FRC to probe quality of company explanations for code non-compliance

FRC chairman Sir Winfried Bischoff has trumpeted the body’s plan to focus its work on the quality of explanations made by companies that choose not to comply with the UK Corporate Governance Code provisions.

The City grandee, interviewed by Financial Director earlier in the year, made his pronouncement at Grant Thornton’s recent governance dinner at the RAC club in Pall Mall.

Further work will be conducted during the rest of this year to monitor companies’ explanations when they are not compliant with the code, he saud.

Sir Win said: “The ‘comply or explain’ principle gives companies flexibility and makes it possible to set more demanding standards than hard rules. Requiring companies to report to shareholders rather than regulators means that an assessment about whether a company’s governance is adequate is taken by those in whose interest the board is meant to act.

“I would like to remind 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.

“The UK’s strong governance culture encourages companies to list in London. One of the principle reasons why the UK Corporate Governance Code has been such a success is that it operates on a principles basis rather than relying on strict regulation to bring about improved governance.”

He also highlighted the Stewardship Code, introduced in 2010 and how it had successfully engaged shareholders a mark and “key ingredient of a healthy capital market”.

The response from the investor community had also been encouraging he stressed, with many signing up to its principles while “many large companies report greater engagement with their major shareholders on a wider range of issues”.