G4S is perceived as the worst-performing company for corporate governance in the UK, while industrial services business Intertek received the highest score on a new index launched by the Institute of Directors (IoD).
The research comes in a report by the institute, The Great Governance Debate – Towards a Good Governance Index for Listed Companies. Ken Olisa, chairman of the report’s advisory panel, says companies have become over-reliant on a tick-box approach to the UK corporate governance code instead of addressing “behaviour”.
“One of the key findings of our new research is that no one factor dictates whether a company is well-run, whether that’s the number of non-executives on a board or how often the auditor is changed,” he says. “It is simply not correct for a company to say that because they have ticked certain boxes, they show good governance.
“Now is the time for some bold thinking on how we define and measure governance, including the recognition that it is essentially an organic process involving the interaction of groups of people. The IoD intends to lead the way in creating a better way of looking at governance that gives investors, employees and the wider public greater confidence in the transparency and accountability of our biggest companies.”
He adds in the report: “…the IoD is asserting that the historical obsession with compliance with a tiny number of factors entirely ignores the nuance of corporate governance, much as celebrity fad diets ride roughshod over the science of human nutrition.
“Surveys tell us public confidence in business is apparently at an all-time low. This is not good for business and it’s not good for the UK. The IoD intends that by publishing these interim findings we will stimulate debate—the Great Governance Debate—and so deliver a greater understanding of the intricacies of the ‘body corporate’ as a contribution to rebuilding the overall reputation and legitimacy of the UK business community.”
The index rated FTSE 100 companies based on three measures: a perception survey involving members of the IoD, accountancy body ACCA and the Chartered Institute for Securities and Investment; a range of “instrumental” measures drawn from external sources; and a predictive model of corporate governance using “support vector machine regression”.
G4S’s poor performance came on the perceptions measure. Once companies were assessed using the instrumental measures, rankings became more complex with other companies ranking more poorly, based on the report’s average score across a range of factors.