FTSE 350 companies are increasingly demonstrating greater compliance with the UK corporate governance code, but a third do not meet all requirements and reporting in areas such as succession planning and business culture still needs improvement, according to research by Grant Thornton
The firm’s 15th annual corporate governance review, undertaken by its Governance Institute, found that 62% of FTSE 350 companies are now in full compliance with the code. FTSE 100 companies are more likely to be fully compliant (72%) than their FTSE 250 counterparts (57%).
Whilst the report finds improvements in many areas, it highlights a number of shortcomings amongst the FTSE 350's reporting. Succession planning is identified as an area for improvement, with only 15% of companies outlining detail on their considerations and plans for future succession. Moreover, only 20% of companies provide any real insight into their organisational culture.
The analysis also suggests that shareholder engagement is on the slide, as now only 36% of businesses clearly demonstrate how they engage with shareholders: down from 55% in 2015, and the lowest it has been in five years.
Simon Lowe, Grant Thornton partner and chair of the Governance Institute, said: ‘Undoubtedly, more companies are recognising the commercial imperative of maintaining effective governance practices; yet there remains substantial room for improvement as a large proportion still opt for the bare minimum, complying only with the rules but not fully embracing the principles of the code.’
The report indicates an increase in the number of companies providing high-quality forward-looking statements, which now stands at 48% up from 41% in 2015); and only 4% of FTSE 350 companies declare the same principal risks as last year (from 24% in 2015), demonstrating companies’ greater focus on strategic risks and mitigation.
Grant Thornton's analysis also suggests the topic of wider diversity is now moving to centre stage, with 76% of companies mentioning aspects of board diversity other than gender (from 56% in 2015). Remuneration is being addressed in a more holistic way too, with 65% of companies now using non-financial metrics in their executive performance-based remuneration, compared with 46% in 2015).
Lowe said: ‘In this post-Brexit period of uncertainty, with the UK Government turning the heat up on wider employee engagement and corporate accountability, boards need to start taking an honest view as to whether they truly embrace the code's principles.
‘In the early years of this decade, the UK’s regulator, the FRC was able to head off the European Commission’s inclination to introduce more prescriptive governance regulation. The irony is that if more companies do not start fully embracing the code as it stands, recognising their responsibilities to a wider audience than just shareholders, and giving more informative disclosures, then we may well find that it is our own government who steps in to replace principles with prescription.’
