New Zealand: corporate governance reporting - Securities Commission review

The New Zealand Securities Commission has published its latest review of corporate governance reporting: see here. The review considered disclosure by 68 companies and found that many needed to improve disclosure concerning ethical standards, directors' remuneration, risk management, and shareholder and stakeholder relations. The overall findings are available here.

UK: the Coalition's programme for Government - governance and financial regulation

The Coalition has published its programme for Government - see here (pdf) - expanding on the broad policy agreements in the coalition agreement. The document contains the following commitments (in no particular order) with regard to corporate governance and financial regulation:

• Reinstate an Operating and Financial Review to ensure that directors’ social and environmental duties have to be covered in company reporting, and investigate further ways of improving corporate accountability and transparency.
• Make it easier for people to set up new enterprises by cutting the time it takes to start a new business ... reduce the number of forms needed to register a new business and move towards a 'one click' registration model.
• Look to promote gender equality on the boards of listed companies. [note: the Conservatives' pre-election pledge - see here - to require the long list for public company directorship appointments to include 50 per cent female candidates, appears to have fallen by the wayside].
  
• Reform the regulatory system to avoid a repeat of the financial crisis ... bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation [note: the FSA survives, despite the Conservatives' pre-election pledge for radical reform of the regulatory structure, but see the final point below].
  
• Bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector.
• Create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading.

UK: non-financial reporting in FTSE100 company annual reports

CORE - the Corporate Responsibility Coalition - has today published research examining FTSE100 companies' business reviews: see here (pdf). The obligation to produce a business review is found in Section 417 of the Companies Act (2006). CORE's report, based on an analysis of a representative sample of FTSE100 reports, states:

There were three areas in which it was not clear how, if at all, companies were complying with the Act. Firstly, s417 says that the purpose of the Business Review is to ‘help them assess how the directors have performed their duty [to promote the success of the company] under section 172’. An obvious way to do this would be to describe the way the Business Review was prepared. Yet ... only a minority of companies did so.

Secondly, s417 requires that if a Business Review does not contain information about each of the specified key factors which underlie the business’ performance, then these omissions should be stated. This does not appear to have been done in any of the Annual Reports.

Thirdly, there was evidently considerable confusion as to what a Business Review actually was. At its worst this meant that in some cases, it was not possible to identify the Business Review: 8 Annual Reports appeared to have no identifiable Business Review section. This does not seem to be compliant with the Act and is certainly outside its spirit. Yet even where it was possible to identify the Business Review, there was a great variety of practices concerning the status and use of external sources of non-financial information. For example, some companies referred to more detail on their websites, others referred generally to their CR reports, while yet others made reference to an internet location at which further detail could be found. According to legal advice obtained by CORE, such general references should not be considered a part of a Business Review".

UK: narrative reporting - ASB report and review

The Accounting Standards Board has today published 'Rising to the challenge', which reports on its review of narrative reporting by 50 UK listed companies in 2008 and 2009 (the full results are available here). The focus of the review was with companies' compliance with the business review content requirements in Section 417 of the Companies Act (2006); the communication and presentation of content; and areas that are leading to clutter in narrative reporting. 

The ASB found that, overall, most companies provided good content with regard to: financial performance and position; financial key performance indicators (KPIs); and the articulation of strategy. However, the review found that some companies struggled to meet some requirements, particularly the communication of principal risks and non-financial KPIs. In this regard, the ASB's chairman - Ian Mackintosh - has stated:

When reporting principal risks, 66% of the sample was technically compliant but in our view needed to make improvements to meet the spirit of the requirements. A number of companies resorted to simply providing descriptions of generic risks that could be easily cut-and-pasted into many other FTSE annual reports. Thirty-two percent of the sample did not disclose any non-financial KPIs, despite the [Companies Act 2006] requirement to do so where ‘necessary’ and ‘appropriate’."

UK: Deloitte survey of narrative reporting and Combined Code compliance

Deloitte has published a report titled "A telling performance" which contains the the results of its study of narrative reporting (including corporate governance statements) in the annual reports of 130 listed companies (including 30 investment trusts). The reports consulted were those published between 1 August 2008 and 31 July 2009. A summary of the report is available here. Deloitte found that 35% of companies in its sample complied fully with the Combined Code on Corporate Governance.

UK: Grant Thornton's FTSE350 Corporate Governance Review

Grant Thornton has published its FTSE350 Corporate Governance Review 2009: see here (pdf).

The Review examines companies' compliance with the Combined Code and disclosure in this regard. It notes that 47% of companies reported that they were fully compliant with the Code. The quality of disclosure remains, nevertheless, an issue according to the Review, with only 29% of those companies claiming full compliance providing the disclosures needed to support their claim. Amongst the other finding reported are:

• The average FTSE 350 board has 5.2 non-executive directors compared to 3.3 executive directors, although 80 companies did not have at least half the board made up of independent non-executive directors for the entire year.
• 31 companies, including eight in the FTSE 100, did not disclose who on the audit committee had recent and relevant financial experience.
• Three FTSE 100 and 13 Mid 250 companies changed their auditors during the year.

Note: For earlier reviews see (in pdf): 2008 | 2007 | 2006 | 2005 |