Corporate governance:
encouraging dialogue and participation

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How we govern our corporations plays a central role in the strength and health of our global economy.

Corporate Governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders' role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company's strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board's actions are subject to laws, regulations and the shareholders in general meeting.

Today, there is a growing dialogue among the different stakeholders about corporate governance and how it should evolve to cope with the increasingly dynamic and global nature of our capital markets. This dialogue is taking place against a background of legislative and regulatory change; the implementation of International Financial Reporting Standards around much of the world; an increase in the scope of audit and other internal control and risk management activities; and increased public scrutiny.

It is only with dialogue and the active participation of all stakeholders that the appropriate balance can be reached between:

  • strengthened central controls and fast local responsiveness;
  • effective risk management and the enduring need for innovation; and
  • the additional costs of new corporate governance and the value it seeks to protect and enhance.

The aim of this section is to help inform and stimulate that dialogue.

Annual reporting in 2015: evolving communication in a changing world
September 2016

The third edition of our annual review of FTSE 350 annual reports and accounts (ARAs) looks at how annual reporting is evolving to meet investors’ needs. It covers five key themes that have been hot topics in corporate governance and reporting over the last year:

  • Clear and concise
  • Business models, risk and viability
  • Culture and people
  • Broader societal impacts
  • Looking ahead (including digital and integrated reporting).

Read the report.

Governing culture: practical considerations for the board and its committees
June 2016

This paper follows up on our other recent reports on culture, the EY and FT Board Survey and The route to risk reduction: better rules or better decisions?.

It has a governance focus and is intended as a practical aid for boards and board committees. It provides questions for discussion which apply a cultural lens to board and committee oversight responsibilities.

Read the paper.

The nomination committee – coming out of the shadows
May 2016

The nomination committee has been regarded by some as the ‘poorer cousin’ of the audit and remuneration committees, yet arguably, it is the most important. It determines board composition, and therefore ultimately board effectiveness – a vital ingredient in a company's long-term success.

This report, produced in partnership with ICSA: The Governance Institute, focuses on the committee’s role, and how boards can improve its work.

Read the report.

Policy Pulse
March 2016

The UK is currently experiencing a wide range of regulatory changes, and the way we do business is evolving apace. Policy Pulse provides you with the insight and questions that will help you navigate your way through these developments and capitalise on the opportunities they present. In this, our first edition, we cover:

  • Dialogue with investors: what investors really think
  • Audit innovation: a big deal over big data
  • Corporate culture: coming of age with new management techniques
  • Succession planning: rising to the top of the FRC’s agenda
  • Audit committee chairs: implications of EU audit reform
  • Recent regulatory updates: developments worth watching.

Read other Corporate Governance Updates.

UK Corporate Governance Code: changes in respect of risk management and viability statements
YouGov Survey Results – February 2016

EY, with the support of the FRC, commissioned a YouGov survey on companies’ thoughts on the UK Corporate Governance Code changes. The survey was designed primarily to gauge the preparedness of FTSE 350 companies for these changes. It included a series of questions to see how they coped with new requirements in the Code. The scope covered the assessment and reporting of:

  • Principal risks
  • Risk management and internal control framework effectiveness
  • Viability statements

It also covered the extent to which companies planned to incorporate risk appetite and culture in the above tasks.

Read the report

Rising to the challenge: a review of risk and viability disclosures in September 2015 annual reports
January 2016

Premium listed companies with 30 September 2015 year ends were the first to mandatorily comply with the requirements of the 2014 UK Corporate Governance Code with respect to the viability statement and enhanced risk disclosures. Did they rise to the challenge?

We reviewed a sample of their annual reports and our latest publication, Rising to the challenge:

  • Provides our views on what makes for good disclosure in this area
  • Draws out emerging trends
  • Identifies leading practice to help other companies improve their own reporting.

Read the report and other material on viability statements.

Annual reporting in 2014: reflections on the past, direction for the future
September 2015

Our new report highlights trends, developments, and opportunities for improving annual reports and accounts (ARAs) to better communicate with the investor community. Read the full report to find out:

  • How FTSE 350 2014 ARAs have changed since 2013
  • The evolution and development of leading practice compared to last year’s review
  • Future changes to reporting.

Board effectiveness: four short videos
April 2015

Given that our April 2015 report on board effectiveness is intended to provoke further discussion and stimulate thoughts on the topic, we captured some immediate reactions from panel members and the audience who attended the report launch event on Monday 13 April 2015. Watch these four short videos to hear their thoughts on:

Assessing the effectiveness of the external audit process: a tool and guide for audit committees
August 2015

A guide and tool to help audit committee assess and report on the effectiveness of the external audit process.

This tool takes into account the FRC’s guide Audit Quality: Practice Aid for Audit Committees issued in May 2015.

Key features of the EY tool include:

  • suggestions of the evidence/indicators that audit committees could collate and review to make the assessment process robust and objective
  • questions audit committees should address to make the assessment process efficient and effective
  • the option to highlight text, add comments, strike out questions and write notes. This allows users to customise the tool to reflect the particular circumstances of the company and its audit, and annotate actions and/or report on progress.

News worth knowing: Corporate Governance update
April 2015

Includes the UK’s anti-corruption plan, a review of remuneration policy, the FRC’s 2015/16 plan and budget, and the UK’s implementation of the Transparency Directive.

Board effectiveness – continuing the journey
April 2015

The report is based on a series of individual meetings and roundtables which brought together leading chairmen, board directors and senior investors to debate the issue of board effectiveness. It draws on the contributions from these discussions and is supplemented by insights and perspectives from EY and The Investment Association.

The viability statement: Finding opportunities in the new regulatory challenge
March 2015

A thoughtful response to the 2014 Corporate Governance Code’s new viability statement requirements could bring opportunities, including enhanced business resilience, a lower cost of capital, better understanding of risk appetite, and the potential for improved financial performance.

Our new thought leadership report The viability statement: Finding opportunities in the new regulatory challenge:

  • highlights the opportunities for companies if they develop a thoughtful response to the changes (whilst also meeting compliance obligations)
  • provides our views on some of the  issues boards and management need to consider
  • suggests actions companies should take to ensure they meet the new viability statement requirements in their 2015 ARAs.

Whistleblowing – change is coming
November 2014

The PCBS has published recommendations for enhancing corporate transparency, governance and integrity. Firms should consider their whistleblowing framework’s effectiveness, and whether their culture encourages employees to raise concerns.

News worth knowing: Corporate governance update
October 2014

Read the latest Corporate Governance update (496K, October 2014), including biennial growth in the UK Corporate Governance Code, closure on the going concern debate, and revisions made to the Code on executive remuneration provisions.

Out with the old, in with the new: Final report
September 2014

Provides insights about how companies have addressed regulatory and legal changes, and highlights how companies can build on the foundations of 2013 and do things better in 2014 (and beyond) using practical, actionable guidance.

Shareholder engagement and corporate reporting at a crossroads
February 2014

Corporate reporting changes which have been in the pipeline for several years have now become a reality. Annual reports and accounts of quoted companies will contain new information to comply with various codes and legislation - all introduced post the financial crisis to enhance corporate governance, stewardship and reporting.

The key question that now remains is whether the new information will be used by shareholders to further fulfil their stewardship role. Or could a lack of engagement lead the UK further down the path of more prescriptive regulation?

This publication examines these issues, looks at future developments which point to boards and investors having to up their game even further on how they effectively engage with each other and also highlights potential questions that investors could ask enabled by new and enhanced ARA disclosures.

Assessing the performance of the audit committee
January 2014

The Financial Reporting Council’s (FRC) Guidance on Audit Committees (revised in September 2012) provides guidance to UK listed companies on the composition, role and responsibilities of the audit committee. The Guidance aims to help boards of companies with a Premium listing of equity shares to implement the relevant provisions of section 3 of the UK Corporate Governance Code. The 2012 Guidance updates the previous Guidance issued in December 2010. The changes to the 2012 Guidance arise primarily as a result of the revisions to the UK Corporate Governance Code in September 2012. The revised Code and Guidance are effective for financial years beginning on or after 1 October 2012.

We have produced this checklist to help audit committees review their current activities against the Guidance and identify practices which could be improved. Company boards may also find this checklist useful as part of their review of the effectiveness of their audit committee.

Strategic Report for private companies
January 2014

Under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, all UK companies other than those that qualify as small companies) have to produce a Strategic Report. What is the impact of these Regulations for a private company? From a practical perspective, will the Strategic Report of a private company be any different from the business review it produced under s417 of the Companies Act 2006? This EY publication examines these issues and provides practical guidance for private companies to help them comply with the Regulations as well as enhance the quality of their Strategic Reports.

Meeting the fair, balanced and understandable (FBU) challenge – Make your corporate reporting count
September 2013

This is a new requirement of the UK Corporate Governance Code, affecting reporting periods beginning on or after 1 October 2012. It poses a few challenges for listed company reporters: regulators have not defined exactly what they mean by FBU and no further guidance is likely. Management and the boards of listed companies therefore need to apply their own judgment to decide what FBU means to them and their company’s reporting.

In forming this view, we encourage listed companies to refer to existing helpful guidance issued by the Financial Reporting Council (FRC) and others on what makes for good corporate reporting.

Given the challenge facing companies, we reviewed the most recent ARAs of a few listed companies across a range of sectors, assessing key sections for their ease of understanding. We also attempted to assess the ARAs for their fairness and balance, whilst recognising that only company boards and management can truly judge this. We identified FBU indicators, drawing both on FRC publications and our own experience.

Our findings represent our own judgment of what makes for FBU reporting. Though not scientific, they offer insight for companies in terms of what they can do to enhance FBU in their reporting, to comply with the new requirements but also to enhance communication with shareholders.

Changes to communication and reporting for companies and auditors – what do companies and auditors need to start thinking about?
May 2013

This publication provides some practical guidance and considerations to help companies consider the requirements of the revised UK Corporate Governance Code for:

  • boards to confirm that the annual report and accounts is "fair, balanced and understandable
  • audit committees to provide information to shareholders (within a separate section of the annual report and accounts) on the significant matters considered in relation to the financial statements and how they were addressed.

Audit exemptions

A new UK statutory instrument exempts qualifying subsidiaries from a statutory audit if their parent companies meet certain legal requirements. Find out about the implications for your business.