Tuesday, 14 December 2010

Grant Thornton FTSE 350 Corporate Governance Review

Grant Thornton has published its FTSE 350 Corporate Governance Review for 2010, entitled “Evolving with the Code”. It provides research data for the corporate governance record of the FTSE 350 companies, giving comparisons going back 5 years. There are a number of interesting points that emerge;
  • There does seem to be something of a ‘boilerplate’ approach to narrative reporting, with the average length of the annual reports reaching 128 pages – the biggest was apparently 500 pages. The review suggests that companies set themselves a target of cutting back 10%. One of the wisest points made in the field! Cut the ‘boilerplate’ and the ‘box ticking’ and engage with the values.
  •  Boards are not very diverse. 46% of companies have exclusively male boards and only 9% of directors are female. I would guess the ethnic diversity is even worse. As I have written elsewhere, companies need to be more receptive to flexible career paths before they will become diverse in any meaningful way. As long as they stick to the old ways and very traditional thinking, failure will follow.
  • Although nearly half the FTSE 350 (153 companies) claims full compliance with the UK Corporate Governance Code, only 48 provide detail to verify this (schedule c of the code)
  • The 2010 Code brought in annual elections for directors. I am not alone in thinking this a daft idea but so do the FTSE 350: only 17 companies have annual elections of directors and only 50 have triennial effectiveness reviews, of which only 5% provided more than the bare minimum of detail. Actually I think the idea of facilitated board effectiveness reviews is quite a good idea as long as the board engages with the process and tries to gain something.Both these points emphasise, for me, that it is not just a matter of imposing rules but of winning the argument.
  • Compliance with the Corporate Governance Code has improved steadily over five years as has the number who explain non-compliance. In 2005 7% did neither but this dismal record had virtually disappeared by 2010
  • The estimated cost per meeting for a non-executive director is £2,800 for the mid 250 companies. Of course this is not the whole time they give to their companies, since reading and informal meetings are likely to double the average of 17 per annum. Nonetheless, it illustrates the level cost that smaller companies might struggle to find.
  •  Only 41% of mid-250 companies gave detail of how their board operates
  • There is something of a trend amongst larger companies to outsource internal audit: in 2010 there were 64 companies out of the 350 who did this.
  • Turnover amongst external auditors was very low. If this continued their average tenure would be 31 years
  • Companies have proven reluctant to disclose their strategy and direction in their annual reports: fewer than 50% comply with this requirement. Grant Thornton feel this odd because many companies do disclose such information on websites and in presentations, so it is scarcely secret. 
  • There is little evidence of companies providing verification of performance against non-financial Key Performance Indicators (KPI’s)

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