Enter to open, tab to navigate, enter to select
UK Corporate Governance Code: ABI report on comply or explain
Practical Law UK Legal Update 2-523-1462 (Approx. 3 pages)
UK Corporate Governance Code: ABI report on comply or explain
by PLC Corporate
| Published on 13 Dec 2012 • United Kingdom |
The ABI has published a report on investor expectations and market practices in relation to comply or explain disclosures.
On 13 December 2012, the ABI published a report on investors' views of explanations given by companies that depart from UK Corporate Governance Code provisions. The report follows the FRC report published in February 2012, which summarised discussions between companies and investors on what constitutes an explanation under the comply or explain approach in the Code (see Legal update, Corporate governance: FRC report on what constitutes an explanation under comply or explain).
The ABI has developed the following six criteria to assist companies preparing disclosures to explain Code non-compliance:
- Companies should consider the context in which they make the governance decision, including historical developments and business specific reasons.
- Explanations should provide a convincing and understandable rationale for the governance decision, linking it to the business and governance context.
- Companies should explain any mitigating action taken to address risk arising from the non-compliance.
- Disclosures should indicate whether the non-compliance is time limited.
- Explanations should relate to the Code provisions as well as Main Principles.
- Companies should explain how any alternative arrangements are consistent with Code principles and contribute to good governance.
The ABI reviewed a sample of Code non-compliance explanations against these criteria. Overall, it found that many disclosures do not meet investors' needs and the report identifies areas requiring improvement. The report also provides examples of best practice disclosures. The ABI notes that the trend towards including Chairmen's introductory corporate governance statements is having a beneficial effect on disclosures generally.
For further background, see Standard document, Annotated UK Corporate Governance Code: Comply or Explain.