Board leadership, transparency and governance


As part of our review of companies’ annual reports and regulatory accounts for 2014-15 we have examined the way in which companies are meeting our Board leadership, transparency and governance principles. All companies had put in place governance codes by 1 April 2014 and they had until 1 April 2015 to comply with those codes and therefore meet our principles.

Our review of companies’ annual reports and regulatory accounts for 2013-14 showed that companies were making good progress towards meeting our principles. There had been a clear improvement on previous years in terms of transparency and coverage of companies’ statements on board governance during what was a transition year moving towards fully meeting the principles.

There has been a further improvement in 2014-15 reporting as companies moved towards fully meeting our principles building on the improvements we saw last year. We are pleased that, with a few limited exceptions, companies are meeting our principles.

This page summarises the key findings of our review of 2014-15 reporting. We will work with companies over the next few months where we have identified particular issues with how they are meeting the principles.

How companies are meeting our principles – what we have seen

Transparency – reporting must meet or exceed the standards set out in the Disclosure and Transparency Rules

Most companies have provided clear, well set out and appropriately detailed corporate governance sections in their annual reports. This has in most cases included good transparency on the remuneration of directors.

However while annual reporting is helpful for providing a detailed review of the governance over the past year, websites are helpful for providing easily accessible and up to date governance information, for example on current directors. However in several cases companies’ websites are lacking in detail on governance or information is hard to find. It is likely that the website will be the first place many stakeholders go to in order to obtain information and companies should consider how they use their websites in this area.

The regulated company must act as a separate listed company
An effective Board is fully focused on the regulated company’s obligations

Most companies’ annual reports helpfully set out the matters which are reserved to holding company boards. These are limited and, in general, appropriate for companies which are acting with sufficient independence from their holding companies.

There must be significant independent representation on the Board
Independent non-executive directors are essential to securing strong board leadership and governance
In line with best practice, boards should have the appropriate balance of skills, experience, independence and knowledge of the company

This is an area where companies have moved considerably in the last couple of years with some companies making significant changes to their board composition. Our review of
2014-15 reporting has confirmed that companies are meeting our expectations in this area which ensures that there is significant independent representation on the board.

Companies have provided sufficient detail in their annual reports on the background of each of their directors such that we are able to see the skills, knowledge and experience they bring to ensure a balanced board. Most companies also provide helpful, easy to find and up to date information on their websites about directors. Those which do not should consider what improvements they can make in this area.

The Chair must be independent of management and investors

Almost all companies now either have an independent chair or are single-owner company, where we have accepted that there may not be an independent chair. In the very small number of cases where we have identified an issue in this area we will work with the companies concerned to better understand the position of the chair and their independence from the holding company.

Board committees, including but not limited to audit and remuneration committees will operate at the regulated level
There should be a majority of independent members on the audit and remuneration committees

This is an area where all companies have met our expectations both in terms of board committees operating at the regulated company level and on the composition of committees. Many companies have provided clear and detailed reporting on committees in their annual report. Leading companies have provided detail on attendance at committees and clearly listed committee membership.

The group structure must be explained in a way that is clear and simple to understand

Most but not all companies have provided a group structure diagram and explained the role of the companies within that structure. We are disappointed that not all companies have done this even where they have undertaken to do so in their individual governance codes.