Julia Irvine 19 Sep 2018 01:21pm

FTSE 350 putting their corporate governance ducks in a row

FTSE 350 companies have shown a marked improvement in reporting on stakeholder engagement ahead of implementation of the new Corporate Governance Code and related legislation next January

Research from EY has also detected improvements in reporting on purpose, social impact and culture as companies begin to make adjustments in anticipation of the new measures.

However, it has warned that there is more work to be done before the disclosures are fully compliant and provide “meaningful insights” into these new areas.

“In order to comply with new Corporate Governance Code and s172 requirements, companies will need to place greater emphasis on how the board listens and responds to the views of employees and other stakeholders,” said Ken Williamson, EY UK’s head of corporate governance.

“They will also need to explain how these interactions have impacted their decision making as a result.”

The EY research, now in its fifth year, is based on an analysis of 100 annual reports from FTSE 350 companies. It found that 83% of them disclose how the companies are engaging with their employees while 65% explain the methods they are using to engage with other stakeholders, such as suppliers.

The prevalence of s172 mentions has also grown but only marginally – up from 1% to 11% over the year. This is worrying given that, from 1 January next year, all public interest companies will be required to state how the directors have addressed s172 matters , including the long-term impact of their business decisions and the account they have taken of the interests of their stakeholders.

EY found that more companies were reporting on culture – up from 41% in 2017 to 47% in 2018 – but that too often the disclosures were “generic and limited, with few disclosures that identify the challenges faced in relation to culture or embedding it”. Only 37% went beyond “tone from the top” to explain on how they spread culture throughout their organisation.

Williamson advises companies not to dismiss reporting on corporate issues as merely a tick-box activity. “With trust in business in decline,” he says, “it’s vital that companies follow the spirit of the new rules, rather than seeing them as purely a compliance exercise.

“Bland, boilerplate disclosures will miss the opportunity to provide real, meaningful insights to a company’s stakeholders.”

The research also discovered that 23% of the companies surveyed had board committee chairs who have served on the board for more than nine years. In fact in some cases (6%), they had served for more than 15 years.

Under the new code, there will be a maximum tenure for chairs of nine years except in limited circumstances and EY warns that companies that do not comply with the measure are likely to face much more intense scrutiny once the new code is in place.