We recently published, in partnership with the top 15 UK accountancy firm UHY Hacker Young, our third annual Corporate Governance Behaviour Review, which shows that levels of corporate governance disclosure are continuing to evolve in the small and mid-size quoted company sector.
The review benchmarks 100 small and mid-size quoted companies’ corporate governance disclosures in annual reports and accounts and on corporate websites against the minimum disclosures of the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies.
We have found that companies have improved the level of their corporate governance disclosure in certain areas and continue to struggle with some disclosures year-on-year.
The most obvious theme across the three years of this review has been companies’ apparent difficulty in linking governance with corporate strategy. The reasons for this are unclear, particularly given that the number of companies disclosing their corporate strategy has more than doubled from only 41% in 2014 to an impressive 92% in 2015. However, the number of companies that actually explain how corporate governance structures and behaviours align with strategy remains consistently low in all three years, reaching a peak of only 7% of companies providing an explanation this year. While this link is hard to describe, it is something that institutional investors told us that they need to see.
A positive note from this year’s report is the continued upward trend in the number of companies reporting audit issues, with 41% of companies detailing significant issues that were considered by the committee – an increase from 36% in 2014 and 20% in 2013. Companies also continue to improve their explanations of how audit objectivity and independence are safeguarded, with levels of disclosure increasing year-on-year since 2013.
Disclosure of the directors’ roles and the relevant skills and experience that they bring to the company has also remained consistently high and reached a peak this year, with 94% disclosing roles and 92% detailing directors’ relevant skills. However, this is at odds with the same disclosure requirements for the senior leadership team, where disclosure of their roles and responsibilities drops to an all-time low of 30%.
Another notable improvement over the past three years has been the presentation of companies’ corporate governance disclosures. During the collation of data for the 2015 report, the disclosures were far easier to locate and generally there was much better signposting throughout the annual reports and websites.
As in prior years, we shared the results of the findings with a group of institutional investors at a roundtable discussion and drew on their feedback and comments to identify recommended reporting tips and easy reporting wins for companies. Looking forward to the next 12 months, our recommended ‘top five governance reporting tips for 2016’ are:
- Link strategy and corporate governance
- Focus on the bumps in the road ahead
- Tell your company’s story
- Make the ‘boring’ information more interesting
- Ensure that there is consistency
We hope that this review will help quoted company directors to communicate with investors better. As ever, we appreciate your feedback on how to improve this research and any other research we do – please email us.