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10 key stats from Grant Thornton's UK Corporate Governance Review

30 Nov 17 - 3:58PM  | Regulatory Compliance
10 key stats from Grant Thornton's UK Corporate Governance Review ...Prime minister Theresa May pledged to crack down on misbehaving businesses in 2016, following high-profile corporate governance scandals at BHS and Sports Direct.

In August, the government published a green paper response detailing several planned reforms for some of the country's biggest businesses. So, did May come good on her promises from last year? It depends who you ask.

The Trades Union Congress described the reforms as "watered down" and "feeble", while business secretary Greg Clark said the changes will ensure organisations are "more transparent and accountable".

Whatever your view, corporate governance has been thrust into the spotlight over the last year. But has this had a positive impact on governance across the country's listed companies?

A snapshot of corporate governance in 2017

Grant Thornton released its annual Corporate Governance Review in October, which provides detailed analysis of FTSE 350 businesses based on their annual reports.

Let's look at ten key stats from the report to see whether the government's efforts have facilitated performance improvements.

1. 66% of businesses fully compliant with UK Corporate Governance Code

The Code is a fundamental part of the UK's laws for governing listed companies, and two-thirds of organisations are now fully compliant. This is a rise of four percentage points on last year and is the highest proportion since the survey began.

2. 95% are close to full compliance

While one-third of organisations aren't completely compliant with the Code, the numbers may not be as bad as they seem. Grant Thornton noted that 95 per cent of firms were only one or two provisions away from full compliance, which was up from 90 per cent in 2016.

3. 39% reporting on culture

Company culture is becoming increasingly important for businesses, particularly in the wake of the global financial crisis and the public perception of toxicity in financial services. Almost 40 per cent of organisations had detailed culture-reporting disclosures, nearly double last year's proportion.

4. 70% committed to gender diversity

While seven in ten businesses complied with mandatory requirements to show a comprehensive gender split among employees, this figure was actually down on the 74 per cent that complied last year. This is a disappointing result considering the efforts made in recent years to boost gender diversity.

5. Just 6% of viability statements are robust

The good news is that all but one FTSE 350 business produced a viability statement in 2017. The bad news is that over half (51 per cent) gave little insight into future operating capacity and only six per cent covered all areas of the Code's guidance.

6. 67% underachieving on shareholder engagement

Shareholder engagement continues to slip, despite more companies saying it is a priority. Just 33 per cent of FTSE 350 businesses offered good or detailed information on their shareholder strategies, which is the sixth year in a row that engagement has dropped. The Institute of Internal Auditors had already reported earlier this year that FTSE 100 firms are failing to inform shareholders of risks.

7. Macroeconomic risk reporting up 55%

Brexit has had a notable impact on risk reporting for UK companies, with reporting of macroeconomic concerns jumping 55 per cent. According to Grant Thornton, this trend is likely to continue for the foreseeable future, as many businesses remain uncertain regarding the country's split from the EU.

8. 14% provide full succession planning disclosure

Businesses are tight-lipped about how they expect to replace board members and other senior executives. Just 14 per cent had detailed descriptions of their succession planning, with 36 per cent giving only the most basic indications. This could indicate a lack of a strategy, or simply a desire to avoid disclosing such information.

9. Risk management disclosures hit 80%

Risk management transparency hit record highs, as four-fifths of organisations now deliver good or detailed disclosures. Unfortunately, the same can't be said for internal audit, with barely more than one-third (35 per cent) offering keen insight into controls and systems.

10. 27% do not consider technology a serious risk

Perhaps surprisingly, given the scale of recent cyber security breaches, more than one-quarter of firms said technology wasn't a risk to their operation. What's more, 59 per cent of financial services businesses said technology was a serious risk, but only 25 per cent had cyber security expertise on their board, highlighting the gulf between concerns and practical action.

Will 2018 bring increased corporate governance focus?

The Grant Thornton report showed a mixed bag of results for FTSE 350 companies.

While compliance and risk management efforts appear to be on the rise, organisations appear to have stalled with gender diversity plans and shareholder engagement. More focus may also be needed across internal audit and cyber security functions in 2018.  

As May's reforms unfold, businesses should fine-tune their governance frameworks to remain compliant with new rules. Combine these responsibilities with incoming regulations - such as the General Data Protection Regulation and MiFID II - and firms could face a challenging 12 months.

If you need help strengthening your corporate governance teams in 2018, please contact Barclay Simpson today to see how we can support your strategy.

Our 2017 Compensation and Market Trends Report combines our review of the prevailing conditions in the compliance recruitment market together with the results of our latest employer survey.

Image: mindscanner via iStockADNFCR-1684-ID-801842616-ADNFCR
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