The Institute of Directors’ (IoD) Corporate Governance Project released a new survey last month that ranks the FTSE 100 according to a bespoke corporate governance methodology. The Good Governance Report is intended “to reignite the governance debate by leading it away from the compliance approach to corporate governance that has become widespread in recent years” and combines accepted governance indicators with a perception survey by stakeholders. Sponsored by the Chartered Quality Institute and Cass Business School, this stakeholder survey provides 1,977 individual rankings provided by 744 respondents and uses the U.K. Corporate Governance Code and section 172 of the Companies Act 2006 to define what governance is.

“This is a very long way from the currently widespread box-ticking regulatory approach to the topic. The FRC does of course allow for ‘explanations.’ Nevertheless, due to its focus on the U.K. code, many FTSE 100 companies see governance in pure compliance terms and it has mainly been reduced to the production of boilerplate paragraphs in annual reports.”
Ken Olisa, Deputy Chair, IoD


The indicators fall into five categories:

Board Effectiveness

Audit and Risk/External Accountability

Remuneration and Reward

Shareholder Relations

Stakeholder Relations

Most sub-categories in stakeholder relations, for example—participating in the Carbon Disclosure Project or the Global Reporting Initiative—were positive on the scores. In contrast, all the audit and risk indicator sub categories—downgraded credit ratings, years with current auditor, number of profit warnings—were all negative.

Weightings used to derive full scores

Model Score = 383
+ (10.0% × Board Effectiveness)
+ (17.8% × Audit & Risk/External Accountability)
+ (6.9% × Remuneration & Reward)
+ (11.0% × Shareholder Relations)
+ (5.5% × Stakeholder Relations)


The point of the perception survey was because the methodology adopted indicated that equally weighting the indicators was not appropriate. Thus the perception scores are used to weight the scores for the indicators. To achieve this, the study regressed the perception scores against these five CG factors. Most of the perception scores were obtained from customers, investors, the media, and suppliers. In general, the perception survey results showed that board effectiveness was not considered a key determinant, while audit and risk was. The study hypothesises that this is because: “Board Effectiveness is hard to measure and that simple compliance with the U.K. CG code is not enough to receive a high CG score as perceived by stakeholders.” The ranking of the other indicators in between board effectiveness and audit and risk/external accountability are: shareholder relations, then remuneration and reward, then stakeholder relations.

“The purpose of this project is to reignite the governance debate by leading it away from the compliance approach to corporate governance that has become widespread in recent years.”
Report Authors

The report also found no agreement between stakeholders about what was good governance, as different types of respondents emphasised different aspects of corporate governance. For example, customers care about audit and risk/external accountability and shareholder relations but not stakeholder relations. Somewhat surprisingly, suppliers and media care about audit and risk/ external accountability, but media is also very focused on shareholder relations. Investors and analysts care most about audit and risk/external accountability, but more about stakeholder relations rather than shareholder relations!


Below is the top and bottom ranked companies from the Institute of Directors report.

The survey also gives separate results using just the corporate governance indicator scores and just the perception survey scores. Remarkably, none of the top five ranked companies are found in both sets of results. British American Tobacco, Royal Mail, and Unilever score very highly on the corporate governance indicators, but only Unilever scores highly (at number eight) in the perception survey. BAT is at 42 and The Royal Mail is at 68. On the other hand, Tesco and Berkeley Group are both in the bottom decile of the governance factors ranking and the perception survey.

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