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IoD unveils FTSE 100 firms with the best corporate governance

26 / 09 / 2016
IoD unveils FTSE 100 firms with the best corporate...The FTSE 100 is the UK's leading stock market index, which gives investors an idea of how the country's largest companies are performing. As corporate governance is a crucial part of running a successful business, it stands to reason that the organisations in FTSE 100 would have some of the best processes in place to tackle risk - but which firms sit at the top of the pile?

This is a question that the Institute of Directors (IoD) has attempted to answer in its latest Good Governance Report. The publication draws upon evidence garnered from objective, measurable factors and a survey of stakeholders to rank the FTSE 100 in terms of corporate governance excellence. 

"We hold that good governance isn't a question of meeting minimum requirements but rather it is the consequence of tuning many variables to produce optimal performance," said IoD deputy chair Ken Olisa. 

"Last year, I compared governance to health. As anyone who has had a general blood test will know, it is the aggregate effect of many small elements which determines one's wellbeing, not compliance with just one or two headline factors."

The winners and the losers

So which businesses scored the highest according to IoD's calculations? And which FTSE 100 stalwarts may need to strengthen their corporate governance departments? 

Well, British American Tobacco received top billing, with a model score of 793. Consumer goods giant Unilever was second on 778 and alcohol beverages firm Diageo clinched third with 775. Enterprise software business Sage and fashion retailer Next came fourth and fifth, respectively, on 769 and 763.

However, not all of the FTSE 100 elite managed to impress the IoD. Tesco had the dubious honour of ranking last with a score of 603. Moreover, the supermarket was considerably behind the next nearest company Berkeley Holdings, which ranked 99th on 641. 

Tesco has had a turbulent couple of years, after the company overstated its half-year profits by more than £260 million in 2014, which led to its share price tumbling and eight senior executives receiving suspensions. 

The matter led to the Serious Fraud Office investigating the supermarket, with the organisation charging three former Tesco executives with false accounting and fraud by abuse of position.

The impact of poor governance

Estelle Clarke, head of profession at the Chartered Quality Institute, said businesses risk both reputational and financial damage by taking a lacklustre approach to corporate governance. 

"Society rightly believes that a corporate fish rots from the 'head': a complex operating environment being no excuse for doing business at the expense of doing the right thing," she explained

It's hard to argue, considering Tesco has seen its share value drop by over 50 per cent in the last two years since the accounting scandal. Which is why businesses need to implement comprehensive corporate governance processes and recruit the strongest candidates within these functions. 

The Good Governance Report shows that even the most successful British companies don't always get it right, but those that do can expect improved performance, market recognition and a good reputation.

Our 2016 Compensation and Market Trends Reports combine our review of the prevailing conditions in the corporate governance recruitment market together with the results of our latest employer survey.

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