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Stop 'box ticking' on best practice, UK watchdog tells companies

LONDON (Reuters) - Too many of Britain’s companies use formulaic explanations about diversity, climate change policy and leadership that provide little detail for investors, the Financial Reporting Council (FRC) said on Thursday.

FILE PHOTO: A view of Canary Wharf business district in London, Britain, October 14, 2020. REUTERS/Matthew Childs

The FRC supervises how companies comply with its Stewardship Code of governance best practice, requiring them to explain in a “clear and compelling” way if they choose to ignore some parts.

The code was toughened up in 2018 to include wider issues such as sustainability and how companies engage with employees, customers and investors.

“Unfortunately, some companies continue to treat the Code as a box-ticking exercise,” the FRC said in a review.

“Where this happens, reporting is formulaic and companies do not seize the opportunity to meaningfully explain why they do not comply with its provisions.”

Many companies talk about the importance of diversity at board level and in the succession pipeline, but offer little explanation to set out what they are doing to deliver that, it said.

Companies often talk about the process of engagement with stakeholders, rather than what actually emerges from it, the FRC said.

The review looked at 100 firms drawn from Britain’s top 250 listed firms and some smaller companies, with 58 reporting full compliance with all the code’s provisions.

The sample’s highest number of disclosed non-compliance, 16, was for the code’s recommendation that the chair and CEO of a company should not be the same person.

There were also “poor” explanations from some companies on why their chair remained in post beyond the nine years recommended by the code, the FRC said.

The watchdog will be carefully monitoring how boards report on risks associated with COVID-19, Brexit and climate change over the coming year.

Reporting by Huw Jones; Editing by Mark Potter