The Institute of Directors (IoD) is planning to develop a new approach to corporate governance, setting up an index ranking based on the FTSE 100, saying its research shows the UK’s current approach is flawed, with regulators focusing too much on compliance
The IoD report, The great governance debate – towards a good governance index for listed companies, assesses a number of governance factors including business performance, audit arrangements, directors’ pay and shareholder relations, and also includes a survey of business leaders' perceptions of the UK’s biggest companies.
It aims to combine external perceptions of whether a company is well-run with the objective factors normally used to judge good governance to produce an overall governance score ranging from 424 to 900.
According to the IoD’s preliminary findings, all the major banks (Barclays, HSBC, Lloyds, RBS and Standard Chartered) score below 600, while Tesco (478.5), Sports Direct (430.8) and G4S (424) also performing badly.
Ken Olisa, chairman of the advisory panel for the report, warned that it was wrong to rely on regulators, whose focus is inevitably on compliance, to improve governance at the UK’s biggest companies, saying: ‘Identifying symptoms of governance failures, and then drawing up check lists to eradicate them leaves us in the position of always fighting the last battle.’
The IoD report suggests current approaches are too reliant on box ticking and claims that even if all listed companies were 100% compliant with the corporate governance code this would not prevent future scandals, failures or collapses.
Olisa said: ‘One of the key findings of our new research is that no one factor dictates whether a company is well-run, whether that’s the number of non-executives on a board or how often the auditor is changed. It is simply not correct for a company to say that because they have ticked certain boxes, they show good governance.’
The IoD said it intends to create an index of listed companies which shows how they perform against a number of factors which it says will help investors and directors in their decision making.
Simon Walker, IoD director general, said: ‘The reputation of corporate Britain took an almighty kicking during the financial crisis, and several years later, is still on its knees. Any attempt to restore public faith in business must start with good corporate governance, but focussing solely on how companies report compliance with a framework, while not looking at underlying behaviour, will simply not do the job.
‘This report challenges previous ways of measuring the governance of big companies, and kicks off a new debate on how firms can improve their transparency, accountability and performance.’
The IoD report is here
