FTSE 100 companies still fail to provide shareholders with information on ethics

14 March 2016

FTSE 100 companies are still failing to provide evidence to shareholders to prove that they are taking ethics seriously in their annual reports, according to research by the Chartered Institute of Internal Auditors (The Institute).

Only 23% of FTSE 100 companies provide shareholders and other stakeholders any measure of ethical standards despite 94% stating a commitment to high ethical standards within their annual reports.

According to the Chartered Institute of Internal Auditors (IIA) when a company discloses a metric for ethics, it can demonstrate that these standards are being upheld in practice. Shareholders can also use this data as measure of the company's improving or worsening ethical performance.

Although five more companies provide such a metric than a year ago, the percentage is still very low, suggesting many FTSE 100 companies still do not have demonstrable oversight and control of standards of ethical behaviour.

The Institute also found that whilst a high percentage of FTSE 100 companies did mention ethics in their annual reports, the language employed was often vague. Buzzwords such as ‘integrity’ and ‘responsibility’ were frequently used but without any elaboration or evidence to enable shareholders and other stakeholders to understand what this meant to the organisation.

Institute Chief Executive, Dr Ian Peters, says,  ”Almost all serious eviews of the global financial crisis and other business scandals since then have highlighted the importance of improving ethical standards and corporate culture. “

Allegations of unethical behaviour can damage both a company’s reputation, and the overall financial strength of the business.”

Among the 23% of FTSE 100 companies that provided clear metrics for ethical performance was Aviva. The insurance group surveyed its employees in 2014, finding that 96% had read and understood the company’s code of ethical practice.

Distiller Diageo also provides a clear metric for ethical performance, stating that all employees at manager level and above must complete the group’s Annual Certification of Compliance (ACC). In 2014, all managers did so, amounting to 9,960 employees, a total of 36% of the workforce.

None of the FTSE 100 companies disclosed a target for ethical performance making it even harder for shareholders to track the businesses progress on introducing better ethical standards.

The Institute says that boards must work harder to ensure that codes of behaviour are clearly defined and understood by all relevant parties and publicly reported, if confidence and trust in business is to be improved. Recent controversies such as the Libor and Forex scandals demonstrate the importance of ensuring appropriate ethical standards of business across whole companies, not just at senior level.

 Dr Peters says: “The number of recent high profile cases of questionable ethics demonstrates how important it is for companies to have clear measures of standards of behaviour 

Increasing emphasis is being placed on ethical practices, and shareholders, regulators and consumers are looking for more transparency from businesses. It is no longer enough to claim a company has integrity, it must also be proven. 

“Just over one in five FTSE 100 companies provide shareholders with this evidence, which suggests that many companies do not have effective metrics in place to monitor behaviour and protect the organisation from risks posed by poor practices.”

“Not only do these metrics need to be in place but they should also be easily accessible and understood by employees and reported to shareholders and other stakeholders.”

END

Notes to editors:

The research focused on annual reports as a company’s key annual communication, which listed companies are required to make available to all shareholders. 

Coverage

FT - Companies criticised over failure to disclose ethics
Management Today - How do you measure ethics in business?