In Conversation: Applying Principles - UK Corporate Governance Code 2024
Published: 11 August 2025
11 minute read
For the second episode of the FRC's podcast series exploring the UK Corporate Governance Code 2024, Kate O'Neill, Director of Stakeholder Engagement and Corporate Affairs, sits down to discuss the principles-based nature of corporate governance and the importance of 'comply or explain' with Tedi Jorgi, Senior Corporate Governance Policy Associate, and Paul Lee, Head of Stewardship and Sustainable Investment Strategy at Redington.
The conversation explores why the UK's principles-based approach empowers boards rather than constrains them, addresses misconceptions around 'comply or else', and discusses how companies can embrace the flexibility the code offers whilst delivering meaningful reporting.
Transcript
00;00;12;23 - 00;00;39;04
Kate O'Neill
Hello there and welcome to the FRC In Conversation podcast. My name is Kate O'Neill. I'm the director of Stakeholder Engagement and Corporate affairs here at the FRC. This is one of our series of four podcasts in the summer of 2025 on the all important topic of Corporate Governance, particularly with the new code launched at the beginning of this year, coming into effect at the beginning of 2026.
00;00;39;05 - 00;01;06;26
Kate O'Neill
Today I'm joined by Tedi Jorgji, who's a Senior Policy Associate in the Corporate Governance and Stewardship team. And welcome to Paul Lee, who's the Head of Stewardship and Sustainable Investment Strategy at Redington. As well as being a UK Endorsement Board member and is the incoming chair of the UK Endorsement Board. Congratulations on your appointment, Paul, and great to have you along to the FRC in conversation series.
00;01;06;26 - 00;01;27;19
Kate O'Neill
We could talk for hours about the applications of the principles of the corporate governance Code, and I think one of the most misunderstood things that we often hear is that this is a principles based code, not based in legislation. Paul, what do you think the difference is there? I mean, you will be advice, lots of different people on stewardship, sustainable investment.
00;01;27;22 - 00;01;36;08
Kate O'Neill
But you've also seen how board and investors think about corporate governance. How important do you think it is that this is a principles based code?
00;01;36;11 - 00;02;01;07
Paul Lee
It's absolutely vital. A principles based code is the only way in which a board retains ownership of its governance. Otherwise, you're faced with a rulebook, a checklist. And in effect, the board is disempowered. You then have to lean on your lawyers and your company secretaries. And company secretaries are wonderful people, don't get me wrong, but they shouldn't be running the board.
00;02;01;08 - 00;02;14;29
Paul Lee
They should be assisting supporting the board. So it being a principles based approach means that the board retains its control and oversight, and it is running the show, which is the only right way forward.
00;02;15;01 - 00;02;26;26
Kate O'Neill
Because I think your point is really well made. We've heard from some people to admit that perhaps sometimes they've outsourced those responsibilities to, as you say, some parts of the advisory community.
00;02;26;28 - 00;02;40;12
Paul Lee
And that's really unfortunate, isn't it? Because actually the board is the mind of the organisation. And if you're outsourcing the thinking from your mind, that's a very dangerous place to be. Having.
00;02;40;16 - 00;02;50;03
Kate O'Neill
Absolutely. And Terry, there are provisions of the code. I mean, what would you say to people who say, well, what's the difference? Aren't principles provisions on provisions, principles?
00;02;50;07 - 00;03;00;06
Tedi Jorgji
Yeah, actually, I like that you refer to it as principle based code case, because that's how we like to think. It is a principle based code that also has comply to explain provisions.
00;03;00;06 - 00;03;15;24
Kate O'Neill
And come to those in a minute, because that is a topic I want to poke you both on, because we've all heard varying interpretations of that. But on the provisions of the code, is that setting the guardrails? Is that saying to people, these are the things that we expect to see at a minimum?
00;03;16;01 - 00;03;38;16
Tedi Jorgji
Yes, we all know that the code is famous for the comply explain approach, which is the main feature of the code, is the main advantage the code has compared to legislation because it offers flexibility to companies such as their own governance arrangements. But either complying with the codes approach or instead explaining. But I think is very important to emphasise that only the provisions of the code are comply.
00;03;38;16 - 00;03;53;10
Tedi Jorgji
You explained as we mentioned, the code is also principles, and the listing rules require companies to apply the principles of the code and then explain how they've done this in the reports which sometimes this is referred to as the apply and explain approach.
00;03;53;11 - 00;04;15;01
Kate O'Neill
Well, I'm desperate to get to that. I mean, I think Paul the UK Corporate Governance code is widely held up as a bit of a standard globally, as many other codes around the world have been based on it. Do you think it puts the UK in a position of being seen as a leader on, you know, leading on corporate governance because it's good for business, it's good for investment?
00;04;15;04 - 00;04;50;05
Paul Lee
Yeah, absolutely. As you rightly said, the UK is a pioneer in this space. The Cadbury code was produced in 1992, which is a few years back now. And in a lot of ways, the mindset of governance and particularly comply or explain are one of the UK's great gifts to the rest of the world. I think the flexibility that we've talked about, that the principles based code within the context of compliance explained gives, provides that freedom to boards to actually run the business as they see fit, to run themselves as is appropriate to the business.
00;04;50;05 - 00;05;09;16
Paul Lee
And that is an opportunity, a gift to UK companies to really take themselves forward in an entrepreneurial way, not to feel encased and constrained by legal rules, by other constraints, but actually to take a business forward, to grow it in an entrepreneurial and energetic way.
00;05;09;17 - 00;05;32;27
Kate O'Neill
And I think, Paul, to that point, because, I mean, there might be stating the absolute obvious. Not all companies are the same in maturity, their complexity, their history. But flexibility must mean that, to your point, the board can be, I don't know, is it emboldened to be brave about the way they think about the way they're governed, think about themselves strategically.
00;05;32;27 - 00;05;57;10
Paul Lee
But they absolutely ought to feel that. And as we've said, this is not a rulebook. This is not a legal document. This is an empowering set of principles that mean that a board should be tailoring its mindset and its approach to the stage of development that the company is at, so that they can promote the success of the company, which is the director's job.
00;05;57;10 - 00;06;01;04
Paul Lee
After all, whatever its its individual context happens to be.
00;06;01;06 - 00;06;15;23
Kate O'Neill
I guess we'll turn to the annual report because everybody has their stories, the annual report so long these days. What happened? It used to be, not the kind of, well now I'm going to show my age Paul and say the size of a telephone directory.
00;06;15;25 - 00;06;18;07
Paul Lee
Yeah, I remember those too.
00;06;18;09 - 00;06;42;00
Kate O'Neill
But I think, Tedi, what do you think is driving people still to feel that they've got to kind of throw everything but the kitchen sink into the annual report to meet the provisions of the code? Perhaps that's unfair, but there is that sense that people say, well, I have to put it in the annual report. That's what the requirements are, whether they're the requirements of the FRC or, to your point, perhaps in other parts of the regulatory force like the listing.
00;06;42;00 - 00;06;47;19
Kate O'Neill
Well, why do you think people feel that more is better in relation to the annual report and accounts?
00;06;47;19 - 00;07;16;21
Tedi Jorgji
Yes, this is really good points case. I think the FRC has continuously emphasised that actually is about quality, not quantity. And we've always said that companies should focus on giving information that actually displays what the board has done during the year, how the company has performed and what the outcomes from the actions of the board are. We've continuously said that and encourage companies to be more meaningful in their explanations, in the annual reports.
00;07;16;21 - 00;07;37;01
Kate O'Neill
I think that's an interesting point, because I think both of you would agree people can make big, sweeping statements, but if there's no linkage to the front end of the annual report, I don't know, capital allocation. The talk is speaking about your strategy resources poor. It can become meaningless statements where you're getting back to your point, feeling like you're ticking a box.
00;07;37;05 - 00;08;07;14
Paul Lee
Yeah. I think there is a danger that companies fall into this trap of thinking they need to tick every single box in the annual report, as you say, a company's purpose and strategy should run through everything that is disclosed in, in the annual report, all of that narrative reporting. And if that isn't central to how the company talks about its governance and talks about how it's applied, the provisions of the code, then they're missing out on the whole purpose of this part of the reporting.
00;08;07;14 - 00;08;11;16
Paul Lee
It does need to knit together as a single unified home.
00;08;11;19 - 00;08;26;20
Kate O'Neill
And I guess, though, I mean, I know, Terry, we can't tell you how to do the annual reports, but do you think a piece of advice would be, to Paul's point, explained the principles as they apply to your business? Rather than rush to thinking, you've got to explain every principle.
00;08;26;26 - 00;08;54;13
Tedi Jorgji
Yes, this is so important Kate. That's really important. And we've said that before, that when you're discussing how the principles that have been applied, how you've complied with the provisions, it's always crucial to avoid generic statements. Good reporting should demonstrate how these principles are applied to the company's unique circumstances. And as I said earlier, what the board has done, what impact this has had on the company, on the shareholders of the company, on other stakeholders.
00;08;54;13 - 00;09;19;05
Tedi Jorgji
So companies should avoid generic statements that actually don't say anything valuable and instead just contribute to the extent of the Annual Report, which you get longer and longer because of boilerplate statements. One example, you know, you have principle D in the code which stays at the board, should ensure effective engagement with shareholders. And we've seen many companies that what they usually do is that just provide the statement.
00;09;19;05 - 00;09;28;03
Tedi Jorgji
The board communicates with shareholders in a regular basis, which as I said, it doesn't really say anything valuable. That's a reader could take from it.
00;09;28;04 - 00;09;47;26
Kate O'Neill
Paul, doing the work you've done at Redington and in other parts of your career. Stakeholder and shareholder engagement has evolved a lot from just looking at the quarterly updates. How hard do you think or how shy do you think companies are of maybe revealing of what really is being discussed at those stakeholder and shareholder engagement sessions?
00;09;47;26 - 00;10;26;26
Paul Lee
I mean, I think there is some wariness and to an extent that makes sense. These are private meetings and they're the most effective and honest between the parties if they are kept private. And that does mean both sides need to keep them private. But you can always find ways of talking about the areas that were discussed, the areas of concern, particularly that may have been raised by shareholders in those conversations, because that then help the board to articulate its response to those areas of concern and perhaps can give a formal response that puts those concerns to rest.
00;10;26;26 - 00;10;30;18
Paul Lee
And that actually is a powerful opportunity in reporting, I think.
00;10;30;22 - 00;10;56;12
Kate O'Neill
I think that's spot on. Now, coming to our favourite, favourite topic of comply or explain, which as we know, has either been perhaps wilfully misunderstood as comply or else. And I know when I say that Tedi you're probably thinking this is outrageous. That should never be the case. But why do you think people have started to feel that that's really what the comply or explain had developed into?
00;10;56;12 - 00;10;59;20
Kate O'Neill
I mean, Tedi, why don't you go first then I'd love to hear from Paul.
00;10;59;21 - 00;11;26;22
Tedi Jorgji
I think the this misconception that all companies are expected to fully comply with the code, this misconception that compliance is actually the norm, which is exactly the opposite of what the FRC has been continuously saying the past couple of years. And I think personally reading on reports, I get this feeling that companies feel the need to justify their non-compliance rather than actually explaining and being confident about it, rather than saying, well, we haven't complied.
00;11;26;22 - 00;11;43;00
Tedi Jorgji
This is why. And that is how it works better for us. So what I mean is that the boards don't need to be brave to explain it. That's what the code is for. Explanations should just come naturally and it shouldn't be difficult to explain. Basically just, just tell us the truth.
00;11;43;03 - 00;12;03;29
Kate O'Neill
And on that point, Paul, it goes back to the earlier I think we said they feel enabled, they feel brave to lean into an explanation. Do you think rise of the proxy advisers perhaps that comment you said before perhaps of biases getting in the mix, saying I wouldn't do that, has kind of led to this comply or else feeling in some quarters.
00;12;04;00 - 00;12;23;05
Paul Lee
I think there is an excess of defensiveness around this. And I've already talked about compliance explained being one of the UK's gifts to the world. I actually went back and dug out my copy of the Cadbury report and looked at what it says about comply or explain, because that's where it originated. And actually it doesn't use quite that language.
00;12;23;05 - 00;12;58;16
Paul Lee
It talks about making a statement about their compliance with the code, and identify and give reasons for any areas of non-compliance. So not quite comply or explain, but you can see how it was shortened to that. We started off by talking about principles based codes and principle based standard setting, which I'm very passionate about. Wearing my UKEB hat is so important for not constraining people with a rulebook, and we need to avoid getting into the trap of people feeling as though it is comply or else.
00;12;58;16 - 00;13;24;24
Paul Lee
And I do think there is a sense of defensiveness that has crept in, and I think in part it's a little around the mechanical approach that some investors do have in their voting. I think, frankly, that the proxy advisers, the Iss's and the glass Lewis is getting more of the blame for this than they deserve. You know, their job is to take a narrow minded view.
00;13;24;25 - 00;13;50;06
Paul Lee
They are just there to say, does this meet the standards that are expected in the market? Yes or no? And therefore give a recommendation on the back of that. It is actually for the investor to apply the judgement just in the way that the board should be applying judgement and to see whether they believe that actually they are comfortable, that the explanation against the provision is a good way of delivering the principle.
00;13;50;06 - 00;14;13;24
Paul Lee
And that's fundamentally what we're talking about. The principles are there, as I ambitions that should be delivered by every company. The provisions are ways of delivering against those principles, and they may not be the right way to do it for every company. And the explanation should be why that isn't the right way for us, given the state of the business that we're in now.
00;14;13;25 - 00;14;37;12
Kate O'Neill
That's really interesting, Terry, in our annual review of corporate governance out later in the year, I know that you and the team are going to highlight some good examples of companies who have chosen to explain. Do you think that will be a good baseline for those companies who are thinking, well, I'm not sure how to do it. These examples will help them be braver because they'll say that a coach, an explanation is quite effective.
00;14;37;17 - 00;15;02;19
Tedi Jorgji
Yes Kate, we're going to provide examples in our honorary day of corporate governance this year Kate. We've done that in the past because we've found companies that are actually not anxious in terms of not complying with the code and providing us some good explanations of why they haven't done that. And we at the FRC, we have always encouraged companies to embrace the freedom offered by the provisions of the code.
00;15;02;19 - 00;15;26;05
Tedi Jorgji
And we've always said that they're not hesitate to not comply if one of the provisions of the code doesn't work for you. You know strongly we strongly encourage companies always that in these circumstances they should explain rather than critically comply with the code. And that's why it gives us anxiety when we hear comply or else. Because that's exactly what the code is not supposed to be.
00;15;26;08 - 00;15;43;18
Kate O'Neill
Thank you Terry. So in closing, Paul, sounds to me from what you're talking about is we should be grateful to have a principles based code because it's encouraging and delivering, in many cases, the type of corporate governance the UK's famous for, but also stakeholders and investors deserve.
00;15;43;21 - 00;16;12;15
Paul Lee
That's exactly right, Kate. We pride ourselves as a nation on good sense and judgement, and that's what boards are there to deliver. The code is there to support and the system in delivering that. Not to constrain them from delivering that. And the more the boards recognise that and frankly, the more that investors acknowledge that need, the better off we will be and the more vigorous our corporate culture will be.
00;16;12;17 - 00;16;27;09
Kate O'Neill
Thank you. And, Tedi, you never want to hear the term comply or else again, but the team will keep providing tools for companies to really give some examples of how to give these codes and explanations with confidence. And the word we've used a few times. Bravery.
00;16;27;13 - 00;16;36;15
Tedi Jorgji
Yes, exactly. We said before. Do not be shy. It's not comply. You know, it should just come naturally if one of the provisions doesn't work for the company.
00;16;36;18 - 00;16;56;13
Kate O'Neill
Absolutely. Well thank you Tedi. Thank you, Paul, for joining the podcast. And I think this series of corporate governance podcasts will help those companies who are coming up to speed on the new code or looking at their reporting as they lean into the end of the year, in the first year of the new code's requirements. So thank you both.
00;16;56;16 - 00;16;57;12
Paul Lee
Pleasure. Thank you.
00;16;57;16 - 00;16;58;09
Tedi Jorgji
Thank you Kate.