Public companies falling short in applying Corporate Governance Code

Publications that covered this story include the Financial Times on 18 December.
  • 46% of companies failed to explain how remuneration policy is aligned with overall strategy of the company last year

Our Corporate Governance Behaviour Review, jointly published with Quoted Companies Alliance (QCA), shows that small to mid-size UK-public companies are still falling short on reporting how they have applied the Corporate Governance Code.

The Review reveals that 46% of companies failed to explain to shareholders how their remuneration policy is aligned with their growth strategy last year, up from 32% in 2016.

The Review also showed that 78% of companies did not describe how the performance of each director and board member is evaluated, up from 56% in 2016.

Other significant findings include:

  • 64% of companies omitted to explain how audit objectivity and independence is safeguarded, up from 51% in 2016;
  • 66% of companies did not detail the significant issues considered by the Audit Committee in relation to their financial accounts and how these issues were addressed, up from 52% in 2016.

The QCA Corporate Governance Code sets out standards of good practice for quoted companies on AIM and NEX Exchange on areas including leadership, remuneration and audit. Companies elect to disclose how they have applied each of the main principles of the Code on their websites and in their annual reports each year.

The Review shows that Main Market companies made an average of 24* disclosures of a possible 30 last year, AIM companies made an average of 15 and NEX Exchange companies made an average of 10.

Our top five top corporate governance recommendations for companies are:

  • Describe the relationship between the company’s strategy and governance arrangements effectively, and explain the board’s role in realising the company’s objectives
  • Articulate the company’s story in an engaging way and take the time to avoid ‘boilerplate’ disclosures
  • Set out clearly how the board’s performance is evaluated and what is being done as a result
  • Provide a single total remuneration figure for each of the directors in a focused report
  • Explain each director’s role to demonstrate how the board has the appropriate balance of skills and experience.

Martin Jones, partner in our London office, says: “We are seeing improvements in disclosure in most areas but there is more to be done. The devil is always in the detail and investors want the full picture in annual reports.”

Tim Ward, Chief Executive of Quoted Companies Alliance, says: “The Corporate Governance Behaviour Review is used by many companies to benchmark their disclosures against their peers. It helps change board attitudes towards full disclosure of key points of interest for investors. The drive to more disclosure is not going to abate. Companies should do what is good for them and their investors in a pragmatic and proportionate way. This review and our QCA Code are designed to boost this approach.”

*Analysis of annual reports and corporate websites of 100 small and medium-sized companies with equity securities admitted to trading on a London market. Corporate governance disclosures compared against minimum disclosures set out in the QCA code. The sample of 100 companies is randomly selected for each annual report.

To download our fifth annual Corporate Governance Behaviour Review, click here.