Beyond the ten at the top: a holistic approach to good governance

Eva Cairns, Head of Responsible Investment, explores why good governance depends on more than just a proactive board, and contends that high-quality decision-making across the whole organisation is vital.

Corporate governance is one of the most established components of responsible investing. Defined as the system by which an organisation is directed and controlled, it comprises five core principles:

• responsibility (acting in the best interests of the company)
• accountability (being answerable for decisions)
• fairness (treating all stakeholders equitably)
• transparency (timely and open disclosures)
• risk management (identification, assessment and mitigation of risks)¹.

The UK governance landscape is always evolving and is applicable to companies of all shapes and sizes, for example:

• The UK Corporate Governance Code applies to listed companies.
• The Quoted Companies Alliance Code applies to small- to mid-sized companies.
• The Wates Principles have applied to large private companies since 2018.

In addition, investors are expected to take corporate governance factors into account when applying the UK Stewardship Code².

Shareholder rights are also key. The principle of one share one vote has been subject to some debate, but remains fundamental to supporting accountability while protecting the rights of all shareholders.

But good governance is about more than codes and principles: for investors, it’s about ensuring that companies are taking high-quality decisions that support resilient business models and growth.

At its heart, governance is about making choices in the best interests of the company and all of its stakeholders. This requirement of company directors is set out in the Companies Act, and partly explains why investors’ engagement activities have tended to focus on directors and board-level decision-making. Key concepts like succession-planning, tenure and the talent pipeline are familiar engagement themes for investors, along with independence and board effectiveness.

There are particularly well-established metrics on board diversity. As the International Corporate Governance Network (ICGN) has noted, this is because: “Without… diversity, boards risk groupthink and untested assumptions, even where independence standards are met”³.

Detailed datasets on board gender and ethnic diversity are publicly available. FTSE Women Leaders has a voluntary target of 40%+ female board membership. Its annual report in February 2026 noted that the proportion of female FTSE350 board members now stands at 42.7%, and 30.1% for the 50 largest UK private companies⁴.

The Parker Review has set a voluntary target of at least one ethnic minority director on the board of FTSE100 and FTSE250 companies, with the same target for top 50 private companies to come into effect in 2027. Its most recent report shows that the majority of FTSE350 companies now meet this target⁵.

Our own research, ‘Great minds don’t think alike’, highlighted that indicators such as gender and race contribute to broader diversity but aren’t the only useful measures – it’s cognitive diversity that is particularly important. It helps enhance the quality of decision-making by bringing different experiences and perspectives to the table.

Good governance is about… ensuring that companies are taking high-quality decisions that support resilient business models and growth.

The advantage of focussing solely on the board is that the scope can be tightly controlled: a board in the UK will typically consist of about 10 members⁶. Investors can weigh up factors like independence, tenure, skills and expertise And, if they don’t approve of their performance, they can vote against their re-election, or their remuneration, at the Annual General Meeting (AGM).

However, investors also need to know that the wider organisation is benefitting from good quality decision-making, and that‘s why it’s important to look beyond the board to understand how the wider entity makes decisions.

A key challenge is that managers rarely receive any formal training on how to be a manager⁷, in contrast with the significant attention paid to board training. This can risk creating a two-tier approach to decision-making, with a formal and rigorous one installed at the top, and a less formal one underneath.

The Financial Reporting Council’s (FRC) Corporate Culture Guidance notes that an organisation’s culture, purpose and values are typically areas where the board will set the tone⁸. These tools can help ensure that decision-making is repeatable across the organisation, and that employees are clear on how they are expected to take decisions.

A further risk of a two-tier approach is if a company’s top-level governance hides a less positive culture underneath. FRC guidance underlines the importance of procedures like ‘speak up’ and whistleblowing to address this risk, with the board receiving regular reports.

For investors interested in lifting the lid on the organisation, this information, whether disclosed in annual reporting or discussed through engagement activity, can provide important insight.

What about shareholder oversight and accountability of decisions taken by artificial intelligence (AI)? As AI is increasingly charged with taking decisions in place of humans, there are concerns that its decisions might be taken in a ‘black box’ with limited oversight. If an AI decision has an adverse impact on customers or other stakeholders, it’s important to be clear where accountability ultimately lies. We covered these themes in detail in our 2025 research paper – ‘Governing the Algorithm’.

The same core principles of good governance can apply to AI: are decisions being taken in a responsible, accountable, fair and transparent way, and are more senior colleagues trained to ensure that this is the case? Investors play an important role in pushing for effective oversight and accountability in this fast-developing field.

Good governance is a long-standing responsible investment theme and essential for sound investment decisions.

Good governance is a crucial part of responsible investment. For investors wishing to act on concerns around poor decision-making, engagement and where necessary escalation can be important tools:

• Investors may want to engage with investee directors to understand:
  • How the company articulates its purpose, how this is embedded across the organisation, and how the company seeks employees’ views and input.
  • Whether appropriate investment has been made into management training to support good decision making.
  • Whether procedures such as whistleblowing are operated, and how effectively they have been implemented.
• Investors can also work with peers, and collective organisations such as the ICGN, to push for higher standards of good governance.

• Where concerns remain, investors have the option to vote against their re-election, which will occur if more than 50% of votes are cast for this outcome.
• To escalate concerns, investors can table resolutions at AGMs of public companies. For example, in 2025 a group of investors filed living wage resolutions with some companies, calling for better employee remuneration⁹.

• At the highest level of escalation, investors may choose to divest if a company shows no willingness to enhance its internal governance approach despite continued engagement.

Good governance is a long-standing responsible investment theme and essential for sound investment decisions. Investors need to look beyond the ‘ten at the top’ to get a richer picture of the quality and effectiveness of a company’s decision-making that underpins resilient business growth and ultimately, good customer outcomes.