For many the U.K. Corporate Governance Code (the Code) remains a compliance issue. They see it as a box ticking exercise to be endured ahead of the annual report; costing time and resource, but delivering little value. It’s a common point of view. It’s also wrong.
Over the past 17 years, we have analysed the governance progress made by FTSE 350 companies, using a structured methodology to assess the governance practices disclosed in their annual reports.
We have consistently found that the strongest governed companies deliver double the shareholder value over a 10-year period than that of the weakest governed companies.
In short if your organisation is still approaching governance as purely a compliance exercise it could be costing you a lot more than you think.
Whilst it’s true companies have been taking the Code’s requirements increasingly seriously over the past decade (Code compliance grew from 29% of companies in 2005 to 72% in 2018) too many treat it as guidance foisted on them; a compliance exercise intended to drive best practice.
In reality the opposite is true: the regulator takes best practice examples from successful companies and incorporates them into the Code; it becomes a dynamic instrument, reflecting and distilling best practice and affording everyone else the opportunity to learn from the best.
This is why we believe it is time companies embraced the Code for the tool it is; drawing on the summaries of best practice it contains to bring their own governance in line with the market leaders.