Are boards sticking to tried and tested governance methods which don’t position them to deal with new incoming threats?

Our latest Corporate Governance Review shows how the ‘rinse and repeat’ approach risks a vicious circle where boards have less time to plan for the future. A more dynamic approach is needed to position companies to respond to both threats and opportunities.

Our analysis includes benchmarks on how FTSE 350 companies are using the updated UK Corporate Governance Code (the Code), which can help you give confidence to stakeholders, build transparency, and get the most out of your reporting beyond the traditional ‘go-tos’.

[Design stat] 65% of companies claimed full compliance with the Code in 2024, compared to 39% in 2023.

This improved Code compliance comes when corporate governance guidance is once again in flux. While last year there was an increased necessity to define and validate external assurance, this year there’s a clear need to look inward to examine governance frameworks and internal controls around risk.

Risk: boards are prioritising past performance at the expense of future stability

while 98% of companies provided a sufficient viability statement, only 23% provided a detailed one.

Even though 2024 has been a year where high-profile internal control and risk management failures dominated headlines, are companies still too busy looking back? Annual reports are lacking in discussions and disclosures of risks and threats  – as well as disclosures of resilience, especially around the updated Code’s risk management and internal control frameworks.

Our research shows that disruptive technologies such as AI aren't getting the attention they need, especially in the energy, healthcare, and financial industries.

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Are businesses not reporting on it properly because they're unsure of the ownership of AI or struggling to obtain the necessary skills for effective integration?

Operational and financial risks are considered to be in decline in terms of prominence, but is this because board skillsets remain heavily weighted towards operations and finance, giving the impression they’re more secure?

Boards that constantly challenge current governance structures and aren't complacent are more fit for the future and can respond to risks more effectively. How does your governance framework help you maintain the required strategic balance between a focus on the here and now as well as the future?  

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Stakeholders and shareholders: thorough board considerations

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When it comes to stakeholder engagement, companies are dramatically increasing their quality of reporting. They’ve improved their ‘licence to operate’ by increasing the number of KPIs related to employees, shareholders’ funds, communities, and the environment, as well as improving their Section 172 statements.

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These positive instances of a review-and-renew approach show that board discussions can be of very good quality and set an example to less proactive ones. Do your terms of reference and delegations enable effective and diverse stakeholder engagement?

Purpose and culture: more nuance is needed

[Design stat] While 96% of companies stated a purpose, just 17% authentically demonstrated it with associated metrics.

Despite the fact that boards are committed to purpose, they’re dropping off on the transparency of delivery. Companies who consider incoming frameworks and guidance such as the PAS 808 may be better equipped to execute the delivery of purpose, and measure it, as well as governing sustainably and effectively.

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Is a headline figure enough? It’s important to know the ‘why’. Using fresh approaches on culture measurements to really understand your employees can generate strong insights for business strategies. When was the last time you reviewed your metrics around company culture in light of improving qualitative data?

While companies are doing great in using surveys and questionnaires for employee engagement, they’re not publishing the detail of results, which means stakeholders aren't actually getting enough information to draw accurate conclusions about the culture. How do companies ensure stakeholders are thoroughly considered by the board?

The updated 2024 Code's focus on culture, particularly in Provision 2, is a longstanding expectation, but only a small number of companies are already evidencing it. 

 

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Sustainability – focusing on the future  
 

[Design stat] 94% of companies provided a link between strategy and sustainability strategy in 2024, up 5% from 2023.

Our research shows that incoming sustainability directives have accelerated the rate in which companies are developing governance models that focus on long-term sustainability and value creation.

24% of companies said they were committed to CSRD, however 56% made no mention of it at all.

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Board composition: aligning skills with critical risks

[Design stat] 37% of companies don’t have one or more board members with sustainability/ESG skills.

An increase in board members with experience across accounting/finance, risk management, international experience and cyber/data shows a widening of their skillsets. However, does the lack of ESG-related skills in boards mean companies are exposing themselves to more risk amid new and incoming ESG-related regulations?

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Even though there’s labour shortages and high competition for talent, there’s a disproportionate focus still on finance and operational specialism as the primary board skills, leaving areas such as HR exposed to more threats.

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While there are steps in the right direction for diversity, there's clearly still some way to go. In fact, there’s been a decline in disclosing the progress against inclusion and diversity policies, down 12% from 2023.

   

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Sarah Bell
Sarah Bell
Partner
London
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Gabriella Demetriou
Gabriella Demetriou
Manager
London
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