FTSE 350 lacks independent directors

Almost a fifth of all companies in the FTSE 350 do not have sufficient independent directors, according to a new report.

Under the UK Corporate Governance Code, listed companies should have boards with at least three non-executive directors, two of whom should have no financial or personal ties to the company. According to the Corporate Governance Review by Grant Thornton, 19.1% of companies did not comply with this requirement of the Code in 2011, making it the most common form of non-compliance with the code.

The other most common reasons for non-compliance were: failure to meet remuneration committee membership criteria (12.1%); failure to meet audit committee membership criteria (11.7%); non-independent chairman appointed during the year (8.7%); failure to meet nomination committee membership criteria (6.4%); no senior independent director appointed (5%), and; role of chair and chief executive combined (4.7%).

Other highlights include:

• Half of all FTSE 350 companies complied with the Combined Code, with another 10% doing so for part of the year.
• Just seven FTSE 350 businesses have been in full compliance with the Combined Code throughout the ten years of this review.
• 70% FTSE 350 companies have introduced annual re-election of directors
• More than half of chairmen's statements do not discuss governance and only 10% offer real insight into their governance culture.
• Just 25% of companies give real insight into how they monitor and maintain effective oversight of their internal control systems.

'A significant minority of UK listed companies could still improve the quality of their reporting,' said Chris Hodge, Head of Corporate Governance at the Financial Reporting Council. 'In 'explaining', it is not enough to simply say non-compliance suits one's business model: stakeholders deserve to know exactly why this is the case and what arrangements ensure that, despite noncompliance, the business and their interests are protected.

'More generally, companies need to consider the reader when preparing their annual report. Boilerplate may tick the boxes but it does not give the colour or the flavour to bring a business alive.'

Released by ICSA 24 November 2011.