GOVERNANCE CONTINUED This section analyses a company’s commitment to internal processes, controls and management, and how the company is organised to deliver on its objectives, making it more accountable to shareholders. Commitment to good governance The dramatic increase in the number of companies including an introduction to their corporate governance report reflects the recommendation in the Preface to the UK Corporate Governance Code that Chairmen should report personally on how the principles relating to the role and effectiveness of the Board have been applied. The nature of these introductions varies quite significantly, though there is certainly some indication that preparers are making an effort to address the new recommendation and, in the process, add some value to the nature of disclosure in the Report. Certainly a personal introduction to the governance report makes the reader believe that there is some substance to what is being said and that the words are not simply boilerplate disclosures indicative of a box-ticking mentality. We are also seeing a small number of companies who have taken the personal reporting approach one step further with the entire corporate governance report being written as a letter from the Chairman – in essence, presenting it as ‘their report’. Figure 2.1 Complying with the Code In terms of companies claiming full compliance with Section 1 of the Combined Code, the analysis indicates a slight drop on last year’s figure, in most cases due to minor deviations for a small part of the year – often relating to the composition of the Board or its committees. The three provisions most frequently cited for non-compliance are, unsurprisingly, the same as last year and, while some companies transgress only briefly, others seem to be more persistent in their defiance of the provisions while still providing explanations for why they have done so. These explanations are generally of good quality and, in most cases, the specific circumstances or challenges which the business faces would seem to be justification enough for non-compliance. Figure 2.2 How many companies claim full compliance with the Combined Code? 56% Figure 2.3 Of those companies who did not claim full compliance, the most common areas of non-compliance identified were: 30% At least half the board, excluding the Chairman, should comprise independent NEDs 30% The Chairman, on appointment, should be independent 20% The remuneration committee should be comprised of at least three independent NEDs. How many companies have a personal report on governance? 4% 40% 27% 17% 9% ’09 ’10 4% Chairman ‘owns’ the whole governance report Personal introduction outlining approach to Board effectiveness Boilerplate introduction 10 © Black Sun Plc 2011 www.blacksunplc.com
