Corporate Governance Research Summary
17 August 2021
High quality corporate governance contributes to long-term company performance. The UK has excellent standards of corporate governance, which contributes to making the UK equity market attractive to new investment.
The UK Corporate Governance Code has been instrumental in spreading best boardroom practice throughout the listed sector since it was first issued in 1992. It operates on the principle of 'comply or explain'. The Code sets out good practice covering issues such as board composition and effectiveness, the role of board committees, risk management, remuneration and relations with shareholders and wider stakeholders.
In 2021, the FRC released three research reports which explore the Code’s provisions on Remuneration
, Workforce Engagement
and Board Diversity and Effectiveness
. We hope the research will stimulate conversations in companies and ultimately lead to further improvements in corporate governance. The FRC will also consider the findings and will take them into account in any future reviews of the UK Corporate Governance Code.
Changes in Remuneration Reporting Following The UK Corporate Governance Code
The FRC published the findings of research conducted with the University of Portsmouth into Board remuneration practices and policies. The research showed that there have been improvements in remuneration reporting against the provisions of the 2018 Corporate Governance Code but crucially that there is still room for improvement. For example engagement with the workforce on remuneration out comes could be improved and there should be a move away from boilerplate reporting. More information on the Code's provisions on Remuneration can be found here.
Workforce Engagement and the UK Corporate Governance Code: A Review of Company Reporting and Practice
The FRC published the findings of research commissioned from the Involvement and Participation Association (IPA) and Royal Holloway, University of London (RHUL) on workforce engagement practises at FTSE350 companies. The research report considers the effectiveness of methods companies employ to engage with the workforce and explains how engagement with the workforce can offer valuable insight for boards, but that to maximise the benefits boards must be clear about what is it they are trying to understand from the engagement, this should determine the most appropriate engagement method. A non-executive director working alongside an advisory panel was often the best way to focus on key issues, and where relevant pass to the board and feedback actions to the workforce. Additional information on the Workforce Engagement and Corporate Governance Code can be found here
Board Diversity and Effectiveness in FT350 Companies
The FRC published the findings of this research in conjunction with London Business School, Leadership Institute and SQW that found that the effort to diversify boards pays benefits in terms of boardroom culture and performance. To maximise these benefits boards should recognise that change takes time and that diversity without active inclusion is unlikely to encourage new talent to the board. The role of the chair is crucial in more than one way, and further information can be found in the Board Diversity and Effectiveness Report here