FRC reviews Corporate Governance Code compliance

A Financial Reporting Council (FRC) report finds companies struggling to define their purpose

Many of Britain’s largest companies are struggling to define their purpose, according to the FRC.

In its first assessment of the updated UK Corporate Governance Code brought in in 2018, the regulator found that some of its sampled FTSE 100 companies were often conflating mission and vision with purpose. A company’s vision usually relies on its purpose to provide reasons behind its goals.

The FRC report examined the annual reports of a sample of 82 FTSE companies, and found too many organisations had substituted what appeared to be a slogan or marketing line for their purpose, or restricted it to achieving shareholder returns and profit.

This approach was deemed unacceptable for the 2018 Code.

FTSE 100 companies were chosen as they have traditionally been early Code adopters, according to the FRC. In regard to the early adoption of the 2018 Code, the report found around half of the sampled FTSE 100 companies provided purpose statements.

Katie Jacobs, senior stakeholder lead at the CIPD, said this creates ample opportunity for HR to make its mark.

“The FRC research suggests many companies are still viewing corporate governance requirements around culture as a tick-box exercise. But with ever-increasing focus on people and culture issues, in the wake of numerous corporate scandals and failures, this simply isn’t good enough anymore.

“As the people and culture experts in a business HR leaders should see the revised reporting requirements as an opportunity to step up – getting more involved at board level to ensure people issues are front and centre and aligned to strategy, creating clear narratives around the value of people and encouraging more transparent reporting. The opportunity has never been greater for CHROs to add value at board level,” she added.

The report recommended a much greater focus on the activities and outcomes of implementing the principles of the 2018 Code, particularly on the board’s effectiveness and decision-making, and how this has led to sustainable benefits for shareholders and wider stakeholders.

The FRC assessed corporate governance in the UK by considering the quality of reporting against the 2016 UK Corporate Governance Code

Further reading

The new UK Corporate Governance Code

New obligations and opportunities in assessing company culture

Reputation in the balance: Rethinking corporate governance

How can HRDs enhance board effectiveness?