Tuesday, November 22, 2011 | Posted by: Simon Lowe
Categories: Governance, Thought Leadership | Tags: governance, risk, Corporate Governance, Simon Lowe, FTSE 350, Corporate Governance Review, annual report, risk management, diversity, chairman, principal risks, comply or explain, annual reports, FTSE 100, FTSE 250
Our 10th annual Corporate Governance Review highlights the current trends and challenges that face the FTSE 350. While the UK’s top performing companies have made considerable achievements over the last decade, the review shows where the new focus areas lie.
Since our first Corporate Governance Review was released 10 years ago, governance practice in the UK has continued to evolve in response to changing guidance.
Its positive impact is seen in many practices, for example: the rise in independent directors, the almost universal adoption of board evaluations and the developing business model disclosures. This quiet revolution has seen full compliance find its natural level from a low point of 28% compliance in 2004, to around 50% for the last two years. The focus now is firmly on the quality of the ‘explanations’.
Here are four of the main areas for companies to improve on, summarised from our 2011 UK corporate governance report A changing climate: Fresh challenges ahead.
1. Tone from the top
More than 50% of chairmen make no mention of governance in their chairman’s statement and only 10% give real personal insight as to the tone they seek to uphold in their organisations. Clearly there remains an opportunity for chairman to take personal ownership of the governance agenda setting the tone from the very top.
2. Board diversity – and transparency
With only one in 10 of the FTSE 350 currently having 25% female representation on their boards, the search consultants have their work cut out if the 2015 gender diversity targets are to be met. But with the FTSE 100 seeking to attract the very best, the nominations committees and those responsible for talent development in the FTSE 250 will need to redouble their efforts to identify, nurture and retain high quality individuals within their organisations. And if they are serious about strengthening gender representation on their boards, a good starting place would be for 73% of companies to make public their policy in this highly topical area.
3. Quality over quantity in annual reports
The length of the annual report continues to grow with the average number of pages now 5% greater at 135. Regulators and governments are developing their thinking around narrative reporting but this shouldn’t stop companies themselves rethinking how they can give more informed disclosure with fewer words and pictures. The new mantra should be ’quality not quantity’. This year 39 companies achieved over a 10% reduction; the challenge remains for the rest.
4. Risk reduction and business strategy
The recognition and disclosure of principal risks is now well established with 74% of companies giving more detailed explanations. There is a tendency to include generic risks; the challenge now is to reduce the number of risks and to take a lead from the 21% of companies who clearly align their risks to their business strategy.
Our 2011 Corporate Governance Review suggests that while much has been achieved over the past 10 years, now is the time for companies to recalibrate their expectations in tune with the evolving governance climate. They must aim to give greater insight and understanding to the reader rather than greater volume of information.
Download our FTSE 350 governance review
For further news, issues and analysis on the UK corporate governance landscape, read the full report: A changing climate: Fresh challenges ahead. For corporate governance help and advice, visit our Governance Advisory page.
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