- The UK Corporate Governance Code allows companies to ‘comply
or explain', meaning they can depart from certain provisions if
they clearly explain why a different approach works better for
them.
- This flexibility is a defining feature of the UK's governance
framework and is designed to encourage thoughtful, board-led
decision-making rather than box-ticking compliance.
- The FRC wants companies to feel more confident using that
flexibility, and investors and proxy advisors to recognise that a
well-reasoned explanation can be a sign of strong governance, not
a red flag.
- The message comes as the first reporting season under the
updated 2024 Corporate Governance Code concludes and AGM season
begins for many UK-listed companies.
Richard Moriarty, FRC CEO, said:
“For too long, ‘comply or explain' has been misconstrued as
‘comply or else'. Many companies have come to believe the safest
course is simply to follow every provision of the Code and avoid
departures altogether. That misses the point of the UK's
governance framework.
“The Code was deliberately designed to give boards
flexibility to make decisions that work for their company and
their shareholders, and to explain those decisions clearly. A
thoughtful, well-reasoned explanation is just as valuable as
compliance.
“Boards should feel confident using that flexibility. Good
governance comes from boards thinking from themselves and
explaining their judgement, not box-ticking compliance.”
The FRC has today published updates guidance aimed at helping
investors, proxy advisers and other users of corporate reporting
better understand how companies apply the Corporate Governance
Code. More detail is available on the FRC website: https://www.frc.org.uk/news-and-events/news/2026/03/frc-publishes-guidance-to-help-investors-and-advisors-recognise-the-value-of-flexible-governance-reporting
ENDS
Notes to editors
What is ‘comply or explain'?
The UK Corporate Governance Code sets out principles and
provisions intended to support effective leadership,
accountability and oversight in UK listed companies.
Rather than requiring companies to follow every provision
exactly, the Code operates on a ‘comply or explain' basis.
Companies can either comply with a provision, or explain why a
different approach better serves the company and its
stakeholders.
This flexibility recognises that companies differ in their
ownership structures, strategies, risk profiles and stages of
development. What works well for one board may not be appropriate
for another.
However, in some parts of the investment community, any departure
from the Code is seen as a governance failure. This can create
pressure for companies to claim full compliance even where an
alternative approach might be more appropriate, leading to
‘box-ticking' reporting that offers little insight into how
governance decisions are made.
The FRC's updated guidance aims to help investors and proxies
recognise the value of well-reasoned explanations, including
those that clearly set out the board's thinking, the risks
considered and how those risks are managed.
The guidance is being published as AGM season begins for many UK
companies with December year-ends, and as the first reporting
cycle under the updated 2024 Code concludes. The FRC will review
the quality of comply-or-explain disclosures during this
reporting season and publish its findings in its annual corporate
governance review later this year.
Recent examples of company departures
-
Marks & Spencer: In October 2025 M&S
announced it would extend the tenure of as chair for up to three
years and beyond the nine-year limit recommended in the Code.
M&S cited continuity during its ongoing turnaround and the
popularity of Norman amongst shareholders. (link)
-
British American Tobacco: In February 2026 the
company said it would extend the tenure of Luc Jobin as chair
for up to two years, despite his ninth anniversary in the role
coming up in July. BAT said Jobin's two-year extension would
provide ‘continuity, stability and the experienced leadership
needed to guide the business through this important phase of
our transformation'. (link)
The FRC sets the UK Corporate Governance and Stewardship Codes
and UK standards for accounting and actuarial work; monitors and
takes action to promote the quality of corporate reporting; and
operates independent enforcement arrangements for accountants and
actuaries. As the competent authority for audit in the UK the FRC
sets auditing and ethical standards and monitors and enforces
audit quality.
