UK Good Governance Index ranks firms on good governance

The UK Institute of Directors has released its third “Good Governance Index”, ranking the FTSE 100 firms on multiple ‘good governance’ indices.

Released on 9 October, the UK Institute of Directors latest ‘Good Governance Index’  ranks the largest 100 FTSE firms against a range of ‘good governance’ measures and stakeholder interviews.

In 2017, UK spirits brand Diageo (owner of Smirnoff, Johnnie Walker and Guinness) topped the ranking scale, with insurer Aviva ranking second and engineering firm GKN third.

“The purpose of this project is to reignite the governance debate by leading it away from the compliance approach to corporate governance that has become widespread in recent years. Our novel approach is to combine traditional governance indicators with a measure of the quality of corporate governance as perceived by stakeholders,” said the IoD.

The Institute of Directors ranking develops an overall score from across five broad areas of governance:

• Board effectiveness, including separation of Chair and CEO roles, gender diversity, board meeting attendance. UK firm Kingfisher topped the rankings in this category.
• Audit, risk and external accountability, including auditor independence, tenure and reputation risk assessment. Diageo led rankings in this category.
• Remuneration and reward, including director and CEO compensation, clawback provisions and governance of executive remuneration setting. Rentokil topped the rankings for rem.
• Shareholder relations, including return on equity, shareholder engagement policies, capacity for shareholder resolutions and say on pay support. Barclays and Royal Mail lead this list.
• Stakeholder relations, including rankings on ‘most admired companies’ lists, whistleblower policies and payment practices. Royal Dutch Shell was the highest rated firm in this category.

Pharma giant GlaxoSmithKline was at the bottom of the 2017 ratings, impacted by recent bribery allegations and executive pay controversy. A spokesperson for GlaxoSmithKline responded to the findings noting: “We take our responsibilities with regard to corporate governance very seriously particularly in areas such as executive pay, board governance, employee diversity, audit management and relations with external stakeholders. While there is always more we could do, we don’t recognise the conclusions of this work and will seek to understand the findings fully.”

The IoD argues that its detailed ranking program is aimed at influencing complex behavioural and practice issues, rather than a focus on compliance checklists.

In his preface to the report, IoD Chair Ken Olisa said:

“What we, the practitioners, are seeking to achieve is a better understanding of the behavioural engines and levers which enable an effective board to deliver the above objective.

“If the system can be understood, then directors can apply their collective skills and experience in any lawful way they see fit in pursuit of competitive advantage.”

“…[W]e have set about identifying a set of instrumental factors which every board should seek to optimise in order to achieve competitive advantage for their business.” To download the full report, visit the UK IoD website.