The governance landscape is changing - are you ready?

Friday, December 10, 2010 | Posted by: Simon Lowe
Categories: Governance, Research, Thought Leadership | Tags: FTSE 350, board, Stewardship Code, UK Corporate Governance Code, chairman, governance,

Our 2010 FTSE 350 Corporate Governance Code highlights key issues in governance trends in the UK’s leading companies and assesses whether they are prepared for the requirements of new governance guidance

The aftershocks of the financial crisis have led to a widespread reappraisal of governance practice. The last 12 months have seen the release of the Walker report, the UK Corporate Governance Code (the Code) and the Stewardship Code.

Our FTSE 350 Corporate Governance Review indicates 92% compliance with the provisions of the Code. However, a plateau appears to have been reached with too many companies merely complying with the letter of guidance rather than demonstrating the spirit of stronger governance.

Simon Lowe, Head of Business Risk Services, is concerned that the quality of reporting, where many companies fail to explain fully to investors their governance practices and how they work, is diluting the effectiveness of corporate governance among FTSE 350 companies.

Of the 49% of companies who choose to explain rather than fully comply, only a third changed their explanations substantially on last year. Where companies resort to boilerplate statements rather than, for example, providing clear explanations of how they manage key strategic risks or giving real insight into how they oversee their control environment, investors should adopt a healthy air of scepticism and be prepared to challenge and probe claims of good governance.

Corporate governance now faces the tougher challenge of turning compliance into embedded practice. Full and clear disclosures are a strong indicator of substance behind the compliance. Given the nature of the financial crisis, listed companies need to reassure investor groups that corporate governance is a priority and that practices are fully embedded.

Lowe concludes:

“For the sake of investors and the wider shareholder fraternity, it is time for FTSE 350 companies to embrace the spirit of the code rather than settle for the chore of compliance.”

For further help, contact Simon Lowe on simon.j.lowe@gtuk.com or read more on our Corporate Governance page.

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