The latest version of the UK Corporate Governance Code was released in 2018 and the upcoming 2020 reporting season will require companies to report on the update.
The newest version of the Code had a number of key differences from the 2016 version. There was a greater focus on purpose, culture, and the stakeholders of the business.
We wanted to see how well the 2018 UK Corporate Governance Code has been implemented so far in Annual Reports. We did this by carrying out a review of the FTSE 100 Annual Reports that have been published after the 1st of January 2019 up to present day.
The first aspect that we decided to look at was the requirement that “The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned”. Surprisingly, there are very few Annual Reports that demonstrated that there was alignment between purpose, values, strategy and culture. Only 6% included a description of the alignment between purpose, values, strategy and culture.
However, a far greater percentage included descriptions of purpose, values and culture. 68% of Annual Reports included a description of purpose, 63% included a description of values and 49% included a description of culture. It was very common for the purpose, values and culture to be discussed in the Annual Report in separate sections of the report. The descriptions would generally be very far apart and so, it was frequently the case that the reader wouldn’t be able to make the link between purpose, values and culture themselves.
A key disclosure in the 2018 version of the UK Corporate Governance Code is the requirement to explain the board’s activities and actions in relation to assessing and monitoring culture and addressing any misalignment with purpose, values and culture. Only 24% of Annual Reports discussed how the culture of the company was being monitored by the board. Most of these reports discuss using an Annual Employee Survey as a key way to assess the culture of the company. Only a select number of Annual Reports gave a more substantial list of metrics that they were using to monitor culture.