The Financial Reporting Council (‘FRC’) have released the annual report for 2016 on developments in corporate governance and stewardship. The key findings were:
- Compliance: The number of FTSE 350 companies reporting full compliance with all provisions has increased from 57% to 62% with 90% reporting full compliance with all but one or two of the Code’s provisions.
- Frequent non-compliance: The Code provision most often not complied with is for at least half the Board, excluding the Chairman, to be independent, non-executive directors – 26 FTSE 350 companies in 2016 compared to 42 in 2015.
- 2016 AGM session: There was reduced investor support for remuneration resolutions, with concern noted over a lack of transparency about the link between executive pay and performance.
- Clawback and malus provisions: The majority of FTSE 350 have taken forward the 2014 Code recommendation for companies to put in place arrangements to enable them to recover or withhold variable pay. 91% now have implemented a clawback provision on the annual bonus and 78% on long-term plans.
- Nomination committees: The committee must actively align board composition with company strategy to ensure that the board has the diverse skills to ensure long-term success.
In their press release the FRC commented:
“Compliance with the principles of the UK Corporate Governance Code remains high; however, when boards choose not to follow provisions too many explanations are of poor quality. This suggests that some boards still need to do more than pay lip service to the needs of their shareholders and other stakeholders. The FRC believes more focussed reporting by boards on how they discharge their responsibilities is necessary and has asked for more oversight powers from Government to help achieve this.”
Further update to the corporate governance code is expected in 2017.