IoD aims to create index of corporate governance

THE UK’s big companies will be measured against a corporate governance index in the next stage of work by the Institute of Directors with Cass Business School.

Following a research report into UK governance, the IoD says it has “set itself the task of ultimately creating a robust index that does not encourage box-ticking and will stay reliable as the economy and business change over time”.

The advisory panel looked at factors including business performance, audit arrangements, directors’ pay and shareholder relations, and undertook a survey of business people’s perceptions of the UK’s biggest companies, the IoD says.

“In a new approach, the panel then combined this information in an attempt to achieve a more impartial and deeper understanding of the governance of these companies. This is an important step towards creating an index of listed companies which will aid investors and directors in their decision-making.”

Ken Olisa, panel chairman, said it was wrong to rely on regulators, whose focus was inevitably on compliance, to improve governance. He said: “Identifying symptoms of governance failures, and then drawing up checklists to eradicate them leaves us in the position of always fighting the last battle. The financial crisis was not caused by a lack of rules.”

Simon Walker, director general of the IoD, said: “This report challenges previous ways of measuring the governance of big companies, and kicks off a new debate on how firms can improve their transparency, accountability and performance.”