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Greater focus is needed on stakeholder engagement, diversity and the importance of corporate culture

In January 2020, the Financial Reporting Council (FRC) assessed 82 ‘early adopters’ of the 2018 UK Corporate Governance Code, which applies to premium listed companies for accounting years beginning on or after 1 January 2019.

The discovery: Many companies do not successfully demonstrate their positive impact on the economy and wider society.

Overview of FRC findings

  • Many companies use ‘slogans and marketing lines’ in place of a true business purpose to explain what they do and why they do it. The wider context of the business culture and stakeholder views is rarely considered alongside the company purpose.
  • Few boards receive specific reports on the culture of their company or had it as a specific agenda item. Many companies focused solely on survey results or the diversity of the workforce to indicate the strength of their culture. The FRC conclude that this is not enough.
  • Progress is being made on gender diversity priorities and reporting but few extend this to other aspects of diversity such as age, disability and BAME. Where targets are set, many failed to disclose the actions taken to achieve them or if they are applied to board or senior management teams.
  • Companies must ensure effective engagement and participation from shareholders and stakeholders, beyond formal general meetings, to understand their views on strategy and performance. Currently there is limited explanation of how companies’ choose their methods of engagement or how the outcomes are fed to the board.

Four tips to improve your governance and reporting

Here are four ways to take advantage of the guidance to improve your governance and reporting based on the FRC’s findings:

1. Ensure the quality and credibility of your purpose statement

Define the connection between your stated purpose and your business model. Ensure it is considered in relation to your company culture and ethics.

2. Increase stakeholder engagement and consultations

Get regular and consistent views from your stakeholders, particularly your workforce. For example, enable them to take part in elections for roles and sit on committees. Ensure the board considers these views when shaping future strategies.

3. Elevate your diversity agenda

Develop targets, beyond those related to gender, that demonstrate a commitment to improve diversity, particularly at the top levels. Be sure your board succession plan meets the FRC’s requirement to ensure the right mix of skills and experience, constructive challenge and diversity.

4. Strengthen you corporate culture
Diagnose the strength of your corporate culture, don’t just assume it. Use quantitative and qualitative inputs to understand how your culture links to your business performance and how you can develop these to complement each other.