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Institute of Directors ranks FTSE 100 companies on their corporate governance performance

British American Tobacco has topped a ranking by the UK’s Institute of Directors (IoD) of FTSE100 companies by their corporate governance performance. The other companies in the top five are Unilever, Diageo, Sage Group and Next.

The 2016 Good Governance Report  measured the companies using a list of objectives, measurable factors drawn from public sources and by conducting a survey of stakeholders’ perceptions of corporate governance to produce a final score. The IoD said the purpose of the ranking was to encourage the study of good governance among UK companies and stimulate public debate on the importance of corporate governance in rebuilding the reputation of the UK business community.

The IoD said the results of the survey indicate that different components of corporate governance (CG) have different impacts on practitioners’ perceptions of it and concluded that the approach of giving equal weights to different indicators as generally previously adopted is inappropriate. The research found that measures of board effectiveness had little effect on the perceived quality of corporate governance of a company.  This is because the IoD believes it is hard to measure and that simple compliance with the UK CG code is not enough to receive a high CG score as perceived by stakeholders. Measures of the quality of audit and risk/external accountability were the most important determinants of the perception of good corporate governance, the research found, followed by shareholder relations, remuneration and reward, and then stakeholder relations.

The research also found that there was no agreement across stakeholders about the definition of good governance. Although measures of the quality of audit and risk/external accountability were important across all types of respondents, different types of respondents emphasised different aspects of CG. Customers cared about audit and risk/external accountability and shareholder relations. Suppliers and media cared about Audit and risk/ external accountability. Investors and analysts cared both about audit and risk/external accountability and stakeholder relations.

 

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