In the FRC Annual Review of Corporate Governance, the regulator found that many businesses are still failing to competently report on their governance in line with the UK Corporate Governance Code.

A common theme throughout the report is the total lack of disclosures surrounding the outcomes and impacts of governance policies and practices, particularly about board engagement with shareholders.

The Code promotes the importance of establishing a corporate culture that is aligned with the company’s purpose, business strategies, and disclosures on diversity. It also places greater emphasis on relationships between companies, shareholders and stakeholders.

This year, although most companies provided helpful information on their processes and procedures, 73 companies disclosed non-compliance with one or more provisions of the Code.

Of these companies, a majority failed to provide meaningful explanations about the outcomes and impacts of their governance policies, the regulator warned.

Only 27 FTSE 350 companies reported full compliance with the Code, down from 36 in 2021. This is alarming, as last year, the regulator advised companies to provide a clear and meaningful explanation for any departures from the Code.

In addition, too many reports included instances of duplication and repetition, along with boilerplate statements that offered little insight into company governance.

Sir Jon Thompson, CEO of the FRC, said: ‘In uncertain economic times, how companies govern themselves is more important than ever. The UK Corporate Governance Code continues to provide a clear and flexible basis to support better governance and well-run companies.

‘This year, we have continued to see a good standard of reporting but companies still need to go further in reporting how they apply the Code’s principles and comply with the provisions, describing the actions and outcomes that come from them to improve market confidence and facilitate better stewardship.’

The FRC also identified minimal levels of disclosure about board engagement with major shareholders, with only 52 companies reporting on this.

Such disclosures are important, the regulator stressed, as they give investors and the public information which is crucial for market confidence and lowering the cost of capital, particularly at a time of economic uncertainty. 

Feedback on shareholder engagement was reported by only 23 companies, with 17 of these only explaining the feedback received on remuneration matters.

In addition, half the companies provided little information about their corporate risks, culture and environmental, social and governance (ESG) policies.

While 60 companies mentioned these policies, their reporting remained disjointed, particularly in areas concerning corporate purpose, sustainability, and company values.

However, the report did find that many companies reported on meeting external diversity targets. This year, 89 companies stated that they had some form of diversity policy in place, with just 11 failing to disclose information.

Of the 11 companies, 10 failed to refer to a specific policy within their report regarding diversity, equity and inclusion.

However, the regulator did find that many provided generic statements, which included basic descriptions of what their policies covered. It also found that many failed to disclose diversity at the organisation's senior levels.

The FRC assessed 100 FTSE 350 and Small Cap companies.

The FRC Annual Review of Corporate Governance can be found here.