16 July 2015

FRC responds to EC's recommendation on the quality of corporate governance reporting

The FRC's Director of Corporate Governance, David Styles, on behalf of the UK, has responded to the European Commission's Recommendation on the quality of corporate governance reporting ('comply or explain'):

"The 'comply or explain' method of adherence has given companies flexibility and made it possible to set more demanding standards than can be done through hard rules. Experience has shown that the vast majority of companies attain these standards – in 2014 the Grant Thornton survey of compliance by FTSE 350 companies found that 94 per cent of companies complied with all, or all but one or two, of the 54 provisions in the Code. And by requiring companies to report to shareholders rather than regulators means that the decision on whether a company's governance is adequate is taken by those in whose interest the board is meant to act.

The FRC has commenced a communications exercise to raise standards and promote the flexibility of ‘comply or explain’. Through this we will be reminding both companies and investors that simply complying without giving due consideration to what is appropriate and relevant reduces the flexibility that this approach aims to achieve. To this end, further work will be conducted during the rest of this year to monitor reporting by companies on explanations given when they are not compliant with the Code."

Full press release

Full letter

© FRC