Six in ten FTSE 350 companies fail to fully comply with governance code
Sixty per cent of FTSE 350 companies are not fully compliant with the UK’s Corporate Governance Code, according to new research from Thomson Reuters.
The findings are based on the annual reports of 272 companies within the FTSE 350 and Thomson Reuters’ records of AGM meetings.
Thomson Reuters also found that only 45 per cent of FTSE 100 companies reported that they were fully compliant with the code. Among FTSE 250 companies, compliance was even lower at 37 per cent.
The data suggested widespread non-compliance across FTSE companies regarding both pension contributions and the tenures of senior board members.
The code states that pension contributions of executive directors should be in line with the rest of the workforce. This means if the wider workforce received pension contributions of five per cent of their salary for example, executive directors should also receive contributions of five per cent.
However, around a third of FTSE 350 companies, and 30 per cent of FTSE 100 and FTSE 250 companies, do not adhere to the guidance.
For example, some executive directors of listed companies have received pension contributions in excess of 25 per cent of their salary, compared to just five per cent among the wider workforce.
Pensions and chair tenures come under the spotlight
Where companies do not act in line with guidance, shareholder trade body the Investment Association (IA) expects remuneration committees to set out a credible action plan to align pension contributions to the majority of the workforce by the end of 2022.
Nevertheless, there has been a particular lack of transparency from companies regarding compliance on aligning pensions with the workforce.
This has been flagged by the Financial Reporting Council (FRC) as an ongoing area of concern, but many corporates are yet to address this issue.
Another area of contention is the tenure of chairs that have exceeded recommended time periods, relating to the provision that a company chair should not remain in their post beyond nine years following their first appointment to the board.
The results suggest 19 per cent of FTSE 350 companies reported that they do not comply with this, with 52 of the 272 companies reporting having chairs in office for longer than nine years.
Of the 52 companies, 32 had chairs with a tenure of between nine and 14 years, 12 had chairs in place for between 15-19 years, while eight companies have had chairs with a tenure of twenty years or more.
The UK Corporate Governance Code states the purpose of the nine-year maximum term is to ensure the chairs remain independent, which allows them to promote constructive challenge amongst board members and retain their ability to make objective judgments.
The suggestion is a chair’s independence may erode over time, potentially undermining the objective judgement of the performance of both the company and the rest of the board.
The results follow recent amendments to the code, which was updated in 2018 by the FRC to require companies to disclose how they have applied the 41 principles within the code.
Listed companies that are covered by the code must comply, or disclose why they have chosen to go against its rulings.