With the disruption of COVID-19 and the updates to the UK Corporate Governance Code, what should you be focusing on in your reporting?
Corporate reporting has been impacted this reporting period by the updated UK Corporate Governance Code, with a number of new disclosures added to the latest version of the Code. Each of these disclosures now also needs to be considered in a new light, due to the impact of COVID-19 on businesses and the economy.
Going beyond your shareholders
There is a new requirement to demonstrate that the directors of the company are applying section 172 of the Companies Act 2006. This means that engagement with wider stakeholder groups other than shareholders needs to be discussed. Actions and outcomes from this stakeholder engagement should be disclosed.
COVID-19 has required businesses to consider the needs and interests of all of their stakeholder groups, and respond to them. Businesses have needed to consider how to support the safety and wellbeing of their customers and employees, and the impact of their operations on the wider community. The Annual Report should include a discussion of how the board considered their stakeholders' viewpoints in the decisions they have made to deal with COVID-19.
Emphasis on improved dialogue with your workforce
A particular focus is given to engagement with the workforce. The directors have to implement a process for better workforce engagement.
The requirement for employees to work from home where possible has led to a shift in how employees communicate with each other, and how they work together. It has also meant that there has been increased difficulty with communication from the board and management down to employees. The Annual Report should address how the company has sought to ensure continued dialogue and engagement with employees through the changes in working patterns.
Define your culture
A description of the culture of the company and how it is monitored and assessed by the directors has to be included. It will be important to explain how the Board ensures that the purpose, strategy, values and culture are aligned.
There are a number of considerations around culture and COVID-19. The impact of COVID-19 may mean that there is a change of strategy in the business, which will require a different set of behaviours and culture from its employees. Any changes to the culture would need to be articulated in the Annual Report. Whether the culture of the company needs to change or not, the Annual Report could include discussion of how the principles of the culture have been implemented in this time of crisis. An explanation of the findings of the board when assessing and monitoring the culture of the business could provide useful context to understanding the impact of COVID-19 on the employees and culture.
A number of disclosures around diversity are required, such as how diversity is supporting the strategy of the company and how succession planning is ensuring a diverse pipeline.
Diversity is a consideration in light of COVID-19, as certain groups in the workforce will be more impacted by it, such as people vulnerable to being adversely impacted by the COVID-19 infection and people responsible for caring for children. The Annual Report could disclose how the company has supported these groups and ensures that they maintain diversity in the workforce.
Matching appropriate rewards to performance
There are a number of changes to the approach to remuneration, which will need to be reflected in the Remuneration Policy and Annual Report on Remuneration. These include a set of principles that need to be applied when constructing the remuneration policy, explanation of the strategic rationale behind the remuneration policy and whether the remuneration policy operated as intended.
Remuneration outcomes should be influenced by the performance and prospects of the business. With trading performance and future prospects of businesses impacted by COVID-19, a number of boards have agreed to reduce their remuneration. The Annual Report should include a clear explanation of how the remuneration outcomes of the policy have been altered in light of the impact of COVID-19.
For more information on how you can communicate clearly with your stakeholders, download our latest guides or get in touch with the team.