain initiatives or programmes, reporters should illustrate how these contribute to outcomes, enhancing the strategic rationale behind their commitments.
- Board appointments: Companies are also expected to go beyond announcing NED appointments. They should explain the rationale behind such decisions and describe the impact these directors have had on the business, giving stakeholders insight into how appointments drive company success.
The FRC has introduced higher standards, specifically for FTSE 350 companies, to enhance audit quality. These standards focus on:
- Audit tendering: Ensuring robust and transparent tendering processes that encourage "challenger" firms to promote fair competition.
- Audit quality: Requiring audit committees to actively oversee audit quality, independence, and effectiveness, maintaining high standards through regular assessments and transparent reporting.
How this can be reported:
- Utilise a timeline approach: Present a clear, visual timeline to illustrate the key stages of the auditor tender process, including major milestones, decision points and the criteria used to assess the external auditor.
- Implement a tabular reporting format: Adopt a table format to transparently display significant financial reporting issues reviewed by the audit committee. For each issue, include details on the actions taken to address the issue and any follow-up measures implemented, offering a comprehensive and accessible view for stakeholders.
Provision 29 seeks to make boards more accountable for the company's risk and internal control frameworks. It focuses on:
- Oversight of controls: The FRC does not expect extensive detail on every control; instead, companies simply need to demonstrate that effective oversight exists. In cases of material control failures, companies should share insights into the issue and how it was addressed.
- Transparency in control failures: When a material control fails and is remediated, it reflects a well-functioning oversight process. While companies aren’t required to report every remediation, some may choose to voluntarily and it is entirely up to the company to decide.
How this can be reported:
- The material controls list process: In the first year, consider providing insight into the process used to identify the initial list of material controls included in the board’s declaration.
Principle O has been updated to specify that boards are accountable for not only establishing but also maintaining an effective risk management and internal control framework. This update will provide companies the opportunity to think about their risk appetite and identify opportunities and how this impacts the controls in place.
How this can be reported:
- Risk appetite statements: At a minimum, we encourage companies to include a statement outlining their risk appetite. In the spirit of best practice, companies should also indicate whether risks have been managed within this defined risk appetite over the reporting period.
The Code now places a stronger emphasis on embedding culture throughout the organisation, going beyond assessing and monitoring.
How this can be reported:
- Culture in practice: It’s no longer enough for companies just to mention their values. Instead, corporates should illustrate how these values contribute to their overall purpose and deliver real impact as well as how they are measured. Explain how a particular value translates into employee behaviour or decision-making within the organisation.
Sustainability considerations in governance will vary by industry, and the FRC acknowledges that this may not be a top priority for every company. The flexibility allows companies to address sustainability as it relates to their specific circumstances.
How this can be reported:
- Committee responsibilities: Consider reporting each committee’s responsibilities in relation to sustainability-related matters to demonstrate the company’s commitment to these issues.
Why the 2024 Code matters
For companies that find the Code challenging or consider compliance tedious, it's crucial to recognise its long-term benefits. Effective governance is essential for raising capital and building investor confidence, and the UK Corporate Governance Code provides a framework based on principles, not prescriptions. This “comply or explain” approach allows companies the flexibility to outline how they meet the Code’s standards in a way that reflects their unique needs.
The 2024 UK Corporate Governance Code marks a progressive step in ensuring that governance reporting is not only meaningful but also demonstrably impactful. By aligning with the Code’s requirements, organisations demonstrate commitment to transparency, accountability, and a strong governance culture – qualities that resonate positively with investors and stakeholders alike.
How Design Portfolio can help
Navigating the evolving landscape of reporting trends and adhering to new regulations can be challenging.
For expert guidance on creating compelling and impactful culture and governance disclosures that meet regulatory standards and truly reflect your organisation’s values and strategic objectives, get in touch with one of our specialists.