The IoD says its good governance report, now in its second year, is intended to stimulate public debate on the importance of corporate governance in rebuilding the reputation of the UK business community.

Its assessment is based on a combination of traditional governance indicators and stakeholder perceptions. Its panel rates companies on board effectiveness, audit and risk, pay, and relations with shareholders and other stakeholders. It also carried out an online survey of its members about their perceptions of companies’ governance. 

The results show that Tesco, which was hit by a major accounting scandal in 2015 resulting in a £263m ‘black hole’ in its figures, scored badly on both counts. The retailer was second from bottom in the perception table, recording the result of the stakeholder survey, with Hikma Pharmaceuticals in last place.

Tesco also took penultimate place in the ratings for published corporate governance performance, while housebuilder Berkeley Group Holdings in the bottom slot.

In contrast, British American Tobacco (BAT) topped the table of traditional governance indicators, well ahead of the next two companies (Royal Mail and Unilever), but was ranked at 42 in the stakeholder table, reflecting public concern over tobacco sales. However its combined performance put it in first place overall.

Sage came sixth in the table of published governance indicators, and at number 49 in the stakeholder survey, resulting in its fourth place overall.

Marks & Spencer was placed at 14 in the overall rankings, coming in at 15 in the traditional indicators table and 13 in the perception survey. The IoD carried out its research in March, before the high street giant was forced to re-issue its first quarter accounts after admitting that a spreadsheet error had resulted in double accounting. 

The IoD said it wants to encourage wider thinking on corporate governance, arguing that its methodology shows giving equal weights to different indicators is inappropriate.

The 2016 Good Governance Report is here.