The Combined Code on Corporate Governance

UK Corporate Governance Code

Corporate governance has faced immense scrutiny recently following the high-profile collapses of BHS in 2016 and Carillion in January 2018, with MPs, the media and the public blaming the actions of the directors and auditors and all asking the same question… where was the board?

MPs, shareholders and the public have also been asking how effective the Financial Reporting Council’s (FRC) Corporate Governance Code has been in deterring poor corporate governance at the UK’s largest companies, following a raft of corporate failures. In July 2018 the FRC released a new UK Corporate Governance Code, (the Code) for listed companies in the UK. It also issued an update on its Guidance on Board Effectiveness. The Code is applicable to all companies with a premium listing, whether incorporated in the UK or elsewhere.

The new Code applies to accounting periods beginning on or after 1 January 2019, so with that in mind, this Common Practices report looks at how companies have been reporting on the current Code. We look at some good examples of reporting and look at the “explanations” made regarding compliance with the Code. We also discuss what’s new in the 2018 Code to enable readers to prepare for the upcoming changes.

The annual reports of 25 UK listed companies with year-ends between 31 December 2017 and 30 September 2018 were selected at random for review, across a range of industries. The full list of sample companies detailing company name, period end, auditor and industry classification can be found at the end of this report.

Redrow plc Period End 30 June 2009

Only “substantial compliance” with Combined Code

UK housebuilding company Redrow claims “substantial compliance” with the 2008 Combined Code on Corporate Governance throughout the year, following a board with less than half independent non-executives during the period and an executive Chairman appointed at the year-end.


Enhanced inventory disclosures do not show clear picture

UK housebuilder Redrow changes an estimate on its land inventory and shows reclassifications of impairment allowance between inventory categories, but not the carrying values of the categories, as a £96 million charge against land contributes 68.5% to the loss for the year.

Hargreaves Lansdown plc Period End 30 June 2007

Hargreaves Lansdown Annual Report Year 2008

Newly listed company's disclosures lack clarity
In the light of a majority shareholding by two directors, UK financial company Hargreaves Lansdown's statement that treasury shares purchased prior to listing were bought "in the market", contributes to a lack of transparency.

Classification of investment increases current year profit
UK financial company Hargreaves Lansdown recognises an £11.9 million gain on sale of investments that comprises 48.9% of pre-tax profit, though the appreciation in value occurred principally in prior periods.

Bellway plc Period End 31 July 2007

Bellway Annual Report Year 2008

Directors' remuneration based in part on undefined variable

UK housebuilder Bellway indicates that in future its directors’ annual bonuses will be based in part on operating profit, a non-GAAP term that it does not define.

No financial disclosures as environmental policies develop
UK housebuilder Bellway cites the UK government Stern Report on the Economics of Climate Change and reports its own actions in response, but without quantifying the financial effects.

JD Wetherspoon plc Period End 29 July 2007

JD Wetherspoon Annual Report 2007


Deferred tax income contributes 11.7% of profit

UK publican JD Wetherspoon recognises £5.5 million deferred tax income arising from a 2% deduction in UK corporate tax rate.