FRC: Annual Review of Corporate Governance Reporting

On 13 November 2025, the Financial Reporting Council (FRC) published its Annual Review of Corporate Governance Reporting. This analyses reporting trends and practices among 100 UK-listed companies against the 2018 UK Corporate Governance Code (Code).

Going forward annual reports will be reviewed against the updated 2024 Corporate Governance Code which came into effect on 1 January 2025 for financial years beginning on or after that date (with the exception of Provision 29). Key issues raised in the review include the following:

Explanations for departures from the Code

The review notes that companies reporting departures from Code provisions are increasingly providing clear, meaningful and context-specific explanations for their approach. However, the FRC does comment that while it continues to observe and welcome a varied range of approaches from companies around how they present their explanations of departures from the Code, some disclosures remain relatively narrow in scope and lack clarity, while others reflect high levels of transparency.

The analysis found 25 companies disclosed a departure from at least one Code provision, with the most common relating to audit committee composition (Provision 24), chair independence (Provision 9), chair tenure (Provision 19), board performance review (Provision 21), board composition (Provision 11) and remuneration committee composition (Provision 32).

Good practice examples

The review highlights examples of good practice, with companies continuing to provide high-level commentary supported by clear signposting to relevant sections of their annual reports. This approach enables companies to communicate their governance practices effectively without adding unnecessary length to their disclosures.

Reporting on new Provision 29

Reporting on the new Provision 29 in the 2024 Code will commence from 2027 onwards, but the FRC is encouraged to see good reporting on preparations for following this Provision, which relates to risk management and internal control. The FRC points out that the requirements of Provision 29 should be applied proportionately and take account of the specific risks of each organisation to avoid unnecessary duplication and disclosure of immaterial information.

In their review, the FRC found that more than half of companies in their sample mentioned the changes to the Code. Many also provided information on how they are preparing for the new Provision, with examples including updating the board and its committees on the changes, enhancing/updating internal control frameworks, identifying material controls, reviewing the development of new frameworks and changing the scope of the audit committee’s responsibilities. Some companies also reported carrying out a dry run of the process intended to support the internal control declaration. The review includes examples of reporting on preparations.

Cyber and IT reporting

While the Code does not specifically ask for reporting on cyber matters, it does consider the governance of principal and emerging risks, so the review looked at cyber and IT reporting. It found that 66% of companies highlighted board-level oversight of cyber risks, something the FRC sees as an encouraging sign amid increasingly sophisticated threats from cybercriminals and state actors. 85% of companies included cybersecurity as a principal risk and a further 12% outlined it within their operational principal risks.

Length of annual reports

The FRC notes that while companies are moving towards more outcomes-based reporting, focusing less on the inclusion of lengthy policies and more on describing the actions taken during the year and the impact those actions have had, resulting in more concise and engaging annual reports, there is still room for improvement and the 2024 Code emphasises this.

The FRC states that there needs to be greater focus on ensuring annual reports are as concise as possible and it provides guidance on ways to reduce the length of the stakeholder engagement sections of annual reports in particular. These include the following:

• Focusing on board actions and outcomes, cutting down reporting on matters without involvement from the board.
• Avoiding narrative without purpose:
• Eliminating boilerplate language and avoiding generic statements that offer little or no insight and do not reflect tangible actions or outcomes.
• Avoiding duplication of disclosures, for example, around stakeholder engagement or risk management, which are frequently dispersed across multiple sections of the annual report, resulting in duplication and fragmented narratives.
• Minimising regulatory repetition: The FRC notes that some reports reiterate language from the UK Corporate Governance Code or other regulation or guidance without offering context or practical insight. Rather than verbatim repetition, companies should focus on demonstrating how the principles are applied in practice.

(FRC, Annual Review of Corporate Reporting, 13.11.2025)

Investment Association: Principles of Remuneration for 2026

On 13 November 2025, the Investment Association (IA) published its letter to the chairs of remuneration committees at listed companies which provides an update on the implementation of the IA’s Principles of Remuneration published and emerging views on issues which are likely to be important to IA members in the 2026 AGM season.

The IA last published its Principles of Remuneration in October 2024 (see further here) and is pleased with the way that remuneration committees have embraced those Principles, particularly those committees that have had constructive engagement with their shareholders. As a result, the IA is not making additional changes to the Principles for 2026 and its annual letter to remuneration committee chairs is focused on a small number of areas where investors feel the implementation of the Principles can be further improved. These are as follows:

Company specific rationales and explanations

The Principles are principles not rules, so IA members will continue to analyse the suitability of remuneration proposals on a case-by-case basis. Investors expect thoughtful engagement from remuneration committees, remuneration disclosures to be clear, and the rationale for what is being proposed and why this is the right approach for their business to be well-substantiated. If a remuneration committee is pursuing changes to the company’s executive remuneration structure or levels, investors expect good quality rationales which focus on: providing specific information on why a particular approach or outcome is chosen; why it is right for the individual company’s strategy and unique circumstances; and how these changes will impact upon the future success of the business.

Use of benchmarking and peer comparisons for remuneration increases

Remuneration committees are expected to outline why the remuneration levels and maximum opportunities are appropriate for the specific circumstances of the company and its material stakeholders, including the workforce. Companies are reminded that the use of benchmarking on its own to justify increases in remuneration is not appropriate, as it can lead to a ratchet effect in the market. The letter states that any benchmarking exercise should be robust and well-explained and it explains what it should set out.

Introduction of hybrid schemes

The Principles enabled companies to consider “hybrid” long-term incentive structures (combining features of performance share plans and restricted share plans) but IA members generally remain cautious about their use and generally expect companies to only seek approval for hybrid schemes where they have a significant US footprint and/or compete for global talent. They expect company rationales to move beyond generic and boilerplate statements and set out how the proposed changes to the structure align with a company’s strategy and business model, and the long-term success of the company. Remuneration committees are encouraged to consult early with investors if considering the implementation of a hybrid scheme.

Bonus deferral and shareholding requirements

The Principles permit the deferral of annual bonus once shareholding guidelines are met so if an executive has built up a significant long-term shareholding, a reduced portion of their annual bonus might be deferred into shares. Members do not expect companies to remove completely the deferral mechanism once shareholding guidelines have been met, as the bonus deferral offers an important mechanism to operate malus & clawback provisions.

Changes to in-flight awards and use of discretion

The letter points out that, as outlined in the Principles, the integrity and credibility of share schemes are compromised if there are retrospective changes or retesting of performance or vesting conditions and these are not supported by shareholders. If an award was granted with certain performance criteria or underpins, it is best practice for them to remain in place for the life of that award, and they should not be waived. If remuneration committees wish to use discretion to make adjustments in exceptional circumstances, this needs to be clearly justified subject to consultation (with robust rationales setting out why the situation is exceptional and how the adjusted outcome provides a strong link between pay and performance) and supported by shareholders.

Improving the consultation process

IA members continue to expect remuneration committees to consult with them on material changes, and to seek engagement early. With a view to improving the consultation process, the IA will be developing two initiatives on which it will provide further details in due course:

• To ensure that companies can reach appropriate contacts within their shareholders to discuss remuneration consultations, the IA will create a directory of IA member contacts for remuneration consultations.

• The IA will seek to re-establish collective meetings on remuneration proposals; these will be at the request of companies or investors and particularly be aimed at companies being able to engage with a wider group of shareholders in addition to individual engagement with the company’s largest shareholders.

Themes for the 2026 AGM season

IA members continue to reiterate the importance of remuneration committees clearly articulating the key decisions that they have made during the year, in particular demonstrating a strong link between pay and performance. Given the ongoing geo-political uncertainties, continued cost of living pressures and wider impact of National Insurance changes on businesses, many investors want to continue to understand how remuneration committees are considering the wider stakeholder experience when making executive pay decisions.

Non-executive director remuneration

The IA has also confirmed that the approach to non-executive director (NED) remuneration set out in the Principles also remains unchanged. Independent NEDs should be adequately compensated for their contribution to boards that reflects their time commitment, role complexity and experience. NEDs can own shares, with a portion of fees potentially paid in shares at market rates. In line with the UK Corporate Governance Code, performance-related pay is not appropriate for independent NEDs.

(Investment Association, Letter to Remuneration Committee Chairs, The IA’s Principles of Remuneration for 2026, 13.11.2025)

(Investment Association, Investors confirm 2026 executive pay guidelines, 13.11.2025)

FRC: Preparing for the UK Stewardship Code 2026 - Applying insights from current reporting

On 11 November 2025, the Financial Reporting Council (FRC) published a report to support signatories as they prepare to report to the UK Stewardship Code 2026 (the 2026 Code) which comes into effect from 1 January 2026.

The report highlights current examples of good reporting to the 2020 Stewardship Code (predecessor to the 2026 Code) and the FRC comments that that can support signatories as they prepare to report to the 2026 Code. It aims to provide practical insights into how signatories can demonstrate their approach to stewardship through reporting in a clear, evidence-based, and outcome-focused way.

The report also includes examples of reporting from the most recent successful signatories to the UK Stewardship Code 2020 that display high quality, transparent reporting on their stewardship activities and remain relevant to the 2026 Code. The report suggests practical ways in which signatories can adopt the reporting on Policy and Context Disclosure and Activity and Outcomes Report separately, where they may choose to do so, as well as illustrating continuity in the content of reporting the FRC expect to see as the 2026 Code comes into effect in 2026.

By showcasing examples of effective reporting, the FRC states that the report helps signatories understand how to align their disclosures with the Principles of the 2026 Code, communicate their stewardship activities and outcomes transparently, and meet the expectations of clients and beneficiaries.

(FRC, Preparing for the UK Stewardship Code 2026: Applying insights from current reporting, 11.11.2025)

(FRC review helps Stewardship Code signatories prepare for streamlined reporting requirements under the new Code, 11.11.2025)