Most companies are failing on governance

PIRC, the leading corporate governance specialist, yesterday pointed out that only a third of the UK's biggest companies complied with a new code on corporate governance.

The company Pensions Investments Research Consultants said that companies risked angering shareholders by not compying with the new rules. Alan MacDougall, Pirc's managing director, said: "A considerable gulf between company responses and shareholders' expectations is still to be bridged." Pirc's annual review highlighted a series of increasingly acrimonious confrontations between boards and shareholders over contracts and directors' perks. Pirc said: "While on many issues investors are prepared to be flexible, there are a growing number of areas where there is consensus that noncompliance is unacceptable."
Pirc pointed out that 10 per cent of companies have a combined chairman and chief executive, in breach of the code drawn up by Derek Higgs, an investment banker. A further 17 per cent of listed companies have an executive chairman, rather than an independent non-executive chairman.
The corporate governance specialist added: "Where the positions are separate, 22 per cent of chairmen were formerly the company's chief executive."
Under the new guidelines, chairmen are not normally expected to be the former chief ,executive of the company.
More worryingly, according to Pirc, in three-quarters of company boards, independent non-executive directors are the minority. The new code demands that at least half the directors on the board be independent.
Pirc found that 10 per cent of directors have a contractual period exceeding one year - the code says directors' contracts should have a one-year limit
Mr MacDougall, Pirc's managing director, said: "Over time, we have seen increasing compliance with individual provisions of the Combined Code, and this year's annual review confirms that trend. However, in key areas persistent minorities continue to disregard the underlying principles. Their approach is not so much `comply or explain' as `avoid and complain'. It is these companies that will face the greatest challenges in dealing with the Combined Code."
Pirc added that according to its research ethical and professional standards still needed to be improved. It also claimed that despite improvements in accounting standards, companies were still less than transparent, which undermined auditing and regulatory efforts.
The new rules, enshrined in the Combined Code, were agreed by the Financial Reporting Council, the accountancy body, after months of arguing. Company directors complained that the original rules were far too onerous.
FTSE 100 companies that were currently in breach of the rules, or that planned to break the rules include WM Morrison, the supermarket group, which has no non-executive directors and Barclays, which plans to promote Matthew Barrett, chief executive, to chair