A recent study from Glasgow Caledoninan University (GCU) suggests that firms adhering to the UK Corporate Governance Code (UK CGC) face a lower likelihood of survival during financial crises.

The analysis, co-authored by the university’s Dr Sanjukta Brahma, focused on FTSE 350 companies throughout the 2007-2009 economic downturn.

Contrary to expectations, the data, published in The International Review of Financial Analysis, highlights that 80% of the firms that weathered the crisis were led by CEOs who were promoted to their position from within the company. This challenges the conventional wisdom that strict adherence to governance codes enhances resilience during economic turmoil.

The UK CGC, operating on a comply or explain policy rather than a legal mandate, has long been considered a benchmark for corporate governance practices. However, this study suggests a need for a re-evaluation of its impact on crisis management.

Dr. Brahma, a senior lecturer in financial services, commented: “Firms that survived during the crisis period were significantly less compliant with the UK CGC than those that failed.

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“The findings indicate the existence of insider CEOs and a higher number of board committees in organisations increase the chances of survival during an economic downturn.

“The benefits associated with an insider CEO could result from the knowledge, expertise and ownership stake they have acquired over the years, which help these firms to operate in and manage a period of financial crisis.”