December 11, 2018 Moving towards better communication
This time last year we were contemplating the FRC’s proposed revision to the corporate governance code which was being driven by number of factors including culture, stakeholder engagement, diversity, and the comply or explain principle. One year on and that code has been launched, applying to accounting periods beginning on or after 1 January 2019. AIM listed companies also saw a change in 2018 with new London stock exchange regulations requiring AIM companies to not only follow a recognised corporate governance code with effect from 28 September but also to provide information in respect of that code on a free to access website.
Now as the year draws to a close, from a corporate governance and reporting perspective what do we have to look forward to in 2019? One clear message which seems to be arising is the importance of building on the changes seen in 2018 and going even further to improve levels of clear communication between companies and their stakeholders. This was certainly the message from the Quoted Companies Alliance’s (QCA) review of corporate governance behaviour which was released at the beginning of December.
Whilst the review acknowledged that 2018 had seen “a marked improvement in the level of disclosure” it also highlighted the perception that there is still work to be done. In fact, key findings from the report included the comments that “companies are going to have to take greater positive action in communicating with their shareholders and other stakeholders” and that “the onus is increasingly on boards to communicate more detail, more clearly.”
The importance of clear communication is a theme which flows through into the FRC’s reviews. For example, the FRC has recently called for auditors to improve their work on the “front end” of company reports. Highlighting the growing importance of ‘other information’ as a guide for investors, particularly as to the future prospects of a company, the FRC is looking for auditors to improve the extent and quality of the work which they carry out in reviewing this element of the annual report as well as taking greater care to identify material misstatements and inconsistencies in the annual report.
And then of course there is the FRC’s new corporate governance code which requires boards to engage on a regular basis with shareholders, stakeholders and the workforce as well as providing information in the annual report on range of matters including risk management and the work of the audit committee. Here again the principle of clear communication holds good if the board is to provide information in a way which is easily assimilated and will inform future investment decisions.