ALMOST HALF of FTSE 250 companies fail to meet their governance requirements, with only one in five public companies report adequately on culture, a new study has found.
Shareholder engagement is also deteriorating, hitting a five-year low with only 36% of companies clearly demonstrating how they engage with shareholders, according Grant Thornton’s 15th annual corporate governance review.
The firm issued a stark warning to boards failing to fully comply with the combined code on corporate governance.
Simon Lowe, partner and chair of the Governance Institute at Grant Thornton, said: “In the early years of this decade, the UK’s regulator the FRC was able to head off the European Commission’s inclination to introduce more prescriptive governance regulation. The irony is that if more companies do not start fully embracing the Code as it stands, recognising their responsibilities to a wider audience than just shareholders, and giving more informative disclosures, then we may well find that it is our own government who steps in to replace principles with prescription.”
Despite the shortcomings, the research found a rise in the number of FTSE 350 companies now fully compliant with the code on governance, but the review suggested that FTSE 100 companies were more likely to meet governance requirements (72%), compared to 57% for FTSE 250.
“Undoubtedly, more companies are recognising the commercial imperative of maintaining effective governance practices; yet there remains substantial room for improvement as a large proportion still opt for the bare minimum, complying only with the rules but not fully embracing the principles of the code,” Lowe said.
The report however found improvements. Almost half of companies now provide high-quality forward-looking statements (up from 41% last year. And only 4% of FTSE 350 companies report the same principal risks as last year (down from 24% in 2015), demonstrating companies’ greater focus on strategic risks and mitigation, the firm stated.
Reporting on diversity has improved – with 76% of companies mentioning aspects of board diversity other than gender (up from 56% in 2015).