The Financial Reporting Council’s updated guidance on comply or explain reporting arrives at a pivotal moment for UK companies As the first reporting season under the revised UK Corporate Governance Code gets underway, companies are preparing disclosures in an environment where expectations are shifting — not just for issuers, but for investors too.
For years, the FRC has encouraged companies to use the flexibility of the Code thoughtfully. Yet a culture has developed in which departures from the Code are often viewed with suspicion, prompting many boards to default to full compliance even when an alternative approach would better serve their business and their stakeholders. The result has been boilerplate disclosures that do little to illuminate how companies are actually governed.
The FRC’s new guidance aims to rebalance that dynamic by supporting the investment community to recognise that a well‑reasoned departure is not a governance failure. It is often evidence of a board engaging seriously with its responsibilities and making decisions grounded in the company’s specific context.
For companies, this shift represents an important opportunity - and a responsibility - to elevate the quality of their explanations.
A departure is not a weakness – it can be a signal of thoughtful governance
The FRC is explicit: a clear, transparent rationale for departing from a Code provision can demonstrate maturity, judgement and a commitment to long‑term value. Investors are being encouraged to look beyond compliance and assess the substance of a company’s governance choices.
For boards, this means that high‑quality explanations are no longer a defensive exercise. They are a strategic communication tool — a way to demonstrate how governance supports the company’s purpose, strategy and risk profile.
What the FRC expects from companies
The guidance sets out a clear framework for what good explanations should include. Companies that embrace this structure will not only meet regulatory expectations but also strengthen investor trust.
- Context
Explain the background and the reasons for non‑compliance. What is the company’s specific situation? What factors shaped the board’s decision?
- Rationale
Set out why the alternative approach is appropriate and beneficial. How does it better support the company’s strategy, culture or operating model?
- Risks
Acknowledge any risks associated with the departure and describe how they are being mitigated. This demonstrates transparency and control.
- Timing
Clarify whether the departure is temporary or ongoing. If temporary, outline the steps and timeline for moving toward compliance.
- Clarity
Use plain, accessible language. Explanations should be understandable, persuasive and free from boilerplate.
Why this matters now
The FRC’s guidance reflects a broader shift in expectations around corporate reporting. Investors are increasingly seeking insight, not box‑ticking. They want to understand how governance decisions are made, how they align with strategy, and how they support long‑term value creation.
Companies that continue to rely on generic disclosures risk falling behind. Those that embrace the spirit of comply or explain — and communicate their governance choices with clarity and conviction — will be better positioned to build trust, reduce friction with investors and demonstrate leadership in governance practice.
How companies can respond
As annual reports begin to land, boards and reporting teams should take this moment to reassess their approach to governance disclosures. The question is no longer simply “Are we compliant?” but “Are we explaining our governance choices in a way that is meaningful, transparent outcomes-focused and aligned with our strategy?”
This is where thoughtful preparation — and the right advisory support — can make a significant difference.
We can help
The Corporate Responsible Business team at MSL Salterbaxter has deep expertise across both corporate and sustainability reporting. Our reporting specialists work closely with boards, company secretaries and corporate communications teams to craft high‑quality governance explanations that meet regulatory expectations and resonate with investors.
If you would like to discuss what the FRC’s new guidance means for your reporting this year, we would be delighted to speak with you.