The survey, now in its third year, examined a range of 47 factors relating to how companies are run, including board diversity, directors’ pay, how long the business has been with an auditor and whether they have a whistleblowing policy.

The IoD’s report combines publically-available data with over 2,000 rankings of the companies given by individuals with knowledge of what good governance looks like, including members of the IoD and the Chartered Quality Institute (CQI), company secretaries and accountants. The final ranking is weighted based on the perceptions of the different measures, with audit and risk being seen by governance experts as the most important.

The IoD’s analysis suggests the relative size of the company seems to have no effect on the position of the 100 companies studied, and the top-ranked business come from a range of different sectors, with the insurer Aviva and the engineering firm GKN coming in second and third place respectively. They are followed by Barclays Bank in fourth place, and then Smiths. Tied in sixth place are two insurers, Prudential and RSA, while International Consolidated Airlines holds eighth position, with InterContinental Hotels and Compass joint ninth.

Overall, energy companies outperformed compared to the average score, while IT companies underperformed. The IoD’s intention in producing the report is to encourage companies to consider a wide range of factors when doing a health check of how well their board and executive are functioning.

The report’s authors, Professor Andrew Clare, Dr Nicholas Motson and Professor Paolo Volpin, from Cass Business School, said: ‘Existing indices have been criticised for adopting a kitchen-sink approach where large numbers of indicators are combined using an arbitrary weighting scheme to produce corporate governance index scores for companies.

‘Our approach to the challenge includes two important innovations. First, we use a list of corporate governance indicators that go beyond simple compliance with the UK corporate governance code, by augmenting the usual set of indicator data with information contained in annual reports and other sources. Second, the weights we assign to five broad corporate governance categories to calculate our scores are derived from a unique survey of stakeholder views about the corporate governance regimes of the rated companies.’

The research team said the indicators included as measures of audit and risk/external accountability appear to exert the greatest impact on governance perceptions. In contrast, the indicators chosen to measure board effectiveness appear to have only a relatively weak correlation with governance perceptions and are therefore less weighted in the calculations.’

Estelle Clark, director of policy at the CQI, which supported the project, said: ‘The report clearly shows that there is no correlation between company size and effective corporate governance, which demonstrates that governance is not a matter of resource but of culture and will.

‘Society’s view of what constitutes good governance is changing, moving away from the narrow definition of financial performance towards a broader definition that takes into account an organisation’s impact on all its stakeholders. The 2017 good governance report has included measures of whether a company is a signatory of the UN global compact and the prompt payment code, for example.’

Ken Olisa, deputy chairman of the IoD, and chairman of the good governance report advisory panel, said: ’Our hope is that British boards will embrace the underlying subtleties of the third good governance index and so include as a regular agenda item, discussion of how well their company’s high-level system of direction and control is contributing to the business’ success.’

The 2017 Good Governance Report is here.

Report by Pat Sweet