Latest guidance from the UK accounting watchdog: raising the bar for reporting under the UK Corporate Governance Code

Background

On 16 March 2026 the UK accounting watchdog, the Financial Reporting Council (FRC), issued updated guidance aimed at improving the quality of “comply or explain” reporting under the UK Corporate Governance Code (the Code).

For over three decades, the Code has combined high‑level principles with more detailed provisions, emphasising that the framework allows for flexibility through a "comply or explain" approach, enabling companies to tailor governance structures which are appropriate and proportionate to their specific circumstances, rather than providing a rigid set of rules. Where a provision is not followed, the FRC expects a thoughtful and well-reasoned explanation, together with a clear description of the alternative measures adopted that nonetheless align with the spirit and underlying principles of the Code. Recent FRC reviews, however, indicate that companies are increasingly drifting from the framework’s intended spirit.

The FRC has issued the guidance as a result of concerns around companies treating the Code as a box-ticking compliance exercise. For example, it has observed companies increasingly relying on boilerplate disclosures which reveal little about how a company is actually governed, unsupported assertions of full compliance and, in some cases, failures to disclose departures altogether. The FRC warns that such behaviour undermines transparency and weakens the value of governance statements for investors and stakeholders. The FRC has also acknowledged the development of a culture in which both issuers and investors (and their advisers) consider departures from the Code suspiciously. In the accompanying press release, the FRC's CEO Richard Moriarty highlighted that: "a well-reasoned explanation for departing from a provision is not a red flag — it is evidence of a board thinking seriously about what good governance means for their company. We want to support companies and investors alike to embrace that spirit with confidence.”

The updated guidance seeks to re‑centre “comply or explain” on its core purpose: meaningful transparency, accountability and insight into board decision making.

What does the guidance say?

Applying the principles

The Code contains high level principles which sets expectations for good governance but give businesses discretion in how they apply them. The new guidance clarifies that businesses must explain clearly how the principles are applied. Reporting on the application of the principles should detail how responsibilities were discharged, focusing on actions, decisions and outcomes (for example, how stakeholder engagement influenced deliberations).

Reporting against the provisions

The Code’s provisions permit either full compliance or a well‑reasoned alternative approach. The FRC is clear that good governance is not synonymous with strict, mechanical adherence to every provision, and it has criticised “tick‑box” or boilerplate reporting for failing to reflect how a business is actually run. Companies are expected to identify any departures from the Code explicitly and avoid ambiguity. Where they adopt an alternative approach, they should provide considered, meaningful explanations that demonstrate how the chosen practice aligns with the spirit and principles of the Code. In turn, shareholders and proxy advisers are encouraged to evaluate these explanations on their merits, rather than treating compliance as the only acceptable outcome.

Transparency and clarity

The FRC found examples of companies declaring full compliance despite actual departures from the Code, raising concerns about the reliability of entire annual reports. Companies must therefore state clearly whether they fully comply or have departed from specific provisions, with direct cross‑references to explanations. Naming the relevant provision and avoiding evasive language are essential.

Departures from the Code: what constitutes a clear, meaningful and persuasive explanation

To demonstrate that a departure from the Code is justified, the FRC identifies five elements of a high‑quality explanation:

1. Context: Background information should be given that enables readers of an annual report to understand the decision and its governance environment.
2. Rationale: A convincing rationale for the chosen alternative, including details of why it is appropriate in the company’s circumstances.
3. Risks and Mitigations: Identification of any risks associated with the departure and steps taken (or to be taken) to address them.
4. Timescales: Whether the departure is temporary or indefinite, including anticipated timelines for future compliance. Where a departure is indefinite, it is helpful to expressly state this and articulate any factors which may prompt the company to re-visit the position.
5. Persuasiveness: Clear, plain‑language narrative that enables stakeholders to assess the effectiveness of the alternative approach.

The FRC has highlighted that many existing disclosures lack these features and, instead, are generic or disconnected from actual board choices. Transparent, well‑reasoned explanations can enhance, rather than erode, investor confidence. Helpful examples of good and poor practice are included in the guidance. 

Practical steps for businesses

Strengthening board‑level drafting and oversight

Boards should oversee governance disclosures directly and ensure reporting reflects real decisions and outcomes. They should challenge generic language and ensure consistency with actual governance practice.

Avoiding boilerplate reporting

Explanations must be tailored to the company’s structure, strategy and risk profile, rather than repeating standardised phrasing.

Ensuring full transparency on where the Corporate Governance Code is departed from

Compliance statements must be explicit. Where a provision is not followed, the company should:

• name the relevant provision(s);
• provide a full explanation using the FRC’s five criteria; and
• cross‑reference the explanation clearly within the annual report.

Demonstrating outcomes and decision‑making

Reporting should show how board actions shaped organisational outcomes rather than merely describing processes. Concrete examples (e.g., stakeholder engagement that led to changes in strategy) are encouraged.

Preparing for investor and proxy‑advisor scrutiny

Given the FRC’s encouragement for investors to evaluate explanations rather than penalise departures automatically, companies should prepare for more detailed questioning. Clear explanations can support constructive engagement and reduce the risk of negative voting recommendations.

Updating governance and secretariat practices

Governance teams should:

• review any reporting templates against the new guidance;
• create processes to identify potential departures early;
• consider adding identification of any departures from the Code as an agenda item at key board meetings;
• ensure board and committee members understand disclosure expectations, including through refresher training;
• maintain clear records of rationale, risks and expected timescales to support accurate reporting.

How can we help?

If you have any questions or would like support in reviewing your current governance disclosures, frameworks or committee practices, the Foot Anstey Dispute Resolution Team can assist. We can also provide tailored training for boards, committees and governance teams on applying the Code and producing high‑quality “comply or explain” reporting. Please contact Sonya Zywko to discuss how we can help.