Non-executive directors at FTSE 350 companies need to take a stand and
challenge boardroom executives when it comes to achieving full
compliance with the Combined Code, claims new research.

Non-executive directors at FTSE 350
companies need to take a stand and challenge boardroom executives when
it comes to achieving full compliance with the Combined Code, claims
new research.

Professional services firm Grant Thornton
UK found that only ten per cent of companies in the FTSE 350 have
appropriate disclosure levels to support a claim of full compliance.

Of
the 314 companies reviewed, the firm states that many seem to be taking
a half-hearted approach when it comes to adopting the Code’s
requirements.

By way of example, the research discovered that of
the 207 companies claiming non-compliance, 57 per cent have made no
changes year-on-year to their explanations for non-compliance. Less
than one third (32 per cent) of companies made any significant change
since the previous year.

Simon Lowe, head of Grant Thornton’s
risk management services practice, suggests it’s a misnomer to say the
UK approach is not binding and simply one of ‘comply or explain’.

He
says: ‘I suspect some companies may have lost sight of the overall
emphasis of the Code and are using the “explain” option as a get out of
jail free card.’

The most common areas where companies were
found to depart from the Code’s provisions were the terms and
conditions of the appointment of non-executives, aspects of internal
controls and audit committee independence and financial experience.

Internal
control seems to continue to be a challenging area for companies to
provide good informative disclosure, as this requires companies to
apply judgement as to the application of the Code rather than a
straight yes or no.

As an indication of this, Grant Thornton
says fewer than 40 companies (22 FTSE 100 companies and 16 MID 250)
gave outstanding levels of disclosure on internal controls.

Lowe
adds: ‘Non-executive directors in particular must now take a stand and
challenge the board to clarify why departure is better for the company,
and indeed their stakeholders, than full compliance.’