Firms will struggle to win back public trust, business group warns


Controversies ranging from zero-hours contracts to global tax bills have bruised the public’s faith in certain businesses, prompting new Prime Minister Theresa May to target reforms in the boardrooms, reports The Telegraph.

“This has been a difficult year for business, with MPs lambasting the directors of major high street brands, and the Prime Minister making clear that corporate boards are in her crosshairs,” said Ken Olisa, a long-standing City director and the chairman of an advisory panel for the Institute of Directors.

“This all came hot on the heels of the EU referendum, during which big companies were often presented as the bad guys. This is bad for business and bad for the country – business is a part of our society not apart from it.”

A series of studies, stretching back to the Cadbury report on the Robert Maxwell pension scandal of the 1990s, have gradually led to tighter rules about how a company should be run. The roles of chairman and chief executive have been separated, independent pension trustees have become the norm and shareholders meet often with bosses.

However, measuring a firm’s governance continues to be more of an art than a science. The IoD drafted in Cass Business School to survey company insiders and onlookers while measuring how the firms stick to rules on issues such as executive pay, transparency and board structure.

British American Tobacco came out on top of the FTSE 100 companies, followed by Unilever, Diageo, Sage and Next.

Tesco, whose accounting black hole forced the resignation of four senior executives two years ago, was at the bottom. The IoD research scored the supermarket poorly for its series of profit warnings, which were triggered by a fierce price war that tempted to grocer into booking supply chain revenues early to flatter its sales.

Firms with a single large shareholder, such as Sir Martin Sorrell’s advertising giant WPP and the family-controlled Associated British Foods, also found themselves towards the bottom of the table.

Sports Direct was not included in the study as its string of controversies around working conditions helped send it out of the FTSE 100 index in March. Yesterday, the retailer admitted “serious shortcomings” in how it treated staff, and offered guaranteed hours to staff still working on zero-hours contracts.

Performance on the stock market does not always reflect how well a company is structured, however. Aviva, Next and Marks & Spencer are among the best scorers when it comes to corporate governance, yet are are some of the biggest losers in the FTSE 100 index so far this year.

The IoD’s report came a day after new rules came into force encouraging staff at financial firms to blow the whistle on wrongdoing by their employers.

The rules will force big finance companies to set up whistleblowing hotlines and other channels to enable workers to raise concerns. They will also protect workers from practices such as warranties, where employers ask staff to declare that they have not made a whistleblowing report.